Industry – Shipbuilding, Whisky etc.

How will the industries based in Scotland be affected by a positive vote for Scottish independence?

The immediate impact for those trading on either side of the border will be that they will now be trading “internationally” rather than nationally.  This will increase their transportation, taxation/finance and also legal costs.

Why is the obvious question, after all, has the YES campaign not said that nothing will change under an independent Scotland.

• Transportation

When goods are transported in the UK, the costs are currently a permutation as to distance and value of the goods and a standard UK insurance policy.  But once Scotland goes independent, they will be transporting goods internationally and so the insurance premiums will change as will the associated transportation costs.

• Custom / Excise

The customs and excise regime will change and the documentation for cross border transactions will get more complicated.  More forms will need to be completed.  A lot of goods which currently only pay excise to the HMRC, will in future will probably have to pay import duties as well as excise duty for importation to the rest of the UK. This is something that a new Scottish government will also likely implement, in order to develop some sort of strategy for balancing the books, post independence.

• Financing / Insurance
  1. Increasing insurance costs for businesses north of the border. Why you might ask. The initial observation is that the transportation of goods to and from Scotland now has to potentially go through another country (England) and most insurance companies will see this as an additional, though low risk or if the transportation of these items is done by sea the increased risk due to seaborne transportation for a longer distance will definitely increase insurance premiums.
  2. Increased cost of doing business will inevitably be passed on the consumer, be it an individual or a businesses.
  3. Doing business with the rest of the UK will almost certainly involve some degree of exchange rate risk. The main political parties in Westminster have already advised that the possibility of a Currency Union in order to retain the pound is a non started.  So what currency is Scotland going to use.  The fact that the Yes campaign has no alternative plans smacks of poor planning.  As a consequence of the 1707 Acts of Union, the Pound Scots was replaced by the Pound Sterling at an exchange rate of 12/1 (Currency Conversion). Therefore the Pound Sterling does NOT belong to Scotland, no matter what assertions are made by the Scottish National Party and the YES Campaign.

• Whisky Industry & Beer
  1. The Scottish beverages industry currently imports a significant amount of grain from England to support their production capability. (Scottish Grain Imports).  Scottish Independence will change the costs of grain imports.  So is Scotland going to provide all the grain for the scotch industry?
  2. Production costs – will the Scotch whisky industry get preferential treatment from the Scottish government in order to “contain” the cost of grain imports. It won’t benefit the sales of scotch in Scotland as they are proposing to have a minimum cost per unit of alcohol.

• Possible additional charges for using English Roads
  This might seem a little strange, but there is likely to be a “call” for the transport industry to pay “surcharge” for transporting goods to Scotland. After all there will be little that can be perceived as benefitting the “English” economy, but merely adding to the wear and tear on the English road network.

• Shipbuilding

The question which is being raised with regards to Scottish independence has been what will happen to the shipbuilding industry.  Scottish Nationalist are convinced that should they win the vote that the Government of the rest of the UK will continue to award defence contracts to Scotland.

From a procurement perspective that makes no sense.  If you are going to outsource to another country then parliament and the National Audit Office should insist that the best value is obtained.

From a practical and nationalist position why would any country but the management of their defence establishment in the hands of another country and especially when it comes to the building of warships. It would allow contracts to be delayed if the workers in that country do not agree with the actions of the UK government.

Politically it would be very difficult for any UK government to justify paying money to Scotland to build ships for us.  We could use the opportunity to revive shipbuilding in Portsmouth and the northeast and develop a good apprentice scheme for both areas.  Whilst indications have been given to the Scottish yards that new contracts will be coming their way for new patrol craft for the Royal Navy it is difficult to see how these can be awarded following Scotland going independent.

7. Financial Services

As previously discussed the financial services industry in Scotland will have to establish a range of subsidiaries in other parts of the UK in preparation for the separation.  Investors in the rest of the UK will expect that their investments denominated in Pound Sterling will continue to be managed in Pound Sterling.  This will have an impact on employment in Scotland.

Additionally, should Scotland go independent, then the EU may require that the head offices and “registered” offices for Lloyds Banking Group and Royal Bank of Scotland may have to move to England.

Following a vote for independence, the Bank of England should inform the three Scottish Banks that they will no longer be allowed to issue notes in Pound Sterling as of 1 January 2016.

How much will this mean to the Scottish for their GDP and associated employment figures?  Additionally should the companies forced to make people redundant as a result of the vote, pay the redundancy?

How much will it cost in administration and paperwork for the assets to be located in the correct country and company? Who will manage the arbitration when there are disputes? How much do they affect the calculations as to the plans of the pro-independence vote? Should companies with client policies make the initial assumption that you want your policy based in the country you reside, but give you the option to “adjust it” to the other country?  How many contracts will have to be amended and the clients agreeing to the new terms? What happens if they don’t agree to the new terms?

