Scottish independence would be a large step into the unknown for Scotland and the rest of the UK
As a Scot myself, when I am asked about the impact that Scottish independence could have on the UK economy and the construction sector I am reminded of that Donald Rumsfeld quote: “there are known knowns, known unknowns and unknown unknowns”. It is a myriad of conjecture and opaqueness. Independence would be a large step into the unknown for Scotland and the remainder of the UK.
From an economic perspective the pro-union arguments centre on shared assets and risks, with the nationalists focused on maximising an independent Scotland’s potential underpinned by oil reserves.
The main issue initially is the question of which currency an independent Scotland would use as this would define the trading environment that it would operate in. The SNP favour a formal currency union with the UK, claiming that it is in the interests of both parties to minimise transactions costs between the two. The Treasury claims that the problems with the eurozone currency union and likely divergence of the two economies make this plan unworkable. Once again take your pick on who you believe.
Right now Scotland accounts for about 10% of the value of contracts awarded in the industry over the last 12 months, the third biggest region behind only London and the South-east
Right now Scotland accounts for about 10% of the value of contracts awarded in the industry over the last 12 months, the third biggest region behind only London and the South-east. In the same period Scotland has the highest share of infrastructure and education contracts by value in the entire UK. This indicates the differing nature of the Scottish market with a higher instance of public sector investment. Given that the aim of an independent Scotland is to increase public expenditure it suggests that this market would increase even further.
However, that all depends on how successful an independent Scotland would be at achieving a consistent budget surplus and therefore having funds available for investment in large infrastructure schemes. Based on the most recent figures from the Scottish government it would certainly seem that, at least initially, a consistent budget surplus would be hard to achieve at the outset.
Throw in uncertainty over currency and you are left with some interesting times ahead for an independent Scotland’s construction market.
Michael Dall, Barbour ABI economist