Bill Jamieson: Countdown to constitutional crisis

Not only have Scottish share values tumbled, but financiers are busy making moves. Picture: Getty
Not only have Scottish share values tumbled, but financiers are busy making moves. Picture: Getty
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The markets are nervous, money is already moving south and the prospect of political disorder is palpable, writes Bill Jamieson

Good morning, Scotland. The whooshing sounds you may hear today are not one of those EU-banned vacuum cleaners. It’s the sound of money fast leaving Scotland on fears over next week’s referendum outcome. Bank accounts, sterling deposits and pension savings are on the move.

That sound may fade to a whisper compared with the reaction of people in England – 53 million of them – waking up next Friday to discover that the settled constitution and ordered political system they thought they had has dissolved before their eyes. Even on a No vote, they will find themselves hurtling at breakneck speed – whoosh! -– towards a federal arrangement without any consultation whatever on what they might wish, never mind had a chance to vote.

Everything will have moved in a trice from a settled political order to a dismembered UK with a crippled prime minister, a non-credible opposition, parliament in chaos, next year’s election in doubt, constitutional lawyers and regional special pleaders brandishing all manner of federalisms – oh, and a slumping currency and business plans in turmoil. Whoosh! There went the economic recovery.

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A hundred years after the First World War we’re still struggling to work out what happened and why. Events moved with a chilling, clockwork precision towards a catastrophe no one wanted or foresaw. But still we puzzle: how did everything change so quickly?

There’s a similar sense now, feeding the panic of Westminster’s political leaders, of a deadly countdown to a constitutional explosion – and that events are now bigger than the politicians supposedly in charge of them.

The world that millions have known as part of the furniture of life, on both sides of the Border, is about to vanish with repercussions we can barely imagine. In its place is to be a rushed new constitution with all the durability of a plywood box and assembly instructions about as clear as a set of flatpack furniture.

Little wonder the whoosh from over the Border will be the anger of English voters who have no say whatsoever on this.

Meanwhile, in Scotland, popular rallies have fallen under the spell of a hypnotist. This is Charles Mackay’s Extraordinary Popular Delusions and The Madness of Crowds – that chilling account of financial mania – only the delusions this time are spending promises and free benefits instead of Dutch tulips.

All manner of fears and grievances have been stacked up to support the independence case. But what happens when the fingers snap, as surely they will, and we awaken from this trance? When a new country starts life with a shedload of promises it can’t keep and there’s talk of a walk-away from its share of debt. Shame on Scotland. Little wonder the money’s flooding out.

The prospect of constitutional crisis has now closed in, whatever the outcome of the referendum vote. A Yes would effectively paralyse the Westminster parliament until Scottish MPs are excluded. Then there are the lengthy and complex break-up negotiations. Only fantasists believe these will be concluded by the mooted date of March 2016.

Constitutional expert Alan Trench has set out with chilling clarity the questions to be resolved: the currency of the new state; its borders; arrangements for movement of persons between rUK and the new state; whether, when and on what terms we will be a member of the European Union; the division of the UK’s National Debt; the division of other UK assets and liabilities. And many, many more.

Patience will not endure during this long wrangle. Already there is movement to the financial exits. This week sterling fell by 1.3 per cent to its lowest level for ten months. Shares in Scottish companies fell: Standard Life, RBS, BAe, Weir Group, Lloyds and SSE among them. Almost £4.8 billion was wiped off the value of Scottish shares before losses were pared to “just” £2.6bn. That’s one day.

As Roy Batchelor, a professor at Cass Business School, pointed out, “Financial markets hate uncertainty, and this quickly gets translated into prices … the risks to the UK are trivial compared to those triggered in Scotland by the likely flight of capital and business talent if the Yes campaign wins.”

Yesterday, insurance giant Standard Life repeated its intention to move functions and offices in the event of a Yes vote. And over the past few days the Financial Times has reported on how asset managers, investors and pensions savers have been transferring money to England because of concerns over the referendum outcome. It cited BD Network, a Scotland-registered marketing company, among those planning to shift its base to London in the event of Yes. Its founder has moved the company’s bank account to England and has also told his personal financial advisers to ditch Scottish fund management exposure.

Alastair Cameron, who runs a small business with close to £250,000 in revenue, has moved 90 per cent of his cash holdings, as well as a slug of personal savings, south of the Border. “To set up a new business in England and move my money now was extremely cheap and easy. I worry that it wouldn’t be after a Yes vote.”

Business people express concern that currency and capital controls could be imposed after a Yes vote. Every business person contacted by the FT who had moved money to England said they knew of several others who had done the same.

The paper’s staff have also been told of a chief executive who had shifted £300,000, the entire cash float of her company, to England.

Meanwhile, commercial property transactions have fallen sharply and “exit clauses” are being inserted into contracts in Scotland to allow buyers to scrap deals or renegotiate prices if voters opt for Yes.

David Davidson, a partner at Cushman & Wakefield, said more deals were likely to be frozen, while mortgage borrowers face higher costs as lenders price in currency and interest rate uncertainties.

Capital flight will inflict colossal damage on Scottish business and prospects. It will drain momentum from economic recovery. It will hit investment and jobs. It will devastate Scotland’s financial sector, about a third of which could opt to move operations to the rest of the UK. And it will severely handicap an independent Scottish Government and stymie bank lending for home buyers and businesses alike.

Amid the feverish atmosphere across Scotland, it’s all very well for politicians and well-heeled wealth managers to tell customers not to panic. But many will need more than glib words. When an economy is drained of money, options rapidly close. “Austerity” does not fade away. It becomes tighter. And prepare for anger down south when 53 million people, shut out from the “great conversation”, see their political order dissolve before them. All this as the pound slumps further, recovery nose-dives and existential doubts hit home. “Whoosh” indeed. We’ll hear it loudly, soon enough.

And a polite “good night and good luck” from us won’t begin to silence it.