SCOTLAND’S economy is £3 billion smaller because of Brexit, with firms delaying investment because of uncertainty, the country’s leading economic think-tank has calculated.

The Fraser of Allander Institute today says agreeing a Brexit deal will help in the short-term, but warns Boris Johnson’s plans “could be even more challenging” than Theresa May’s in the long-term.

In its latest Economic Commentary, the Institute also scolded politicians for dumbing down the debate on Scotland’s economy by conducting it in soundbites.

It criticised those diverting attention from sluggish growth by “blaming Brexit or asserting that further constitutional change will solve all our challenges”.

It said the debate and policy development on climate change at Holyrood had been far more impressive, with Scotland now regarded as a world leader on the issue.

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However, it warned the radical changes required to avert disaster would require a degree of global “investment and economic planning not seen the Second World War”, with many steps difficult and politically unpopular.

On Brexit, today’s report says the economy is around 2 per cent smaller than it would otherwise have been had the UK voted to Remain in 2016.

Investment has been the worst hit area of economic growth, with businesses delaying decisions until after Brexit or cancelling them, it said. Construction has been a key area of weakness.

The Institute’s latest forecasts for growth in Scottish GDP, based on an orderly Brexit, are 1% for 2019, 1.2% for 2020 and 1.3% for 2021.

Institute director Professor Graeme Roy said: “Securing a Brexit deal will help lift some of the fog of uncertainty that has hung over the Scottish economy in recent times.

“As a result, in the short-run, the economic outlook should improve. By avoiding a ‘no deal’ outcome, and all that would entail, growth is likely to move ahead of previous forecasts.

“However the nature of the ‘deal’, and in particular the intention to move to one of the ‘hardest’ forms of Brexit means that the long-term challenges for the Scottish and UK economies will be considerable.”

Deputy director Mairi Spowage said: “Recent Brexit uncertainty has clearly had a negative impact on the Scottish economy. We estimate that the Scottish economy is around 2%, or £3bn, smaller than it otherwise would have been.

“Some of this hit to Scotland’s economy may be clawed back as businesses see a clearer path ahead. But nothing within this Brexit process can be taken for granted. And whilst a deal to leave may soon be agreed, the nature of the UK’s future relationship with the EU is far from certain. Debates over Scotland’s future constitutional status are likely to intensify.”

On the public debate on Scotland’s economy, the report said: “Too often, discussions are dominated by soundbites (‘the Scottish economy is resilient’ or ‘the Scottish economy lags the UK’).

“And most of the time, debates get no further than simply asserting that higher tax rates are to blame (despite little evidence to back this up) or that the solution is to spend more money (with no explanation of where such monies will come from).

“Similarly, it is increasingly commonplace to divert attention from the growth debate by arguing for ‘wellbeing’, blaming Brexit or asserting that further constitutional change will solve all our challenges.

“Brexit will usher in the greatest shift to our economy in over a generation. A more open discussion, not just of the risks and opportunities that Brexit will bring, but the underlying growth dynamics of the Scottish economy more generally, is needed.”

SNP MSP Tom Arthur said: “Scotland is already paying a heavy price for Brexit, businesses are putting off investment and Boris Johnson’s damaging ‘deal’ fails to offer a solution.

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“Tory plans will see tens of thousands of jobs lost, with the least well off hit the hardest.

“It becomes increasingly clear that Scotland faces a clear choice of two futures: more chaos and economic self-harm with the Tories as we crash out of the EU, or seizing the opportunity to build a fairer, more prosperous country with the full powers of independence.”

LibDem MSP Alex Cole-Hamilton added: “There is no Brexit deal that is better than the deal we already enjoy as members of the European Union.

“It’s a dismal state of affairs that we’re having to spend millions of pounds to prepare for a Boris Johnson Brexit that would devastate our economy and put thousands out of work.”

A Scottish Government spokesperson said: “The report makes clear that Brexit uncertainty has already had a damaging impact on economic growth in Scotland.

“Any form of Brexit brings the threat of further damage to Scotland’s economy, and we are clear that a no-deal outcome has the potential to tip the Scottish economy into recession.

“The Prime Minister’s deal would take Scotland out of the EU, out of the Single Market and out of the Customs Union, hitting jobs and living standards, and on top of that will now place us at a competitive disadvantage in relation to Northern Ireland. Scotland voted to remain and we should not be dragged out of the EU against our will with all the economic damage that will cause.”