Following on from the comments made by the chairman of HSBC, it is likely that given the ongoing, head in the sand attitude of the Yes campaign with regards to the currency that Scotland will be using, means that the likelihood of a substantial risk of currency flight from Scotland will increase.  There is minimal benefit for the rest of the UK to enter into a currency union with Scotland.  The continuing lack of clarity from the SNP and the YES campaign gives the impression that Scotland wants to give the appearance of being independent, but they also want the security blanket of having the Bank of England / Rest of the UK being in a situation of being forced to bail out Scotland in the event of something not going to plan.  So the obvious question for Alec Salmon and the Yes campaign – if going independent is so financially viable why does Scotland not want its own currency?

Conclusion

It would appear that the “business case” for going independent has been made upon:

• assumptions that not based upon reality
• Financial implications were not properly costed
• impact on Scottish business were never discussed or considered
• Choice of currency
• Membership of International Organisations and the associated time-frames for membership.

 

 

Post Independence Scottish Institutions

For the purpose of this discussion, I am going to assume that on the day on Scottish Independence, Scotland will not have managed to sign their treaty of accession to the European Union and as such would be operating as an independent country outside of the European Union.

It has been estimated that over 200 institutions that are currently undertaken by the UK government that would

• have to be replicated by institutions in Scotland
• Absorbed into existing Scottish Institutions
• Continue operating as they do currently provided that funding is independent
• Some other arrangement as yet to be determined (because no one has thought about it)

There are a number of practicalities which will need to be addressed in order to achieve the creation of these institutions or to ensure that their functions can continue:

1. As these institutions do not exist within a specifically Scottish Legislative environment, significant amount of legislative work will have to undertaken by the parliament of an Independent Scotland. Some questions come to mind:
   1. How can a Scottish Parliament pass legislation for an independent Scotland, prior to going independent?
   2. As Westminster passes about 50 statutes a year, we can therefore assume that it will take Scotland a minimum 4 years to pass the relevant legislation
   3. 18 months is insufficient time to pass all the relevant legislation – so will the Scottish parliament pass the legislation without the appropriate scrutiny or will they operate a hybrid (not totally independent Scotland – relying on the RUK to bail them out again)
2. What will be the nationality requirement for employment in Scotland, especially for the Scottish government or Scottish institutions?
3. What will be the employment / redundancy rights and safeguards for non-scottish nationals employed in Scotland?
4. Having passed the relevant legislation for the establishment of the new Scottish institutions, there will need to be a recruitment process to fill the senior positions in those institutions. Senior positions will take 2-3 months to identify suitable positions and then depending upon their current employment contracts they will almost certainly have a period of gardening leave before being able to take up the new employment. Whilst some individuals will be able to transition from current roles to a more senior one, most will require the recruitment of new individuals who will be experienced in the development of policy frameworks and the supporting bureaucratic infrastructure.

Employment

An independent Scotland could for ease of planning for their employment law simply roll over the existing UK Law as applicable for Scotland. This would provide an initial framework from which to develop the law. It would still require that the legislature of the Independent Scotland pass all the relevant statute in order for the law to come into proper effect.

There are a number of questions which I do not understand or certain practicalities which need to resolved:

1. How can the Scottish Parliament pass the legislation for the Independent Scotland prior to gaining its independence? Any such action would require the supportive actions of the parliament in Westminster – which would be expected to place its own business on hold to “support” the independence process for Scotland. This is not likely to win a great deal of favour with the Rest of the UK nationals.
2. A lot of policy development work would have to be done to implement the vision of the elected Scottish Parliament. This would require
   1. Time for the legislative framework to be passed
   2. Resources to be recruited to facilitate this
   3. Time for its implementation
3. Given the almost inevitable dislocation that would be caused by the splitting of Scotland from the rest of the UK. Who would be responsible for the redundancy monies that would have to be paid for those individuals who lose their jobs? As most people would not be prepared to relocate to keep their positions or indeed may not be able to continue in their roles if they choose to a nationality which is different from the government which employs them.
4. As the main political parties in Westminster have already said that an Independent Scotland would not be able to share the Pound Sterling (certainly no membership of the monetary management policy group). Thus Scotland would be faced with identifying the currency it will be using. The choice of currency will have an impact on the salary of the Scotland based employees. This will also impact on salaries that would have to be offered in order to recruit top class executives.
5. What would be the employment rights of individuals who are based in Scotland but employed by “Non-Scottish” companies? Would these companies have to suddenly create subsidiaries, relocate the individuals affected or make them redundant?
6. If employees are transferred to a new company because of Scotland’s Independence what would happen to their length of service records and their pensions? Would contracts of employment have to be changed? Almost certainly as the currency and pension provisioning would almost certainly have to change? What would be the employer liabilities for that?
7. Scottish based companies with employees south of the border would also have to assess the potential financial impacts of the changes that would have to be made.
8. Who would be responsible for the re-generation of employment opportunities in areas badly affected by the relocation of government department or bases? Especially following the forced relocation of the Faslane Naval base and associated facilities and support infrastructure.

These are some initial thoughts as to the impacts on employment should Scotland go independent.