Economy of Scotland

The economy of Scotland had an estimated nominal gross domestic product (GDP) of up to £170 billion in 2018. Since the Acts of Union 1707, Scotland's economy has been closely aligned with the economy of the rest of the United Kingdom (UK) and England has historically been its main trading partner. Scotland still conducts the majority of its trade within the UK: in 2017, Scotland's exports totalled £81.4 billion, of which £48.9 billion (60%) was with constituent nations of the UK, £14.9 billion with the European Union (EU), and £17.6 billion with other parts of the world.

Scotland was one of the industrial powerhouses of Europe from the time of the Industrial Revolution onwards, being a world leader in manufacturing. This left a legacy in the diversity of goods and services which Scotland produces, from textiles, whisky and shortbread to jet engines, buses, computer software, ships, avionics and microelectronics, as well as banking, insurance, investment management and other related financial services. In common with most other advanced industrialised economies, Scotland has seen a decline in the importance of both manufacturing industries and primary-based extractive industries. This has, however, been combined with a rise in the service sector of the economy, which has grown to be the largest sector in Scotland.

Government involvement in Scotland's economy is on the whole exercised by the UK Government and the Scottish Government via HM Treasury, respectively headed by the Chancellor of the Exchequer, and the Cabinet Secretary for Finance, Constitution and Economy, representing those two administrations which are responsible for reserved and devolved matters respectively. Since 1979, management of the UK economy (including Scotland) has followed a broadly laissez-faire approach. The Bank of England is Scotland's central bank and its Monetary Policy Committee is responsible for setting interest rates. The currency of Scotland is the Pound Sterling, which is also the world's fourth-largest reserve currency after the US dollar, the euro and Japanese yen. Scotland (as a constituent country of the UK) is a member of the Commonwealth of Nations, the G7, the G8, the G20, the International Monetary Fund, the Organisation for Economic Co-operation and Development, the World Bank, the World Trade Organization, Asian Infrastructure Investment Bank and the United Nations.

Overview

After the Industrial Revolution in Scotland, the Scottish economy concentrated on heavy industry, dominated by the shipbuilding, coal mining and steel industries. Scottish participation in the British Empire also allowed Scotland to export its output throughout much of the world. However heavy industry declined in the late 20th century, leading to a shift in the economy of Scotland towards technology and the service sector. The 1980s saw an economic boom in the Silicon Glen corridor between Glasgow and Edinburgh, with many large technology firms relocating to Scotland.

In 2007 the industry employed over 41,000 people. Scottish-based companies have strengths in information systems, defence, electronics, instrumentation and semiconductors. There is also a dynamic and fast growing electronics design and development industry, based around links between the universities and indigenous companies. There was a significant presence of global players like National Semiconductor and Motorola. Other major industries include banking and financial services, construction, education, entertainment, biotechnology, transport equipment, oil and gas, whisky, and tourism. The Gross Domestic Product (GDP) of Scotland in 2013 was $248.5 billion including revenue generated from North Sea oil and gas.
Edinburgh is the financial services centre of Scotland, with many large financial firms based there. Glasgow is the fourth largest manufacturing centre in the UK, accounting for well over 60% of Scotland's manufactured exports. Shipbuilding, although significantly diminished from its heights in the early 20th century, is still a large part of the Glasgow economy. Aberdeen is the centre of North Sea offshore oil and gas production, with giants such as Shell and BP housing their European exploration and production HQs in the city. Other important industries include textile production, chemicals, distilling, agriculture, brewing and fishing.

History

When Scotland ratified the 1707 Act of Union, despite Scotland's national debt, taxes were low due to war avoidance and trade thrived from the Baltic to the Caribbean. (For the purpose of balance to this perspective, see Darien scheme.)  As a consequence of the Act of Union Scotland's established trade with France and the Low Countries was cut off abruptly. The economic benefits of Union which had been promised by proponents of the Act were slow to materialise, causing widespread discontent amongst the population.  Despite their new status as citizens of the United Kingdom, it took many decades for Scottish traders to gain a noticeable foothold in the colonial markets which had long been dominated by English merchants and concerns. The economic effects of the Union on Scotland were negative in the short term, due to an increase in unpopular forms of taxation (such as the Malt Tax in 1712) and the introduction of duties on imports, which the Scottish exchequer had previously been neglectful in enforcing on most trade goods. Eventually, the Union gave Scotland access to England's global marketplace, triggering an economic and cultural boom . German sociologist Max Weber credited the Calvinist "Protestant Ethic", involving hard work and a sense of divine predestination and duty, for the entrepreneurial spirit of the Scots.
Growth was rapid after 1700, as Scottish ports, especially those on the Clyde, began to import tobacco from the American colonies. Scottish industries, especially linen manufacturing, were developed. Scotland embraced the Industrial Revolution, becoming a small commercial and industrial powerhouse of the British Empire. Many young men built careers as imperial administrators. Many Scots became soldiers, returning home after 20 years with their pension and skills.

