Bill O’Neill, Head of the UK Chief Investment Office, UBS Wealth Management
Today after more than three centuries of formal political union, Scottish voters will be invited to vote in a referendum on independence.
In a sense this referendum is another stage in a process initiated years ago by the Scotland Act in 1998. The Act effectively resulted in the creation of a Scottish Parliament with tax raising and spending powers, and set the stage for so called devolution. The scope of devolved powers was extended further in 2012, and currently 59 elected officials represent Scotland in the British Parliament at Westminster.
Proponents of a separation from the UK stand to win regardless of the outcome, as a victory for the ‘No’ vote (provided the victory is relatively narrow) would legitimize a push towards increased devolution.
The economic impact of independence for the remaining UK has to be put into perspective. Scotland’s GDP and population account for about 8-9 per cent of the UK and the brunt of adjustment would fall on Scotland. It is heavily dependent on the rest of the UK, as 70 per cent of its “external” trade is with its neighbour.
One key area of negotiation relates to the ownership of oil from the North Sea, a large share of which would potentially be transferred to Scotland. If apportioned on a geographical basis, it would amount to almost 5 per cent of Scottish GDP; representing 15 per cent of an independent state’s total tax receipts.
In the event of a “Yes” victory a number of more complex decisions and negotiations would immediately ensue, The Scottish Government’s White Paper published in November 2013 outlines the path ahead for an independent Scotland, with a promised independence date of 24 March 2016. The 18 month lead up to this date would serve as a transition phrase during which Scotland and the UK government would negotiate.
There is a political alternative to the choice between independence and union, and few politicians north or south of the border see a ‘No’ vote as a vote for no change. The Prime Minister has stressed that the Conservative Party is committed to giving the Scottish Parliament greater responsibility for raising more of the money it then spends.
Our own sense is that a defeat for the ‘Yes’ campaign, albeit with its share at or above 40 per cent of the votes cast, is a plausible outcome on September 18. That level of support will almost certainly lead to louder calls for another more comprehensive devolution bill in the next Westminster Parliament.
While a more radical phase of devolution would have significant political implications for Scotland and its relationship with the rest of the UK, the impact on investors are less immediately obvious.
Today the referendum ballot papers will ask: “Should Scotland be an independent country?” Arguably, proponents of separation from the UK stand to win regardless of the outcome, as a ‘No’ vote (provided its victory margin is relatively narrow) would legitimately push towards increased devolution.
