No vote saves country from months of uncertainty

Many in the financial sector will have been relieved by the referendum result. Picture: Michael Gillen
Many in the financial sector will have been relieved by the referendum result. Picture: Michael Gillen
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IT WAS said the independence referendum campaign was a clear choice between the head and the heart, emotion versus realism. But the most emotional places in Scotland this weekend are the offices of thousands of businesses liberated from a relentless, pounding migraine of uncertainty.

For many SMEs there will be cheers for Scotland’s Audacity of Nope. The upward swing in financial markets on Friday may have been muted compared to some forecasts. But it was a mere whisper compared with the convulsion of panic selling that would have been unleashed on currency, bond and equity markets on a Yes result.

The relief was palpable. No moving of RBS and Lloyds Bank head offices, no switching of deposit accounts or anxious capital flight, no more worrying about what the currency might be, or what the tax regime might be, or whether we are in the EU or halfway in or halfway out; no more contingency plans to move business or switch banks or fill pension holes or fret about the recovery or endure 18 months (at least) of uncertainty.

All that vanished like dawn mist in the early hours of Friday morning.

For Scotland’s financial sector it is a huge relief. It would have been devastated by an independence vote.

Defence contractors, house builders, retailers and the commercial property sector especially will also be relieved.

This from Ran Morgan, head of Knight Frank Scotland, captured the mood: “The certainty provided by a No vote will allow the property market to return to more normal trading conditions. The fundamentals are in place to ensure a full recovery, led by the key cities of Edinburgh, Aberdeen, Glasgow and rural counties within commuting distance of large employment hubs. We expect we will be very busy in the coming months as vendors and buyers, many of whom have put off making a decision to buy or sell a property in Scotland due to the referendum, return to the market. This will lead to an increase in the number of transactions at all levels of the market … Our forecast is that prime values will rise by 3 per cent by the end of this year and by a further 3 to 6 per cent in 2015.”

And the referendum result, far from being a cliffhanger or “on a knife edge” was sufficiently emphatic as to put the prospect of another referendum (God forbid) well into the future. For sure, there will be other politics to worry about soon enough. But such was the robustness of the No vote, many business investment and expansion plans that have been held back pending the referendum result can now be brought on to the front burner.

For all the fiery rhetoric of the independence campaign, there were some glaring gaps and absences. An improvement in Scotland’s economic performance was asserted as a sure-fire consequence of independence.

But there was scant detail on how exactly this improvement would be achieved. How in particular would enterprise be encouraged and investment and expansion triggered?

This was a campaign increasingly dominated by promises of higher public spending, protection of welfare benefits, and a “fairer, less unequal” society. Very little was heard about boosting enterprise and the wealth-creating sectors of the economy generating the tax revenues that make such higher public spending possible.

Alex Salmond may have wanted to unleash an entrepreneurial revolution. But instead much of the rhetoric of the Yes campaign was given over to dismissing the concerns of business over currency, cost and regulatory uncertainties as over-stated, insubstantial, or fluffed up by scaremongering and “Project Fear”.

We heard very little about the encouragement of profits, savings and investment, or low, flat taxes that attract enterprise, or limits to the regulatory burden on business, and certainly nothing on introducing competitive open markets and consumer choice across public sector monopolies dominated by the producer interest.

A promised cut in corporation tax was far from the business vote clincher that Salmond hoped it would be. This was partly because the UK rate has already been cut and is likely to be further reduced, and also because many businesses benefit from a system of capital allowances that mitigate the corporation tax that they pay.

We have seen improvements in the past two years in the rate of business formation in Scotland. But far more needs to be done to encourage start-up. According to Office for National Statistics data for early 2013, Scotland has just 740 private businesses per 10,000 adults compared with 753 in Wales, 785 in Northern Ireland and 984 in England.

Now that the huge uncertainty of the referendum campaign and its long aftermath are behind us, Scotland can move forward to concentrate on business growth and investment.

And the backcloth is encouraging. The economy remains strong, and labour market slack is shrinking fast. Michael Saunders, UK economist at Citigroup, said there may be some referendum-related weakness in September data, “but even so, the available data and business surveys so far suggest that Q3 real GDP growth is about 1 per cent quarter-on-quarter. The jobless rate has fallen by 1.5 per cent over the last year, the biggest drop since the late 1980s, and surveys suggest that firms’ hiring intentions are extremely strong – and that the availability of staff is worsening rapidly.”

This assessment is borne out by latest figures showing unemployment in Scotland fell by 15,000, to 168,000 in the May-July quarter. The unemployment rate here is now down to 6 per cent, below the UK rate of 6.2 per cent. And the number of people in employment in Scotland in the quarter rose to 2,623,000 – the highest on record.

The concern now is that the Bank of England will see its way clear to raising interest rates. Whether this move comes in the final quarter of this year or the first quarter of next matters less than that the economy looks robust enough to withstand the modest rise that has been mooted. This week, for the first time in many months, business can move forward without the drag anchor of huge uncertainty. «