From 1790 the chief industry in the west of Scotland became textiles, especially the spinning and weaving of cotton. This flourished until the American Civil War in 1861 cut off the supplies of raw cotton; the industry never recovered. However, by that time Scotland had developed heavy industries based on its coal and iron resources. The invention of the hot blast for smelting iron (1828) had revolutionised the iron industry, and Scotland became a centre for engineering, shipbuilding, and locomotive construction. Toward the end of the 19th century steel production largely replaced iron production. Emigrant Andrew Carnegie (1835–1919) built the American steel industry, and spent much of his time and philanthropy in Scotland. Agriculture gained after the union, and standards remained high. However the adoption of free trade in mid-19th century brought cheap American corn which undersold local farmers. The industrial developments, while they brought work and wealth, were so rapid that housing, town planning, and provision for public health did not keep pace with them, and for a time living conditions in some of the towns were notoriously bad.

Shipbuilding reached a peak in the early 20th century, especially during the Great War, but quickly went into a long downward slide when the war ended. The disadvantage of concentration on heavy industry became apparent: other countries were themselves industrialising and were no longer markets for Scottish products. Within Britain itself there was also more centralisation, and industry tended to drift to the south, leaving Scotland as a neglected fringe. The entire period between the world wars was one of economic depression, of which the worldwide Great Depression of 1929–1939 was the most acute phase. The economy revived with munitions production during World War II. After 1945, however, the older heavy industries continued to decline and the government provided financial encouragement to many new industries, ranging from atomic power and petrochemical production to light engineering. The economy has thus become more diversified and therefore stabler.

Agriculture and forestry

A very small proportion of Scotland’s total land mass is classified as arable – circa 10% based on Scottish Government figures Only about one quarter of the land is under cultivation – mainly in cereals. Barley, wheat and potatoes are grown in eastern parts of Scotland such as Aberdeenshire, Moray, Highland, Fife and the Scottish Borders. The Tayside and Angus area is a centre of production of soft fruits such as strawberries, raspberries and loganberries, owing to the mild climate.  Sheep raising is important in the less arable mountainous regions, such as the northwest of Scotland which are used for rough grazing, due to its geographical isolation, poor climate and acidic soils. Parts of the east of Scotland (areas such as Aberdeenshire, Fife and Angus) are major centres of cereal production and general cropping. In such areas, the land is generally flatter, coastal, and the climate less harsh, and more suited to cultivation. The south-west of Scotland – principally Ayrshire and Dumfries and Galloway – is a centre of dairying. Agriculture, especially cropping in Scotland, is highly mechanised and generally efficient. Farms tend to cover larger areas than their European counterparts. Hill farming is also prominent in the Southern Uplands in the south of Scotland, resulting in the production of wool, lamb and mutton. Cattle-Rearing particularly in the east and south of Scotland results in the production of large amounts of beef. Farming in Scotland was affected by BSE and the European ban on the importation of British beef from 1996. Dairy and Cattle farmers in south-west Scotland were affected by the 2001 UK Foot and Mouth outbreak, which resulted in the destruction of much of their livestock as part of the biosecurity effort to control the spread of the disease.

Because of the persistence of feudalism and the land enclosures of the 19th century the ownership of most land is concentrated in relatively few hands (some 350 people own about half the land). In 2003, as a result, the Scottish Parliament passed a Land Reform Act that empowered tenant farmers and communities to purchase land even if the landlord did not want to sell.

About 13,340 km² of land in Scotland is forested – this represents around 15% of the total land area of Scotland. The majority of forests are in public ownership, with forestry policy being controlled by the Forestry Commission. The biggest plantations and timber resources are to be found in Dumfries and Galloway, Tayside, Argyll and the Scottish Highlands. The economic activities generated by forestry in Scotland include planting and harvesting as well as sawmilling, the production of pulp and paper and the manufacture of higher value goods. Forests, especially those surrounding populated areas in Central Scotland also provide a recreation resource.

