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Report outlines economic vision for Scotland under independence

An independent Scotland should retain the pound sterling as its currency until such time as the economy can meet performance tests which would allow for the creation of an independent Scottish currency, according to a new report.25 May 2018

The Sustainable Growth Commission, set up by the SNP, has set out 50 recommendations to boost economic growth and improve Scotland's public finances, in the context of the UK's decision to leave the EU and looking forward towards a second referendum on Scottish independence. Its recommendations will now be considered by first minister Nicola Sturgeon and by the SNP, through a series of planned 'national assemblies' this summer.

The report recommends that the Scottish Government should not seek major divergence over monetary policy in the initial period following an independence vote, but neither should it seek a formal currency union with the rest of the UK. Rather, it should prepare a governance process and criteria for when a move to an independent Scottish currency would be suitable, and provide this to voters "clearly in advance" of a future independence referendum.

The report also recommends that a Scottish Central Bank be established, which would act as banker to the Scottish Government and hold deposits and provide liquidity support to Scottish retail banks, subject to asset and collateral requirements. A Scottish Financial Authority (SFA) should be set up as a subsidiary of this new central bank, which would take over the banking and insurance supervision functions of the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

The authors of the report call on Scotland to "emulate the performance of the best small countries in the world" by focusing on three pillars of economic performance: productivity; population; and 'participation' growth, which refers to improving regional productivity. It is their view that, with full policy powers, Scotland can close the "growth gap" with 12 named small advanced economies (SAEs) within 10 years, taking particular inspiration from policies adopted in Denmark, Finland and New Zealand.

An overarching 'National Economic Strategy' should be developed, and should include "globally ambitious" growth goals for both the short and medium term. This strategy should, where possible, be developed to secure cross-party and cross-sector support. It should also identity 'strategic priority sectors' in which the Scottish economy is judged to have "sustainable comparative advantage". The report also recommends that a 'Productivity Commission' be established, to identity opportunities to boost national productivity.

According to the report, migration is "critically important to population growth and also productivity performance". To that end, it recommends a new 'Come to Scotland' package of incentives for overseas investors, business start-ups and individuals. This package could include tax incentives to reduce the cost of moving to Scotland or to encourage graduates of Scottish universities to stay on; a new visa system; and reduced capital thresholds and investment thresholds for investors and businesses.

The report also recommends that the Scottish Government make it a "top strategic priority" to secure "frictionless borders" with the EU as part of the Brexit negotiations; and with the rest of the UK following a future independence vote. It recommends that Scotland should target increasing its volume of exports from 20% of GDP to 40% of GDP, in order to "close the export gap with small advanced economy benchmark countries" and raise an estimated £5 billion in additional tax revenues each year.

The Scottish government should also develop policies to tackle the gender pay gap, and to reduce poverty within the population to 10% "within a stretching but achievable time frame". It should also develop a long-term strategy to encourage participation and inclusion. The report also recommends that oil and gas revenues and other potential "windfalls" be channelled into a 'Fund for Future Generations', rather than depended on as a source of annual revenue.

"Scotland has potential far beyond its current performance," said Andrew Wilson, chair of the commission and a former SNP MSP. "Our ambition should be to perform to the level of the best of the small advanced economies in the world and, in doing so, make the right choices about the sort of society and economy we wish to live in."

"Growing our economy and closing the gap with those independent countries that lead the pack would mean £4,100 per head more for every person in Scotland. This is a target that is both ambitious and achievable, over a generation not overnight," he said.

"This report offers perhaps the most significant contribution to the debate around Scotland's economic and constitutional future since the 2014 independence referendum," said Andrew Henderson, director of public policy at Pinsent Masons, the law firm behind "It outlines a new economic blueprint for the independence movement, and a vision for Scotland's economic future which will be scrutinised in depth, and debated at length, over the coming weeks and months."

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