The economy of Scotland

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Introduction

The Economy of Scotland is closely linked with the rest of the United Kingdom and the wider European Economic Area. Scotland has the second largest GVA per capita of countries in the United Kingdom after England, though it is still lower than the average of the United Kingdom as a whole. Revenue from North Sea oil and gas is not included in these figures, if it were it would reveal Scotland with a budget surplus.

Scotland was one of the industrial powerhouses of Europe from the time of the Industrial Revolution onwards, being a world leader in manufacturing industries, at the time, which today has left a legacy in the diversity of goods and services which the Scottish economy produces, from textiles, whisky and shortbread to aero engines, buses, computer software, ships, avionics and microelectronics to banking, insurance, fund management and other related financial services.

In common with most other advanced industrialised economies, Scotland has seen a decline in the importance of the manufacturing industries and primary-based extractive industries. This has, however, been combined with a rise in the service sector of the economy which is now the largest sector in Scotland, with significant rates of growth over the last decade.

The British Pound Sterling is the official currency in Scotland, and the central bank of the UK is the Bank of England which retains responsibility for the monetary policy of the whole of the United Kingdom.

1. Opportunities for better regulation in an independent Scotland

The Scottish Government's vision for an independent Scotland is of a thriving and successful European country which reflects Scottish values of fairness, prosperity and social cohesion. As an essential part of this vision, Scotland will have a strong, stable and modern economy with a regulatory framework which meets best practice: allowing businesses to prosper while providing robust safeguards for Scotland's people.

People in Scotland are affected by regulation in many different ways. We look to regulation to help ensure we live safer lives and are treated fairly, to protect and manage our environment, and to maintain a competitive and efficient economy. Regulation is a means to an end - a better society and a vibrant economy, not an end in itself.

The Scottish Government recognises that regulation is necessary to protect consumers, business and the environment. It is also vital that the design and delivery of regulation is effective and meets the principles of better regulation, namely that it is transparent, proportionate, consistent, accountable and targeted only where needed.

There are currently a wide range of independent UK regulatory bodies, covering both public services and private industry, which provide functions relating to:

consumer protection (particularly in essential services and monopoly markets);

economic regulation (such as setting prices, increasing service standards and encouraging choice);

competition and fair trading policy (ensuring markets operate effectively);

professional standards (for individuals, companies and public bodies);

technical oversight (such as ensuring safety and protecting the environment).

However, the current UK regulatory model is not the only way of delivering these functions, and many countries have adopted different regulatory frameworks that merge functions across a wide range of sectors.

Competitive markets are, and will continue to be, an essential component of the Scottish economy. They are of vital importance in delivering goods and services cost effectively to consumers. Well-regulated competitive markets can maximise consumer welfare and boost economic growth, creating jobs and driving innovation. When markets work well, firms prosper by providing what consumers want better and more cost effectively than their competitors. However, in some instances, when left to their own devices, markets will not necessarily deliver the best outcomes for consumers, companies or Government. This is particularly the case for those markets with natural monopolies where there is a lack of competition or barriers to entry. A robust competition regime will give confidence to established businesses in Scotland, as well as to those wanting to set up here, that Scotland is a place to do business.

An independent Scotland will have the power to deliver an effective, simplified and stable regulatory framework. This will bring significant benefits to Scotland's economy, to businesses and to consumers. For example, there are growing concerns that the сurrent UK economic regulatory framework is not working to meet Scottish needs. There are many examples:

In the energy sector, bills continue to rise causing increasing hardship for homes and businesses and pushing more households into fuel poverty. This is due primarily to the impact of higher gas and oil prices, but could be addressed more effectively by a regulatory approach which was tailored more explicitly towards supporting renewable and low carbon technologies and a far greater emphasis on energy efficiency.

43% of the households in Scotland, without mains gas, are in fuel poverty. The existing regulatory model has no mechanism which allows them to access the discounts on energy bills which are available to those on mains gas through `dual fuel' tariffs.

In the telecommunications sector, broadband coverage in rural areas remains a particular problem in Scotland. The current UK regulatory framework focuses on the most cost effective deployment rather than maximising access.

In the postal sector, parcel delivery charges to the Scottish Highlands and Islands are unreasonably high, and the current absence of a UK regulatory approach is widely knowledged to be detrimental to the interests of both business and consumers in Scotland.

An independent Scotland can reinvigorate the regulation of these critical infrastructure industries. In particular, there is the opportunity to re-establish public confidence in the regulatory framework by ensuring a far greater focus on the specific requirements of customers in Scotland.

2. Economic and Competition Regulation - a worked example

Independence will enable Scotland to introduce an effective regulatory framework, which will be just as important as gaining control of other economic levers. Context matters for the design of policy; small countries are not scaled down versions of large countries.

As an illustration of the benefits that independence for Scotland could bring to the regulatory framework, we have developed a model of how economic and competition regulation could be delivered. Along with regulation in the financial sector (which is discussed in the Macroeconomic Framework Paper published by the Fiscal Commission Working Group on 11 February 2013), the approach to economic and competition regulation is a critical area for ensuring the success of Scotland's economy and in achieving a better deal for consumers.

