How Could Scottish Independence Affect Your Business?
The date of the referendum in Scotland is fast-approaching. On 18th September, Scotland will vote either yes or no on the question, “Should Scotland be an independent country?”
In the last few days, commentators have expressed surprise at the increased momentum for the yes campaign. Whereas four weeks ago the no vote held a sturdy lead in the polls with 61%, leaving those voting yes at 31%, on 3rd September the number of people voting no fell to 57% while yes voters jumped to 53%.
Debates about nationalism and identity aside, what would be the consequences of a ‘yes’ victory for businesses in Scotland and the rest of the UK? The question of currency, for instance, looms large in the minds of voters and onlookers. Will Scotland keep the pound or will they be forced to adopt a new currency?
How will a yes vote affect trading between a newly independent Scotland and the rest of the UK? What will become of the Scots’ relationship with the EU – and the rest of Britain’s, for that matter?
As the final date of reckoning approaches, these are matters that business owners should make themselves aware of.
Firstly, nothing is going to happen overnight
In the event of a ‘yes’ victory, Scotland will not simply declare independence with a click of their fingers. Independence Day will take place on 24th March 2016, a date that resonates in the country’s history with acts of union taking place on 24th March on two other occasions. You have until then to fully understand the situation.
Before diving into the details, here’s a quick summary of the ways in which your business could be affected in the event of a yes vote:
- Salmond wants to keep it; Osbourne says no. Salmond retorts, “They cannot stop us using the pound,” and he’s right.
- Salmond has 3 “Plan B” strategies up his sleeve:
1 Use the pound anyway (favourite)
2 Join the euro (basically dismissed)
3 Create a new currency (though no one knows what the value of this would be)
- Without the pound, Scotland faces further austerity
The value of the pound
- Likely to devalue in the wake of a yes vote
- Bad for business at home but good for exporters
- UK total debt around £1.4 trillion, of which around £81 billion is estimated to belong to Scotland
- Scots are threatening to leave their share of debt if Westminster won’t give them the pound
- This would render lower GDP for rest of UK, higher interest rates and more spending cuts
- Scotland may need to reapply to join, which could mean a lengthy process
- During this time, UK trading with Scottish businesses and for Scottish businesses will be affected
- Scotland may not be allowed to rejoin EU if they do not also join the euro
- Threat of austerity according to new reports
- Each individual in Scotland could be £480 worse off if yes vote succeeds
- Yes advocates believe NHS will benefit from independence, as will Scotland in general: able to make own decisions in best interests of the country
- Higher interest rates and spending cuts more likely according to independent studies
What’s going to happen with the pound?
Will Salmond be able to keep the pound?
When asked this question back in May this year, Chancellor George Osbourne responded with a “no ifs, no buts” policy. A currency union between an independent Scotland and the rest of the UK, he said, will simply not happen. The Chancellor even invoked his oath to tell the truth before a committee of MPs in a bid to prove this was not simply a short-term campaign-driven scare tactic.
But the value and stability of the pound make it a prize Salmond doesn’t want to lose. In the event that Scotland does win independence in two weeks, therefore, it is likely that Scotland will keep the pound in an unofficial capacity.
This is the favourite of Salmond’s three “Plan B” strategies in the event that Westminster does not officially allow Scotland to keep the pound. “We could use the pound anyway,” Salmond commented, “They cannot stop us using the pound.” But with 53% of English people flat-out rejecting the Scots’ continued use of sterling and only 23% in favour of a Eurozone-style union, it appears that independence could be less amicable than initially conceived.
Nevertheless, the impact on businesses remains unclear here. If Scotland were to keep the pound, there would be no impact on the value of goods traded between an independent Scotland and the UK. If, however, they were to adopt the euro, for example (though this has effectively been ruled out) or create its own currency, the effects remain to be seen.
The value of the pound
With all the debate surrounding who will and who won’t be allowed to keep the pound, it is necessary to spare a thought for its value. A yes vote is likely to devalue the currency.
Following figures released yesterday showing an increased fervour for a yes vote, the pound slumped under the weight of the uncertainty.
Financial markets love stability, after all, and a yes vote on 18th September would signify a lack of political unity throughout the UK. If the value of the pound were to plummet, this would be good news for exporter businesses but could have “crippling” effects for everyone else.
If Scotland votes to leave the UK, will they take their share of the debt with them? This is a big question for many on both sides of the debate.
Salmond has said that, in the event Scotland vote to leave the UK but are not allowed to take the pound with them, that they will have no responsibility for any share of the debt. UK debt is currently around £1.4 trillion. Of that around £81 billion is estimated to be Scotland’s share.
If Scotland were to leave their debts behind, the rest of the UK would face a lower GDP with an increased financial burden.
Scotland’s status as an EU member country hangs in the balance in case of a yes vote on 18th. There have been claims that Scotland’s continued use of the pound without permission from Westminster could jeopardise the country’s position in the EU. Because an independent Scotland would need to reapply for EU membership under the Treaty on European Union, they would therefore need to partake in a monetary union also.
Scottish businesses would be affected during the interim period in which they will need to reapply for membership. This can often be a lengthy process. This will also affect other UK-based businesses trading with Scottish firms throughout this period.
Threat of austerity?
Reports published today have predicted that independence in Scotland would result in a further wave of austerity in the country. A second study determined that each Scot would be £480 worse off outside the UK as a result of declining oil revenues.
These studies are at odds with what many advocates of an independent Scotland believe will happen if the country votes yes. Many are looking forward to a richer NHS no longer under threat from privatisation, free tuition fees (until 2016 anyway) and a nation fully in control of its own decisions. Rule from London is considered by many to be out of touch and neglectful of Scotland’s best interests.
But, despite optimism from many Scottish nationalists, an independent Scotland without the pound can expect to see higher interest rates on all borrowing and mortgages and further cuts to public services in the foreseeable future. A currency union would make the process less painful but if Osbuorne can be taken at his word, this is unlikely.
The big picture
It’s looking like arguments for an independent Scotland is mostly based on nationalistic fervour rather than on economic considerations. Businesses in the UK and in a newly independent Scotland would face a period of readjustment and possibly of further financial recession.
Disputes over the pound could render Scotland’s position in the EU an uncertain one, which in turn brings the question back to the currency model of choice. To leave the pound would be a potentially detrimental decision financially for ordinary Scottish people and business, but without taking up the euro they may not be able to rejoin the EU.
An independent Scotland would mean a country that was free to make its own decisions but that either would struggle to shoulder its enormous national debt or simply walk away from it. Either way, a poor credit rating awaits.
For businesses in what currently exists as the UK, an independent Scotland means a turbulent time from a financial point of view for the foreseeable future.
What do you think?
Are you living in Scotland and voting yes? Are you living in Scotland and voting no? Do you think Scottish independence will be good for Scotland in the long-run or do the short-term consequences make it less desirable?