Comment: Yes may be mayhem, close No may be worse

AMID all the uncertainties that business in Scotland has faced, none is greater than the independence referendum vote now less than two weeks away.

Some fear a Northern Rock-style run 
on the banks if savers get nervous. Picture: Getty
Some fear a Northern Rock-style run on the banks if savers get nervous. Picture: Getty

The working assumption over this intense and protracted campaign is that there will be a No vote and business as usual on 19 September. But as support for Yes has grown and opinion polls have narrowed, a different outcome now has to be prepared for: utter mayhem. Looking at the immediate impact, “mayhem” may be no exaggeration. So what are the likely outcomes that Scottish businesses can expect? Set our here are five likely consequences in the event of a No vote and five in the event of Yes. Out of consideration for those of a nervous disposition, I will begin with potential No consequentials. But even here it will not quite be “business as usual”.

First would be immediate relief that the huge upheavals resulting from a Yes result have been avoided and that a major constitutional uncertainty is behind us.

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Across Scotland there is likely to be a pick-up in business from orders, investment and staff hiring that have been put on ice pending the result. These can now be brought forward.

Second, there should also be a fillip for the residential property market – and for prices – as buyers who have been holding off pending the referendum outcome can now proceed with greater confidence. This should be of help to house-builders. An upward move in demand and in prices may be particularly evident at the top end of the price range and for the rural estate market, where rUK and overseas buyers may have held off pending clarification.

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Third, another beneficiary should be the financial services sector – banks, pension companies and fund management business in particular as the industry emerges from a prolonged period of uncertainty over the regulatory environment and the prospect of capital flight by investors.

All good news, then? Not quite. Fresh worries will quickly crowd in – particularly over higher interest rates and political uncertainties at Westminster. A continued advance by Ukip would be likely to weaken the Conservatives and make the return of a Labour administration more likely. That would end further cuts in Corporation Tax and rekindle concerns over a wealth tax or higher income tax rates at the top end.

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And pledges by the Westminster parties to further enhance tax powers for the Scottish parliament are likely to contend with demands for more devolution for areas such as the north-east, West Midlands and south-west of England.

If it is a Yes vote on 18 September, business concerns will struggle to be heard above the immediate political uproar. Prime Minister David Cameron would be severely wounded as would be the remaining credibility of the Westminster coalition on a UK break-up.

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First, there will be adverse reaction in financial markets with the pound likely to take a hit and yields on government bonds forced up. Immediate reassurances will be needed from the Bank of England and from the Scottish banks to try to cauterise capital flight.

Emphatic statements will be made that there will be an 18-month period for negotiation between the two governments. But that will not remove uncertainty among savers, particularly over the continuation in Scotland of the Financial Services Compensation Scheme (FSCS). This protects savings of up to £85,000 “in the unlikely event that anything should happen to your bank, building society or credit union”.

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The problem for the central bank is that any announcement that might suggest Scottish registered banks may require some form of protection could itself trigger Northern Rock-style queues to withdraw money.

Second, financial services firms, faced with an exodus of clients and savings, will announce, where they have not done so already, arrangements to register assets and investments with English-based operations. Again, much emphasis will be placed on the lengthy negotiation period. But that may not help investors choose whether to opt for a Scottish or rUK investment company. Here again, such is the mistrust of institutions, assurances that there is no need for a panic must take care not to provoke one.

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Third, business morale will be hit on prospects of a crippling 18 months – at least – of prolonged uncertainty over the currency, cross-border transactions, our EU membership, tax and payroll arrangements and pension scheme administration. Very few believe all these matters can be resolved by the Scottish government’s mooted separation date of 24 March, 2016.

The economies of Scotland and rUK are highly integrated. The establishment of a new administration with different regulatory and tax regimes could put Scottish businesses at a disadvantage when trading with the UK. Scotland would lose any economies of scale from which it benefits through being part of the UK.

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But it is not only Scottish registered firms, faced with a prolonged limbo period, that may reconsider their options. There are some 2,270 large companies employing more than 250 people. Of these, 82 per cent are owned outside Scotland. They employ almost two-thirds of the large enterprise workforce (30 per cent of total Scottish private sector employment) and contribute more than 75% of turnover. The temptation will be strong to put further expansion and investment on hold until the outcome of these negotiations is more clear.

Fourth, the property market fears a double hit of higher mortgage interest payments and a fall in house prices as buyers defer or cancel purchase plans.

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And fifth, there will almost certainly be constraints on Scottish government spending and demands for services while uncertainty over the size of its own fiscal deficit is clarified.

Business will cope with all the immediate financial shocks, as it has always coped. Everyday life will go on. Goods will still be required and services provided. And both sides have a vested interest in ensuring business stability and conditions for growth are sustained.

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And a Yes outcome may prove less of a business problem than a close No – and the inevitable speculation that the independence issue, far from being resolved, will continue to cast a shadow over long-term planning and investment. If the vote fails to deliver a clear and convincing outcome, one thing’s for sure: all would be losers. «