Stronger Together

The Border Efect

July 2014
Soct_devo_doc_2014 covers.indd 1 02/07/2014 10:54
Introduction
As part of the United Kingdom, Scotland
benefits from an open border with the
wider UK. Together, we are part of a
dynamic single market of 63 million
people.
Within our one domestic market, we can
trade as openly and freely as possible,
while reducing administrative burdens for
cross-border workers. This provides the
foundations for a flexible labour market:
allowing us to best utilise the skills and
qualifications of the people of Scotland
and of those of the rest of the UK too.
The border areas between Scotland and
England are areas with long and proud
histories, unique within our islands. While
in past centuries they were areas of
conflict and illicit business, today they are
a major link, carrying the majority of
Scotlands exports to our largest market
and closest neighbour.
Our economic successes do not exist in
isolation. Independent academic studies
show international borders reduce trade
and harm economic integration even
where free trade agreements exist.
In Scotland, we can buy and sell goods as
easily with someone in Carlisle as
Cumbernauld. We can work across the
border without wondering about different
tax regimes, National Insurance payments
or how it might affect our pensions. We
can be confident that businesses will be
regulated in the same way and that our
rights as consumers are protected.
Crossing the border
Free movement of labour benefits our
integrated economy. Where people can
move freely, it supports an effective
distribution of skills and expertise.
In total, around 95,000 UK residents have
moved in or out of Scotland to or from
other parts of the UK over the past ten
years.
1
This flow is not one-sided and
applies to all demographic groups at all
stages of life.
Around 30,000 people travel between
Scotland and the rest of the UK on any
given working day for employment,
crossing seamlessly between parts of the
UK.
2

This is not true outside of the UK. Even
within the European Union, free
movement of workers is subject to laws
and regulation. But more significantly,
between different EU member-states
there are varying tax systems, benefit
systems, National Insurance systems and
state pension frameworks.
Separation would make it more difficult for
individuals and families to live on one side
of the border and work on the other, or to
move around regularly with their jobs. On a
national level, this would reduce the
number of people who travel cross-border
and the opportunities available to all of us.
Cross-border jobs
How we co-operate with the rest of the
UK matters. Around 600,000 Scottish jobs
are created by companies based in the rest
of the UK or depend on exports there.
Within that figure, we know 1 in 5 jobs in
Scotland are with companies owned in the
rest of the UK.
We have a long history of taking university
students from other parts of the UK,
coming to Scotland to learn and study.
Some move on, while others will make a

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home here in Scotland. Equally of our own
graduates, 3,000 started jobs in the rest
of the UK in 2011-12 taking advantage of
the economic opportunities available in
the rest of the UK.
Better for business
The UKs domestic market is 12 times the
size of Scotlands and our productivity is
supported by our united economy within a
political union.
This is part of the reason why 65 per cent
of Scottish exports are to the rest of the
UK, with a value of 48 billion. Over 70 per
cent of our imports are from the rest of
the UK.
Scottish exports by main destination
(2002-11)

Many products remain within Scotland or
are exported overseas. Our single
domestic market provides benefits here
too. Around 30 per cent of all materials
used to create Scottish products and
services are sourced from the rest of the
UK only 10 per cent come from the rest
of the world.
For some Scottish-based businesses, the
rest of the UK is their biggest market,
outweighing their sales in Scotland itself.
In terms of financial services products, 89
per cent of ISAs, 91 per cent for pensions
and 84 per cent for mortgages sold by
Scottish firms are sold outside of Scotland.
The border effect
The effect of an international border on
trade has been studied internationally and
has become known as the border effect. It
reduces flows of trade, labour and capital
between states.
This occurs even between countries where
free trade agreements are in place and
where there is no physical boundary
between states.
Independent academic evidence has
shown that the US-Canada border reduces
trade by 44 per cent between the two
countries.
3

The effect is particularly pronounced in
regions close to an international border,
where free flows of trade would otherwise
be expected.

Trade impact of the US-Canada border


Even where states work together to
implement free trade agreements, or the
close integration and harmonisation
between states found within the EU, the
border effect can still be shown to exist.
The amount of Irelands trade going to the
UK has fallen from just under 90 per cent
immediately after the establishment of

