Voting on Scottish independence will take place on 18 September – little more than five months from now – and at the moment the indications are that the ‘no’ camp will prevail. That said, the bookmakers will only give you 3/1 against a ‘yes’ vote, with the opinion polls currently suggesting around 45% of the votes will be cast in favour of independence.
At the moment a ‘yes’ vote appears unlikely but very far from impossible. Rightly, many of our clients have asked what the implications of an independent Scotland would be for their savings and investments – and the wider economic prospects of the country. The notes below reflect our current thinking: we’ve tried to answer the questions clients are most often asking us. However, they are necessarily general in tone – if you would like to have a more specific discussion, please don’t hesitate to contact us.
Would an independent Scotland keep the pound?
The ‘yes’ campaign would like to, with John Swinney, the Scottish finance secretary, arguing that the benefits of a currency union are “clear for both sides.” However, George Osborne has specifically ruled out a currency union with an independent Scotland and at the moment is supported in this by all parties at Westminster.
In practice, a currency union would be very difficult. After independence, the economies of Scotland and the rest of the UK are likely to diverge. For example, Scotland would be a major oil exporter while the UK would continue as an importer. And if a currency union did go ahead, clearly it would be under the control of the Bank of England – and with the rest of the UK ten times the size of Scotland, there is little doubt where priorities would lie.
What would be the impact on business?
Clearly, the UK is Scotland’s biggest market and Business Secretary Vince Cable is fairly specific on the threats independence would pose. “Breaking up Scotland’s most lucrative market would potentially put growth and jobs at risk.” The ‘yes’ campaign dismiss this as ‘scaremongering’ but there is little doubt that business would be affected by a vote for independence. The impossible question to answer is ‘how much?’
There is clearly the potential for significant differences between an independent Scotland and the rest of the UK: regulations, employment law and the tax regime would all be different. Different businesses would be affected in different ways and the simple answer at the moment is that nobody knows who the winners and losers would be.
Would businesses leave Scotland?
Quite possibly. Again, it is difficult to estimate accurately and much would depend on factors such as the regulatory framework and taxation regime in an independent Scotland, but inevitably some companies would want to operate under UK law. Standard Life – which employs 5,000 people in Scotland – has warned that it could relocate, and is believed to have already set up subsidiary English companies in case it made such a move.
Royal Bank of Scotland has also voiced concerns, suggesting that an independent Scotland could damage its credit rating. Clearly, many major businesses have worries and in the event of a ‘yes’ vote it is likely that at least some of them would vote with their feet and cross the border.
What about the banks?
At the moment, Scottish banks and other financial institutions operate under UK law. In the event of a ‘yes’ there would need to be a new regulatory framework and new measures for consumer protection. Against that the pro-independence lobby point to many European countries roughly the size of Scotland that operate banking and financial sectors quite successfully – albeit very often under the EU umbrella. What’s clear is that Scotland cannot vote for independence on September 18th and be admitted as a member of the EU on September 19th.
How would financial services be affected?
Inevitably the regulatory regime would change in an independent Scotland. It may well be the case that some products and services currently available may cease to be available. At the moment, clients’ policies and investments are governed by UK law – whether a policy set up under UK law could still operate under that law if Scotland were independent is a question which must have the barristers rubbing their hands. So yes, financial services and its regulation could very well change, as could the taxation treatment of clients’ policies and investments.
We hope the above is helpful – sadly, for many of the issues there are far too many ‘don’t knows’ for comfort and as 18 September draws closer, it is likely to be the rhetoric – not the clarity – which is increased.