Fishing

The waters surrounding Scotland are some of the richest in Europe. Fishing is an economic mainstay in parts of the North East of Scotland and along the west coast, with important fish markets in places such as Aberdeen and Mallaig. Fish and shellfish such as herring, crab, lobster, haddock and cod are landed at ports such as Peterhead, the biggest white fish port in Europe, Fraserburgh, the biggest shellfish port in Europe, Stornoway, Lerwick and Oban. There has been a large scale decrease in employment in the fishing industry within Scotland, due initially to the sacrifice of national fishing rights to the EEC on the UK's accession to the Common Market in the 1970s, and latterly to the historically low abundances of commercially valuable fish in the North Sea and parts of the North Atlantic. To rebuild stocks the EU's Common Fisheries Policy places restrictions on the total tonnage of catch that can be landed, on the days at sea allowed and on fishing gear that can be deployed. 

In tandem with the decline of sea-fishing, commercial fish farms – especially in salmon, have increased in prominence in the rivers and lochs of the north and west of Scotland. Inland waters are rich in fresh water fish such as salmon and trout although here too there has been an inexorable and so far unexplained decline in abundance over the past decades.

Manufacturing

Scotland's heavy industry began to develop in the second half of the 18th century. The Carron Company established its ironworks at Falkirk in 1759, initially using imported ore but later using locally sourced Ironstone. The iron industry expanded tenfold between 1830 and 1844. The shipbuilding industry on the River Clyde increased greatly from the 1840s and by 1870 the Clyde was producing more than half of Britain's tonnage of shipping. The heavy industries based around shipbuilding and locomotives went into severe decline after World War II.
Manufacturing in Scotland has shifted its focus, with heavy industries such as shipbuilding and iron and steel declining in their importance and contribution to the economy. It is generally argued that this has been in response to increasing globalisation and competition from low cost producers across the world, which has eroded Scotland's comparative advantage in such industries over the later half of the 20th century. However, the decline in heavy industry in Scotland has been supplanted with the rise in the manufacture of lighter, less labour-intensive products such as optoelectronics, software, chemical products and derivatives as well as life sciences. The engineering and defence sectors employ around 30,000 people in Scotland. The principal companies operating in the sector include; BAE Systems, Rolls-Royce, Raytheon, Alexander Dennis, Thales, SELEX Galileo and Babcock. The decline of heavy industry resulted in a sectoral shift of labour. This led to smaller firms strengthening links with the academic community and substantial, industry-specific retraining programmes for the workforce.

Whisky

Whisky is probably the best known of Scotland's manufactured products. Exports have increased by 87% in the past decade and it contributes over £4.25billion to the UK economy, making up a quarter of all its food and drink revenues. It is also one of the UK's overall top five manufacturing export earners and it supports around 35,000 jobs. Principal whisky producing areas include Speyside and the Isle of Islay, where there are eight distilleries providing a major source of employment. In many places, the industry is closely linked to tourism, with many distilleries also functioning as attractions worth £30 million GVA each year.

Textiles
Historically Scotland's export trade was based around animal hides and wool. This trade was firstly organised around religious centres such as Melrose Abbey. The trade expanded towards long-established maritime bases for Scottish trade at Bruges and then Veere in the Low Countries and at Elbląg and Gdańsk in the Baltic.

During the 18th century, the trade in linen overtook that in wool, peaking at over 12 million yards produced in 1775. Production remained in cottage industry units but the trading conditions were locked into the modern economy and gave rise to institutions such as the British Linen Bank. By 1770, Glasgow was the largest linen manufacturer in Britain.

Cotton began to replace linen in economic importance during the 1770s, with the first mill opening in Penicuik in 1778. The trade brought urbanisation of the population, including large numbers of migrants from the Highlands and from Ireland. The thread manufacturers Coats plc had its origin in that trade. In 1782, George Houston built what was then one of the largest cotton mills in the country in Johnstone.

In modern times, knitwear and tweed are seen as traditional cottage industries but names like Pringle have given Scottish knitwear and apparel a presence on the international market. Despite increasing competition from low-cost textile producers in SE Asia and the Indian subcontinent, textiles in Scotland is still a major employer with a workforce of around 22,000. Furthermore, the textiles industry is the 7th largest exporter in Scotland accounting for over 3% of all Scottish manufactured products.

Construction
Scotland builds around 24,000 new homes per year, about 0.1% of its existing dwelling stock. The home building industry in Scotland directly and indirectly contributed around £5 billion to the Scottish economy in 2006 – about 2% of GDP – greater than that of higher profile industries such as agriculture, fishing, electronics and tourism. The net value of new building and repairs, maintenance and improvements combined is just under £11.6 billion, which is about 4.5% of Scottish GDP.