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the Irish Free State in the 1920s to
between 20-30 per cent in the 2000s.
This decline continued in spite of free
trade agreements and membership of the
European Union.
Academic studies point to a weakening of
social ties and the emergence of different
financial and legal systems between the
UK and Republic of Ireland as contributors
to this decline in trade.
The effect would likely be drawn out. As a
separate Scotlands regulation, welfare,
employment and taxation policies
diverged, the reduction in trade would
become more pronounced.
Common regulation
Major drivers behind the border effect
include different regulatory schemes and
the additional paperwork required for
cross-border exporters and workers.
UK labour laws are largely reserved and
workers can be assured of the same rights
and standards of health and safety
regardless of where they take up work
within the UK.
Even under the enhanced devolution
proposals coming about as part of the
Scotland Act 2010 and the proposals
published by the Scottish Labour Party,
our taxation structures are and will
remain closely harmonised. Additional
payments, like National Insurance, are
administered in the same way around the
UK.
Between sovereign states, there are
generally considerable administrative
burdens attached to the import and export
of goods. This is true even within the EU,
where free movement of goods is
emphasised.
For example, where a businesss EU cross-
border trade exceeds 250,000
businesses are obliged to file additional
monthly declarations through the Intrastat
programme.
Investment in Scotland
Scotland is an attractive location for
international investment. The wider UK
has been shown to be the second biggest
destination for foreign direct investment
(FDI) in the world with a total of US$1.2
trillion coming into the country in 2011.
Estimates from a survey by Ernst & Young
indicate that FDI was responsible for
4,867 Scottish jobs in 2012.
Undoubtedly Scotlands free access to the
large UK domestic market has positive
consequences for FDI, as well as its labour
mobility with the rest of the UK. This is
particularly pronounced in several
industries, such as financial services,
where many businesses have made clear
that links with the rest of the UK are an
important part of their success.
Social policy
The principle of allocating spending
according to need and regardless of
postcode, has for a long time been an
underlying principle of UK social policy.
This means that fiscal transfers support
areas with the greatest deprivation,
regardless of local tax income. The
principle of this sharing union also applies
across the nations, sharing the risks each
face and sharing the rising costs of
pensions, unemployment benefits and
health care. Through this partnership, the
differences between Scotland and England
have narrowed to the point of broad
parity.
This achievement stands out from other
countries for having successfully
promoted greater social equality between
nations. The typical person in Scotland
today earns 96 per cent of the average in
England.
This can be contrasted with the
experience of EU countries which form a
union without the deeper fiscal transfers
and pooling of resources. The typical
person in Latvia has an annual income of
just 20% that of the average person in
Luxembourg, one of the wealthiest
European nations.
A similar picture is seen within the United
States, a looser fiscal union than the UK.
The average person in Arkansas has half
the income of their fellow citizens in New
Hampshire. The UK can therefore
justifiably claim to be an international
model of the pooling and sharing of risks
and resources across nations. Scotland
leaving the UK would put this remarkable
achievement at risk through ending our
shared social partnership.
Support for our sharing union
A recent poll of people across the UK
demonstrates overwhelming support for
this principle of sharing risks and
resources. What it shows in public opinion
fundamentally questions the nationalists
case because it demonstrates their
different cultures narrative is simply
false.
A consistent and overwhelming majority of
people across the nations of the UK
support both funding and sharing public
services and social security across the UK.
Remarkably, having been at the heart of
the nationalists proposition for forty
years, more than 6 in 10 people in
Scotland support the money raised from
North Sea oil being used to pay for public
services across the UK as a whole. This
underlines the unique success of the UK
whereby we retain our distinctive sense of
identity, whilst at the same time
understanding the benefits of working
together in partnership.
How open would a border
be?
The UK has existing relationships with the
Crown Dependencies and the Republic of
Ireland allowing for relatively open borders
between these island territories and over
the Irish land border. This is known as the
Common Travel Area.
The Irish government does, however,
impose identity checks on air and sea
travellers from Great Britain, as well as
being able to carry out spot checks on the
land border.
The modern agreement on borders was
agreed following the Second World War.
This was negotiated following similar
immigration policies being adopted, similar
levels of border control and co-operation
between the two governments on day-to-
day matters of entry.
Despite the advantages of maintaining an
open border between Scotland and the
rest of the UK, there are reasons which
may overwhelm these advantages.
If a separate Scotland was, as many
nationalists have suggested, to adopt
radically different immigration, entry or
customs policies, the open border between
the two areas would be called into
question. At a basic level, this is
dependent on the actions of a future
Scottish Government and will have to be
a consideration when policies are made.
Conclusion
The lack of an international border
between Scotland and the rest of the
United Kingdom provides a huge economic
advantage for us all.
While attempts may be made to mitigate
the negative effects caused by the
erection of an international border
whether by mutual trade agreements or
passport-free travel they continue to
exist regardless.
Even a small decline in cross-border trade
could have an enormous impact on
Scottish jobs, wages and tax revenue. The
UK Government has estimated that
Taking the lower end of the estimates
suggests that exports from an
independent Scotland to the continuing
UK would be 83 per cent lower after 30
years than if Scotland were to remain a
part of the UK. Exports from the rest of
the UK to Scotland would be 77 per cent
lower. Migration lows could fall below ten
thousand per annum in both directions,
compared with average rates of over
40,000 people per annum in recent years.
There is a consistent principle: putting up
barriers to trade with our neighbours has
negative effects on trade and the wider
economy, while reducing the opportunities
available to people on both sides of a
border.


Scottish Labour Devolution Commission Interim Report April 2013
2
4607_13 Reproduced from electronic media, promoted by Ian
Price, Scottish General Secretary, Scottish Labour, on behalf of
the Scottish Labour Party at 290 Bath Street, Glasgow, G2 4RE.
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