Delivers effective and simplified regulation in the following sectors: energy; telecommunications; postal services; water; rail; competition; and consumer protection.

An independent Scotland will be part of the European Union (EU). To meet EU requirements in most of these sectors, Scotland will need to establish a National Regulatory Authority (NRA), which is independent of both government and industry. This NRA will play an important role in ensuring that EU policies are taken forward, for example in the area of integrating energy and telecommunications markets across Europe. The NRA will also provide Scotland with full representation in increasingly important EU and worldwide regulatory forums.

An independent Scotland will have the opportunity to streamline the number of regulatory bodies in this area to a level more appropriate for its size. Along with the obvious scope for cost savings from merging `back room' functions and reducing corporate governance overheads, this will offer benefits of:

a more consistent approach (more `joined up government' across sectors);

improved customer protection (from more focused regulation);

avoiding unnecessary duplication in our markets and mergers regime;

pooling of expertise in what are often specialised areas, where skills are in short supply.

It should be noted that staff efficiencies would be in relation to the replication of a full suite of UK economic regulatory bodies. In practice, there will be a requirement to recruit more staff than are currently employed in economic regulation in Scotland.

Consequently, consideration has been given to integrating the required economic and competition regulatory functions into a single body, or at most two. The option analysis at Figure 1 highlights the various functional groupings which have been considered and discussed with regulatory experts across the UK, as well as with regulatory contacts in the Netherlands, Australia and New Zealand where similar models are established. The analysis considers increasingly integrating the economic and competition regulatory functions from six individual bodies, through models of combined utility (energy, water, communications) and combined transport (rail, aviation) to, ultimately, one combined economic and competition regulator.

3. Regulation in an Independent Scotland

Independence will bring a real opportunity for Scotland to benefit from a more effective and efficient regulatory framework, which is far more aligned to Scottish consumers' and Scottish businesses' needs. This distinctive approach has already been achieved by the regulator in the devolved water industry in Scotland, where bills are now lower than in England and Wales, while performance has been dramatically improved. This demonstrates what can be achieved when Scotland is able to take control of its own regulatory framework.

Customers want strong regulation that delivers the lowest possible prices and the highest service standards. Industry wants simplified regulation and stability. Building on the models developed in Scotland's water industry and through simplified, more accountable regulatory bodies, there is an opportunity to bring significant benefits to Scotland. This will help overcome the loss of confidence of both consumers and industry in the current UK regulatory model.

Lord David Currie, Chair Designate of the UK's new Competition and Markets Authority, which comes into force in 2014, recently stated that “the combined organisation - the CMA - will be able to redeploy resources more effectively and flexibly to the different parts of its work. It will deliver decisions in a more timely way with no diminution of quality, to the benefit of consumers and businesses. It will provide a single, and therefore, stronger voice and advocacy, both at home and internationally, on competition and consumer issues.

Our proposals for a combined economic and competition regulator will achieve all these benefits and more: it will go one step further and bring together the functions of the sectoral economic regulators as well. There are clear advantages for Scotland in this approach.

International comparisons have demonstrated that the proposed combined regulatory body is readily achievable. It will now be for the people of Scotland to decide whether the powers to deliver this vision will be forthcoming.

Conclusion

The Scottish Government's vision for an independent Scotland is of a thriving and successful European country, which reflects Scottish values of fairness, prosperity and social cohesion.

Every day, people in Scotland are affected by regulation in many different ways. It will, therefore, be crucial that an independent Scotland develops an effective, efficient and easily navigated regulatory framework, which will bring significant benefits to Scotland's economy, to businesses and to consumers.

Independence would give us full powers for economic and competition regulation. Currently, Scotland only has overall responsibility for this in the water sector. However, our proven track record in this sector demonstrates that we can deliver an effective, innovative and world leading regulatory framework that better meets the needs of the Scottish people.

Rather than simply replicate the full suite of UK economic regulatory bodies, an independent Scotland could simplify the regulatory landscape to one that is more appropriate for a country of Scotland's size, by bringing together these functions. economy scotland businesses

This would allow, for the first time, economic and competition regulation in the vital sectors of energy, communications, transport, water and competition to be focused on delivering benefits for Scottish customers and the Scottish economy. Industry will benefit from dealing with fewer regulatory bodies and from greater stability and consistency in regulatory decisions.

Consumers will benefit from having more powerful regulator acting on their behalf with strong powers to ensure that markets are working efficiently in Scotland.

The costs of regulation to industry and the public purse will be minimised, ensuring efficient government. Our initial analysis shows cost savings as compared to replicating the UK economic and competition and regulatory model in Scotland.

The Scottish regulator would work closely with its counterparts in the rest of the UK to ensure stable markets, particularly where the continuation of joint markets is identified as beneficial to consumers north and south of the border.

A combined regulatory body will be able to deploy resources more effectively and flexibly to the different areas of its work. It will be able to provide a single, and, therefore, stronger voice, both in Scotland and internationally on competition and consumer issues.

Combined regulatory models of this type are successful in many other countries.

List of used literature

http://www.scotland.gov.uk/

http://www.brodies.com/blog/public-law/competition-economic-financial-regulation-independent-scotland/

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