Financial services
Edinburgh was ranked 15th in the list of world financial centres in 2007, but fell to 37th in 2012, following damage to its reputation, and in 2015 was ranked 71st out of 84. Big financial institutions such as The Royal Bank of Scotland, the Bank of Scotland, Scottish Widows and Standard Life all have a presence in the city.

Centred primarily on the cities of Edinburgh and Glasgow, the financial services industry in Scotland grew by over 35% between 2000 and 2005. The financial services sector employs around 95,000 people and generates £7bn or 7% of Scotland's GDP.

Banking
Banking in Scotland has a long history, beginning with the creation of the Bank of Scotland in Edinburgh in 1695, and expanding greatly to support the trading developments of the 18th and 19th centuries. Retail banking services to individuals followed in the 19th century, on the trustee savings bank model pioneered by Rev. Henry Duncan

Scotland has four clearing banks: the Bank of Scotland, The Royal Bank of Scotland, the Clydesdale Bank and TSB Bank. The Royal Bank of Scotland expanded internationally to be the second largest bank in Europe, fourth largest in the world by market capitalisation in 2008, but collapsed in the 2008 financial crisis and had to be bailed out by the UK Government at a cost of £76 billion; its new global headquarters in Edinburgh augmented the city's position as a major financial centre. Prior to the 2008 financial crisis Scotland ranked second only to London in the European league of headquarters locations of the 30 largest banks in Europe as measured by market value.

Although the Bank of England remains the central bank for the UK Government, three Scottish clearing banks still issue their own banknotes: the Bank of Scotland, the Royal Bank of Scotland and the Clydesdale Bank. These notes have no status as legal tender (neither have Bank of England banknotes in Scotland); but in practice they are accepted throughout Scotland and by some retailers in the rest of the UK. The full range of Scottish bank notes commonly accepted are £5, £10, £20, £50 and £100. (See British banknotes for further discussion).

Investment, insurance and asset servicing
The first half of the 19th century brought the creation of many life assurance companies in Scotland, predominantly on the mutual model. By the 1980s there were nine members of the Association of Scottish Life Offices (the counterpart of the Life Offices Association) but these have demutualised and most were taken over. Standard Life, based in Edinburgh, demutualised and has remained independent.

Starting in 1873 with Robert Fleming's Scottish American Investment Trust, a relatively broad stratum of Scots invested in international investment trust ventures. Around 80,000 Scots held foreign investment assets in the early 20th century.

Nowadays Scotland is one of the world's biggest fund management centres with over £300bn worth of assets directly serviced or managed in the country. Scottish fund management centres have a major presence in areas such as pensions, property funds and investment trusts, as well as in retail and private client markets. Similarly asset servicing on behalf of fund managers has become an increasingly important component of the financial services industry in Scotland, with Scottish-based companies providing expertise in securities servicing, investment accounting, performance measurement, trustee and depositary services and treasury services.

Natural resources
Scotland has a large abundance of natural resources from fertile land suitable for agriculture, to oil and gas. In terms of mineral resources, Scotland produces coal, zinc, iron and oil shale. The coal seams beneath central Scotland, in particular in Ayrshire and Fife contributed significantly to the industrialisation of Scotland during the 19th and 20th centuries. The mining of coal – once a major employer in Scotland has declined in importance since the later half of the 20th century, due to cheaper foreign coal and the exhaustion of many seams. The last deep-coal mine was at Longannet on the Firth of Forth. It closed in 2016. A modest amount of opencast coal mining continues.

Fracking
"In October 2017 the Scottish Government announced a ban on fracking after a 6 year struggle that saw massive opposition to the industry across the country." The Scottish Government states that it is taking a cautious, considered and evidenced-based approach to fracking. In January 2015 the Scottish Government placed a moratorium on granting consents for unconventional oil and gas extraction. This will allow health and environmental impact tests to be carried out as well as a full public consultation to allow every interested organisation and any member of the public to input their views. The Scottish Government has stated that no fracking can or will take place in Scotland while the moratorium remains in place.

Technology

Electronics

Silicon Glen is the phrase that was used to describe the growth and development of Scotland's hi-tech and electronics industries in the Central Belt through the 1980s and 1990s, analogous to the larger concentration of hi-tech industries in Silicon Valley, California. Companies such as IBM and Hewlett-Packard have been in Scotland since the 1950s being joined in the 1980s by others such as Sun Microsystems (now owned by Oracle). 45,000 people are employed by electronics and electronics-related firms, accounting for 12% of manufacturing output. In 2006, Scotland produced 28% of Europe's PCs; more than seven per cent of the world's PCs; and 29% of Europe's notebooks.

