The Scottish independence debate is of major concern to City business

Christine O'Neill
Christine O'Neill is head of the public law team at Brodies.

SCOTLAND’s constitutional debate has been the focus of much comment north of the border since the Scottish National Party won an unprecedented majority in the Scottish Parliament in 2011. Now first minister Alex Salmond has set the date for a referendum on independence – for September 18 2014.

Nevertheless, the prospect of a referendum – and the steps taken at Westminster and Holyrood to make it a reality – still seem to be a matter of broad indifference to many UK and global businesses with interests in Scotland. The potential implications of Scottish independence for many, however, could be very significant indeed and are certainly worth a thought, particularly when the referendum will be held in 18 months’ time.

This apparent indifference may be because there has been a working assumption that the referendum will be a damp squib and that rejection of independence by Scots is a foregone conclusion. Perhaps this is right – but recent polling suggests that a No vote is certainly not a done deal. An Ipsos Mori poll published in February saw an increase in support for independence for the first time in over a year, with 34 per cent of those who are certain to vote saying they would vote Yes. There has been a marked increase in support among young people – 58 per cent of 18-24 year olds now say they will vote in favour (up from 27 per cent in October 2012). The younger vote could become even more influential if the Scottish government achieves its stated aim of including 16 and 17 year-olds in the franchise for the referendum.

Aside from the entertainment to be had from watching the political machinations of the two campaigns, there are good reasons for businesses south of the border to be thinking about where Scotland might be in two years’ time. A vote in favour of independence would have significant implications for the rest of the UK, and for businesses which have operations on both sides of the border.

To take just one issue, a newly-independent Scotland would set its own rules on citizenship, residency and domicile for the purposes of personal and corporate taxation. Companies with employees across the UK – including those with numerous Willies (Work-in-London-Live-in-Edinburgh) in the City – would have to think more carefully about where those employees are resident, and to which taxation regime they are subject. Differential taxation for Scottish taxpayers is already on the cards as a result of changes to the devolution settlement last year, but a more comprehensive approach to separate Scottish taxes would follow on independence.

Questions about taxation play into wider discussions about currency arrangements and monetary policy, as well as financial services regulation. A working group of the Scottish government’s fiscal commission recently has made recommendations on currency, proposing the continuing use of sterling in a currency union with the remainder of the UK.

Another issue, of interest to businesses throughout the UK, is the question of continued membership of the EU. On that matter, Scots may see themselves as facing a very difficult choice. Those who favour continued membership (as Scottish businesses consistently say they do) will have to weigh up the risks associated with a Yes or a No vote in the independence referendum. The Scottish government is committed to keeping Scotland in the EU, but has acknowledged that negotiations would be required to ensure that an independent Scotland was accepted as a member state, and to confirm the membership terms. By contrast, a No in the independence referendum would leave Scotland firmly in the EU, as part of the UK, but with the prospect (as announced by David Cameron) of a UK-wide referendum on EU membership sometime later in the decade. While some may again assume that a vote to leave the EU is unlikely, it is another prospect that certainly can’t be ruled out at this stage.

You can add to those issues the myriad other questions arising from the independence debate including the division of territorial waters, oil and gas reserves and national assets and debt, as well as arrangements for national security and defence. These are significant matters that are at least worth thinking about.

Christine O'Neill is head of the public law team at Brodies. For more information, contact Christine at christine.oneill@brodies.com

City A.M.'s Opinion pages are a place for thought-provoking opinions and views. These are not necessarily shared by City A.M.

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