Business in an independent Scotland – too many ‘known unknowns’
The prospect of an independent Scotland has given rise to a host of tricky questions. From currency to central banks, NATO to nuclear weapons, the First Minister and his colleagues treat us to their trademark bluff and bluster when pressed on the key issues and continually accuse those who simply ask for clear answers of “scaremongering”. Very little precedent exists in international law for some of the changes which would need to take place if Scotland became independent, and businesses are rightly worried about the consequences of a ‘yes’ vote in 2014. These ‘known unknowns’ are what the House of Commons Business, Innovation and Skills select committee sought to understand during the recent evidence sessions for our inquiry into the effects of Scottish independence on UK businesses.
European Union membership was consistently raised as a concern by many who gave evidence, with the added complication of the proposed referendum by the Prime Minister. José Manuel Barosso, President of the EU Commission, has explicitly stated that an independent Scotland would have to re-apply for EU membership, possibly joining a queue behind the likes of Turkey and Albania. Others have pointed out that Scotland would be able to negotiate its membership more swiftly than other potential member states, given that it has already complied with the accession requirements as part of the UK. But it remains highly improbable that Scotland would receive red carpet treatment, particularly as many EU heads of member states with their own secessionist regions share Barosso’s thinking.
Witnesses questioned by the committee were also unsure of what currency a newly-independent Scotland would use. If we don’t have a shared currency, transaction costs for business are inevitable. The euro? Er, no – that would only come as part of EU membership, which may not be immediate. The pound? Well, perhaps for the short to medium term, but what about the requirement for new EU members to join the euro zone? There is no obvious reason for the existing UK opt-out to extend to Scotland, and the UK Government has already said that sharing the pound in a currency union with a newly-independent Scotland would be unlikely. At the same time, eurozone leaders are intent on enlarging the currency bloc, even with its current difficulties. So maybe the Scottish Government would be forced to advocate a new currency, as some of the YES campaign have already suggested, meaning the creation of currency fluctuation and exchange rate risk with Scotland’s main export market, the rest of the UK. Scotland’s economy needs investment, not needless uncertainty around the simple question of what currency we will be using in five years’ time.
Ian McMillan, director of CBI Scotland, told the committee that 90% of Scotland’s financial services industry clients are in England and elsewhere, meaning that regulatory and currency risks would pose considerable problems for the sector following a potential ‘yes’ vote. Scotland’s large banks have regular contact with, and support from, the Bank of England. This would end with independence – there is no example of a modern Western nation that doesn’t have its own central bank. The Scottish Government have made various statements about somehow sharing the Bank of England, but neither Government has released clear proposals about how this could work in practice. I remain unconvinced that the remaining part of the UK would be happy to allow the Bank of England to continue operating as lender of last resort to banks in a totally separate country. With banking sector assets in an independent Scotland representing an astonishing 1254% of GDP, the Scottish Government would be foolish to play down the need for proper central bank oversight and regulation. Again, uncertainty reigns and the people of Scotland are being asked to cast their votes on untested, back-of-the-envelope plans about fundamental economic structures
The Scotch Whisky Association, as is the case with many trade bodies, does not take a position on Scottish independence, but in their written evidence to the Business committee they reinforced the concern of others in relation to political and economic stability. Representing 80% of Scottish food and drink exports, the sector is craving clear answers on the regulatory regime of an independent Scotland and the costs of establishing separate business structures required by independence. Would an independent Scotland be able to offer the quality of overseas representation the UK currently brings? For export-focussed sectors, this is crucial. Hundreds of embassies with resident UK Trade and Investment staff in every major market in the world take some beating. And if Scotland were to be left waiting to acquire EU membership it also faces having to renegotiate its terms within the World Trade Organisation which is crucial for our export markets in Asia and South America.
Evidence on a future mail service was stark – the cost per head of maintaining our post office and postal deliveries would be a great deal higher; Scotland is a net importer of mail with most major Scottish companies posting their mail in England. We would have to set up a completely new regulatory structure and anticipate higher costs in posting mail to other parts of the United Kingdom.
There were certainly many unanswered questions from those in the Higher Education sector too, given the ever closer partnership amongst universities throughout the UK. Scottish Universities are disproportionally successful in securing UK research funds and there were concerns about how this pro rata surplus – over £100m per year – could be filled by the Scottish Government with the squeeze on public spending. In addition, the position of students from the Rest of the UK, who are set to contribute £62m each year to the Scottish sector, would be changed if, after independence, both areas remained within the EU. Potentially, such fee income would disappear and these students could be entitled to the same access to all undergraduate places as students from Scotland.
Pro-independence campaigners like those who favour a referendum on EU membership are seeking a one-size-fits-all solution to their problems. When times are tough, their argument is to look for a decisive act of change to unleash the entrepreneurial forces currently lying dormant and sweep away the burdens – regulatory or otherwise – which are perceived as holding the population back. This is a misguided approach which gambles a long history of successful cooperation and prosperity on the hope of greener grass ahead. But nothing is certain, and more ‘known unknowns’ are to come. From Royal Mail to higher education, the Business, Innovation and Skills committee is collecting views on vital parts of our nation’s economy which currently have large question marks hanging over them. Until the Scottish Government offer up some clear answers about what businesses and others can expect from an independent Scotland, we will continue to ask those tricky questions.
Ann McKechin is the Member of Parliament for Glasgow North. You can follow her on Twitter: @AnnMcKechinMP