Software
The software sector in Scotland developed rapidly and in 2016 there were an estimated 40,226 people working in the digital economy across Edinburgh, Glasgow and Dundee. Scotland's history in manufacturing is being transferred into the software sector and this is attracting companies from around the world. Several universities are playing an important role by producing research in Computing Science, including the University of Edinburgh's School of Informatics. According to the REF 2014 assessment for computer science and informatics the School of Informatics has produced more world-leading and internationally excellent research (4* and 3*) than any other university in the UK.

Tourism

It is estimated that tourism accounts for 5% of Scotland's GDP. Scotland is a well-developed tourist destination with attractions ranging from unspoilt countryside, mountains and abundant history. The tourism economy and tourism related industries in Scotland support c. 196,000 in 2014 mainly in the service sector accounting for around 7.7% of employment in Scotland. In 2014, over 15.5 million overnight tourism trips were taken in Scotland, for which visitor expenditure totalled £4.8 billion. Domestic tourists (those from the United Kingdom) make up the bulk of visitors to Scotland. In 2014, for example, UK visitors made 12.5 million visits to Scotland, staying 41.6 million nights and spending £2.9 billion. In contrast, overseas residents made 2.7 million visits to Scotland, staying 21.5 million nights and spending £1.8 billion. In terms of overseas visitors, those from the United States made up 15% of visits to Scotland, with the United States being the largest source of overseas visitors, and Germany (13%), France (7%), Australia (6%) and Canada (5%) following behind.

Trade

Regional trade

Excluding intra UK trade, the European Union and the United States constitute the largest markets for Scotland's exports. As part of the United Kingdom and the European Union, Scotland fully participates in the single market and free trade area which exists across all EU member states and regions. In the 21st century, with the high rates of growth in many emerging economies of southeast Asia such as China, Thailand and Singapore, there was a drive towards marketing Scottish products and manufactured goods in these countries.

Note: Revenues from North Sea oil and gas are not included in these figures.

International trade

The total value of international exports from Scotland in 2014 (excluding oil and gas) was estimated at £27.5 billion. The top five exporting industries in 2014 were food and drink (£4.8 billion), legal, accounting, management, architecture, engineering, technical testing and analysis activities (£2.3 billion), manufacture of refined petroleum and chemical products (£2.1 billion), mining and quarrying (£1.9 billion) and wholesale and retail trade (£1.8 billion). The total value of exports from Scotland to the rest of the UK in 2014 (excluding oil and gas) was estimated at £48.5 billion.

Infrastructure

Transport

Infrastructure in Scotland is varied in its provision and its quality. The densest network of roads and railways is concentrated in the Central Lowlands of the country where around 70% of the population live. The motorway and trunk road network is principally centred on the cities of Edinburgh and Glasgow and connecting them to other major concentrations of population, and is vitally important to the economy of Scotland. Key routes include the M8 motorway, which is one of the busiest and most important major routes in Scotland, with other primary routes such as the A9 connecting the Highlands to the Central Belt, and the A90/M90 connecting Edinburgh and Aberdeen in the east. The M74 and A1, in the west and east of the country, respectively, provide the main road corridors from Scotland to England. Many roads in the Highlands are single track, with passing places.

The rail network is primarily centred on the central belt and is used principally as a means of public transport, with some freight movements – for example from the port facilities at Grangemouth and Hunterston Ore Terminal. After a large rationalisation of routes in the 1960s which was undertaken by the Beeching cuts, which led to station and line closures, the rail network is being expanded, to cope with ever-increasing levels of passenger demand. The rail-operator Abellio ScotRail operates most routes within Scotland, with long-distance connections to London operated by Avanti West Coast and London North Eastern Railway. Proposals which have been mooted include the electrification of the rail system to cut journey times.

In 2004, 22.6 million passengers used Scotland's airports, with there being 514,000 aircraft movements with Scottish airports being amongst the fastest growing in the United Kingdom in terms of passenger numbers. Plans have been published by the major airport operator BAA plc to facilitate the expansion of capacity at the major international airports of Aberdeen, Edinburgh and Glasgow, including new terminals and runways to cope with a large forecast rise in passenger use. Prestwick Airport also has large air freight operations and cargo handling facilities. Scotland is well-served by many airlines and has an expanding international route network, with long-haul services to Dubai, New York, Atlanta and Canada.

There are major deep-water port facilities at Aberdeen, Grangemouth, Greenock, Peterhead, Scapa Flow and Sullom Voe. Scotland was connected to mainland Europe by a dedicated ferry service between Rosyth (near Edinburgh) and Zeebrugge. Many island communities on Scotland's western seaboard are served by lifeline ferry services operated by the state-owned company Caledonian MacBrayne, which carry tourists as well as freight and are vital to the economies of these islands.

Communications

Scotland is considered to have an advanced communications infrastructure, similar to other Western nations, and has an extensive framework of developed radio, television, landline and mobile phone, as well as broadband internet networks. As Scotland's landmass is immense, and the population sparse, the most populated areas have been focused on for 4G connection; mainly the Central Belt regions, Aberdeen, Dundee and Inverness.
Scotland's primary public broadcaster is BBC Scotland and operates a substantial number of television channels, including satellite channels, and numerous radio stations. Privately owned commercial TV and Radio broadcasters operate a multitude national, regional and local channels.

Energy

Scotland is endowed with some of the best energy resources in Europe, and is a net exporter of electricity, with a generating capacity of 10.1GW primarily from oil, gas and nuclear generation. The principal companies operating in the sector are Scottish Power, Scottish and Southern Energy and EDF Energy. With prevailing international concern over the use of fossil fuels in power generation, Scotland has been identified as having significant potential for the development of renewable energy sources, with abundant wave, tidal and wind power.
The Scottish Government set a target of 40% of Scotland's electricity generation be derived from renewable sources by 2020. Currently renewable energy sources provide Scotland with 35% of its electricity production, with onshore wind generation making the largest contribution, and supporting several thousand jobs. There are many windfarms along the coast and hills, with plans to create one of the world's largest onshore windfarms at Barvas Moor on the Hebridean Isle of Lewis.

There have also been major developments in harnessing the wave and tidal potential around the Scottish Coast, with the LIMPET (Land Installed Marine Power Energy Transformer) energy converter being installed off the island of Islay, which produces power for the National Grid. LIMPET, developed in Scotland, is the world's first commercial scale wave-energy device.

Oil and gas

Scottish waters consisting of a large sector of the North Atlantic and the North Sea, containing the largest oil resources in the European Union –
Scotland is the EU's largest petroleum producer, with the discovery of North Sea oil transforming the Scottish economy. Oil was discovered in the North Sea in 1966, with the first year of full production taking place in 1976. With the growth of oil exploration during that time, as well as the ancillary industries needed to support it, the city of Aberdeen became the UK's centre of the North Sea Oil Industry, with the port and harbour serving many oil fields off shore. Sullom Voe in Shetland is the site of a major oil terminal, where oil is piped in and transferred to tankers. Similarly the Flotta Oil Terminal in Orkney is linked by a 230 km long pipeline to the Piper and Occidental oil fields in the North Sea. Grangemouth is at the centre of Scotland's petrochemicals industry. The oil related industries are a major source of employment and income in these regions. It is estimated that the industry employs around 100,000 workers (or 6% of the working population) of Scotland.

Although North Sea oil production has been declining since 1999, an estimated 920 million tonnes of recoverable crude oil remained in 2009. Over two and a half billion tonnes were recovered from UK offshore oil fields between the first North Sea crude coming ashore in 1975 and 2002, with most oil fields being expected to remain economically viable until at least 2020. High oil prices have resulted in a resurgence of oil exploration, specifically in the North East Atlantic basin to the west of Shetland and the Outer Hebrides, in areas that were previously considered marginal and unprofitable. The North Sea oil and gas industry contributed £35 billion to the UK economy (a little under 1% of GDP) in 2014 and is expected to decline in the coming years.

Taxation

The majority of public sector revenue payable by Scottish residents and enterprises is collected at the UK level. Generally it is not possible to identify separately the proportion of revenue receivable from Scotland. GERS therefore uses a number of different methodologies to apportion revenue to Scotland. Following the implementation of the Scotland Act 2012 and Scotland Act 2016, an increasing amount of revenue is set to be devolved to the Scottish Parliament, whereby direct Scottish measures of these revenues will be available. The first revenues which have been devolved are landfill tax and property transaction taxes, with Scottish revenue collected for these taxes from 2015‑16 onwards.

With a nominal gross domestic product (GDP) of up to £152 billion in 2015, total public sector non-North Sea current revenue in Scotland was estimated to be £53.7 billion in 2015‑16 approx. 36.5%
of GDP.  Current non-North Sea revenue in Scotland is estimated to have grown by 13.4% between 2011–12 and 2015-16 in nominal terms. Total public sector expenditure for Scotland has been declining, as a share of GDP, since 2011-12, and in 2015-16 is estimated to be £68.6 billion which is around 46.6% FY2015-16.

Labour Market
As of March 2016, there were 348,045 Small and Medium-sized Enterprises(SMEs) operating in Scotland, providing an estimated 1.2 million jobs. SMEs accounted for 99.3% of all private sector enterprises and accounted for 54.6% of private sector employment and 40.5% of private sector turnover. As of March 2016, there were an estimated 350,410 private sector enterprises operating in Scotland. Almost all of these enterprises (98.2%) were small (0 to 49 employees); 3,920 (1.1%) were medium-sized (50 to 249 employees) and 2,365(0.7%) were large (250 or more employees).

Public sector

The public sector, in Scotland, has a significant impact upon the economy and comprises central government departments, local government, and public corporations. As of 2016, there were approximately 545,000 people employed in the public sector, which accounts for 20.9% of employment in Scotland – this includes all medical professionals employed within the National Health Service in Scotland, those employed in the emergency services and those employed in the state education and higher education sector. This is in addition to employees of the government in the civil service and in local government as well as public bodies and corporations. Public sector spending in Scotland was reported in 2017 to be more than £1,400 per head more than the UK average.

Since the Devolution Referendum of 1997, in which the Scottish electorate voted for devolution, a Scottish Parliament was reconvened under the Scotland Act 1998 and is considered to be a devolved national, unicameral legislature of Scotland. The Act delineates the legislative competence of the Parliament – the areas in which it can make laws – by explicitly specifying powers that are "reserved" to the Parliament of the United Kingdom. The Scottish Parliament has the power to legislate in all areas that are not explicitly reserved to Westminster. There is a clear separation of responsibility of the powers of both the UK government and the devolved Scottish Government in relation to the formulation and execution of national economic policy as it affects Scotland – this is set out under Section 5 of the Scotland Act 1998.

UK Government

The UK Government along with the Parliament of the United Kingdom retains some control over Scotland's fiscal environment, in relation to taxation (including tax rates and tax collection) and the overall share of central government expenditure apportioned to Scotland, in the form of an annual block grant. It also retains complete responsibility for the operation of the Welfare State, in terms of pensions, unemployment insurance and child benefit – as part of the UK-wide Welfare State exercised by the UK Department for Work and Pensions and HM Treasury. Whilst the UK Government retains most control over social security schemes, the Scottish Government has introduced a "Scottish Welfare Fund" to lessen the impact of cuts on welfare.

Scottish Government
 

The Scottish Government has the power to raise or lower the rate of income tax in Scotland by up to 3p in the pound. It is also able to vary business rates and can regulate the application of local taxes such as the council tax levied by local authorities in Scotland. The Scottish Government has full control over how Scotland's annual block grant is divided between government departments, such as healthcare and education and on state-owned enterprises, e.g. Scottish Water and Caledonian MacBrayne. The Scottish Government does however have control over Economic Development policy, and controls, funds and regulates the national Economic development Agency – Scottish Enterprise. In 2016, for example, the budget of the Scottish Government was around £37bn, which the Scottish Government can spend on the areas under its jurisdiction such as education, healthcare, transport, the environment and justice.

Local authorities

The 32 unitary authorities in Scotland have the power to levy a local tax, called the Council Tax, which is used to pay for local services such as refuse collection, street lighting, roads, pavements, public parks and museums. The value of residential property is the base for the tax, with each dwelling allocated to one of eight bands coded by letters A to H (H being the highest) on the basis of its assumed capital value. Each local authority sets a tax rate expressed as the annual levy on a Band D property inhabited by two liable adults. The budget of local authorities is supplemented by direct grants from the Scottish Government.

Education

Historians agree that widespread high quality education was one key to Scotland's economic success, providing human capital that helped make up for the deficit in natural resources. The history of education in Scotland in its modern sense of organised and institutional learning, began in the Middle Ages, with the education of boys based around Church choir schools and grammar schools. By the end of the 15th century schools were also being organised for girls and universities were founded at St Andrews, Glasgow and Aberdeen. Their academic reputation was higher than Oxford or Cambridge. Education was encouraged by the Education Act 1496, which made it compulsory for the sons of barons and freeholders of substance to attend the grammar schools, which in turn helped increase literacy among the upper classes.

The Scottish Reformation resulted in major changes to the organisation and nature of education, with the loss of choir schools and the expansion of parish schools, along with the reform and expansion of the Universities. In the seventeenth century, legislation enforced the creation and funding of schools in every parish, often overseen by presbyteries of the local kirk. The existence of this network of schools later led to the growth of the "democratic myth" that poor boys had been able to use this system of education to rise to the top of Scottish society. However, Scotland's university system did help to make it one of the major contributors to the Enlightenment in the 18th century, producing major figures such as David Hume and Adam Smith. Most universities are linked with a research and development sector; the University of Dundee is at the heart of a biotechnology and medical research cluster; the University of Edinburgh is a centre of excellence in the field of Artificial Intelligence and the University of Aberdeen is a world-leader in the study of offshore technology in the oil and gas industry.

Health

Another major component of central government expenditure in Scotland is on healthcare and healthcare related services. The National Health Service (NHS) is the publicly controlled provider of the majority of healthcare in Scotland, with the NHS being a major employer not only in terms of; doctors, nurses, and other key healthcare workers, but also in terms of administration. The service is administered differently from the rest of the United Kingdom and is largely free at the point of use to residents in Scotland, except for dental and optical services where those over 18 must pay. In the short term spending on healthcare in Scotland remains high in response to the population's poor diet and high incidence of heart disease. In the medium to long term, the challenges of an ageing population are likely to increase demand for health services and put increasing pressure on the health service in Scotland.

Justice
 
Another component of devolved central government expenditure in Scotland is on justice. The Cabinet Secretary for Justice is responsible for the entire justice system; incl. security, access to justice, criminal law and procedure, civil law, Police Scotland, the legal profession, courts, sentencing, Scottish Prison Service, victims and witnesses, reducing reoffending, youth justice, criminal justice social work, community safety, Scottish Fire and Rescue, anti-social behaviour, drugs policy, violence reduction, anti-sectarianism & liquor licensing. Police Scotland is the territorial force responsible for law enforcement in Scotland. Since 2007, the SNP-led Scottish Government has remained committed to the 1,000 extra police officers pledge, with the force now having consistent funding for officer numbers to remain over the 17,200 mark and not to fall below that number. The Scottish Prison Service (SPS) manages the prisons in Scotland, which collectively house over 8,500 prisoners.

Economic performance

In Scotland, GDP per capita varies from €16,200 in North & East Ayrshire to €50,400 in Edinburgh city. 1.1 million (20% of Scots) live in these five deprived [GDP per person is under €20,000] Scottish districts: Clackmannshire & Fife, East & Mid Lothian, West Dumbartonshire, East & North Ayrshire, Caithness Sutherland & Ross.

According to Eurostat figures (2013) there are huge regional disparities in the UK with GDP per capita ranging from €15,000 in West Wales to €179,800 in Inner-London West.  The average GDP per capita in the South East England region (excludes London) is €34,200 with no local government area showing a GDP per capita of less than €20,000. Equally, there are 21 areas in the rest of the UK where the GDP per person is under €20,000: 4.5 million (8.5% of English) live in these deprived English districts.

The figures below, noting the economic position of Scottish regions in terms of GDP and GDP per capita, come from Eurostat (2013) and are denoted in Euros. It should also be noted that the Scottish figures exclude offshore oil revenue. There are 26 areas in the UK where the GDP per person is under €20,000.

Relationship with the rest of the United Kingdom
Economic and fiscal policy is largely a reserved matter of the United Kingdom parliament, meaning that the Scottish Parliament has little influence over economic and fiscal policy in Scotland. Income tax, land taxes, property tax and local taxation are devolved to the Scottish Parliament, however all other aspects of economic and fiscal policies remain a matter for Westminster - including currency, corporate tax, energy policy, foreign policy and many other aspects of policy and legislative competence that has a direct impact on the economy of Scotland.

Brexit will also give the Westminster Parliament competence over international trade policy meaning Scotland's trade will be dependent on trade agreements struck by the UK Government.

See also
Barnett formula
Council of Economic Advisers (Scotland)
Economy of the United Kingdom
Economy of the European Union
Full fiscal autonomy for Scotland
Geography of Scotland
Politics of Scotland
Scottish Council for Development and Industry
Scottish Enterprise
2014 Scottish independence referendum

References

External links
Scottish Government
UK Government
HM Treasury
 British Chambers of Commerce Quarterly Economic Survey
The "Top Secret" 1974 Gavin McCrone Report into Scotland's Economy – classified
The "Top Secret" 1974 Gavin McCrone Report into Scotland's Economy – unclassified

Category:Economy of Scotland