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The Cost of Independence

“The Cost of Independence – concerns and fears of Scottish Businessmen” Martina Macakova “What business leaders in Scotland really seek to hear is a positive discussion on the future for Scotland and what part they can play in shaping it, not a re-run of old arguments about potential damage to the economy of constitutional change. ” introduction Ewan Hunter, Director of HunterSearch This essay deals with a discussion about Scottish independence through the perspective of local business leaders.

Its aim is to analyze their opinion on Scottish tendencies towards independence, if and to what extent could they influence the results of upcoming referendum and whether Scotland’s business companies could play a role of an ally of the UK government.

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It provides the analysis of the current situation, especially in the light of recent events, as the First Minister Alex Salmond, leader of the Scottish National Party (SNP), in the beginning of January announced that the referendum on Scottish Independence should be held in autumn 2014.

In this essay I will attempt to come with a prediction of the possible future development of the opinion of Scottish leading business companies. For that purpose I have examined mostly newspaper articles, opinion polls, governmental documents and public speeches given by the local business representatives. As a secondary source and the introduction to the topic of Scottish Independence I found very valuable a publication written by Jo Eric Murkens, Peter Jones and Michael Keating Scottish Independence: A Practical Guide. A division of state into two sovereign parts would be very complicated and long-term process.

It is a process fraught with problems and controversy. Whether it is a break up of marriage or of nations, the major bone of contemption is always the same – who gets what. The division of Czechoslovakia in late 1992 and 1993 could serve as a precedent for similar action, anyhow the situation of the Union and former Czechoslovakia differs. In Scotland’s case, controversial may be especially the separation of state debt and North Sea oil reserves; the future of military bases on the island of Clyde, home of British nuclear missiles; question of the membership in the European Union and currency issue.

Despite the fact that the independence is primarily a question of national identity and political change, we cannot forget that economic prosperity is prerequisite for well-functioning state. It’s Scotland’s oil If there was an independent Scotland would it be economic failure or success? It might sound a paradoxical thing to say but the core issue related to the economics cannot be really answered correctly. According to Peter Jones, the starting point for dealing with the economics of independence needs to be existing Scotland.

And current Scotland is a Scotland that operates within the United Kingdom of Great Britain and Northern Ireland. It is obvious that public spending would demand greater income as two new types of costs would affect the public sector. First of all, there are costs incurred by the need to add on functions (such as defense) and those incurred by the need to disentangle the Scottish element of such UK-wide bodies (for example Inland Revenue). Undoubtedly, Scottish government can count on the benefits from obtaining control of offshore oil and gas resources.

The representatives of SNP repeatedly assert the Scotland would be among the world’s richest countries. Additional GDP acquired from the profit made by oil companies offshore is something what we can more or less rely on. Before his re-election campaign Alex Salmond grasped the opportunity to dust off SNP’s old slogan “It’s Scotland’s Oil”. It was a smart move. As the election results showed the resurrecting claim that all North Sea oil – as well as its revenues – belongs solely to Scotland, was what Scottish voters wanted to hear. Oil and gas resources themselves don’t guarantee long lasting wealth.

Douglas Fraser, Scotland Business and Economy Editor at BBC, expressed his concerns that there is an elephant in the room that needs to be discussed. The price of oil is volatile and volatile price of oil means volatile income. Moreover, the trend is clearly for the volume of oil and gas production to fall, though that is partly offset by higher average prices, higher tax rates, and so buoyant revenues. Yet, an economy of an independent Scotland would be dependent on number of variable factors whose precise effects cannot be forecast. Among those unpredictable factors is a haracter of the negotiations that can either minimaze or enlarge the degree of uncertainty. The level of uncertainty affects business confidence and investment and it is something that has been often mentioned by the Scottish business representatives while comenting on the question of independence. As Peter Jones points out, another parameter which stands completely out of political control is whether the general economic environment is good or bad. In adverse times, business would be extremely nervous about independence as would the international markets. In this situation the price of independence could be quite high.

The aim of idependence is to change the monetary, fiscal and regulatory regime which is currently the same as the in rest of the UK. The Scottish voters are likely to approve a different kind of a devolution model, which would provide more powers for the Scottish Parliament, particularly in terms of tax-varying powers and fiscal policy in general. The conclusions of a poll conducted by Ipsos MORI in November 2009 are that 66 per cent of the respondents are in favour of the Scottish Parliament having increased its powers, whether in terms of further devolution or fully independence.

The attempts to get the public involved and the referendum itself should be appreciated. That is the major difference in comparison with the zero involvement of Czechoslovak citizens when the dissolution of Czechoslovakia was decided about. More explanation about the proposed concept of independence provides the “Scotland’s Future: Draft Referendum (Scotland) Bill Consultation Paper”. Independence in terms of the proposal would mean that the Scottish Parliament and Government would be responsible for all areas of legislation, including foreign affairs, defence and taxation, but the Queen would remain the head of the state.

The current political and monetary union would be replaced by a social and monarchical union. Although the monetary union would no longer exist, Scotland would keep operating within the Sterling system until it would be decided in a referendum that Euro would be accepted. Although, SNP leaders would most likely to follow the peacefull process of velvet divorce of Czechs and Slovaks, it doesn’t seem that monetary question would be the case as the issue of currency remains unclear.

While the Czechs and Slovaks immediately began to create their own currency, the Scots first considered adopting the euro. In connection with lasting Eurozone crisis First Minister Alex Salmond changed his rhetorics and now claims that they would keep the pound. The SNP proposes sticking with sterling until Scots choose, by referendum, to join the euro. According to Douglas Fraser from BBC, his problem, in explaining this policy, is that remaining with sterling leaves the Treasury and Bank of England in London to set Scotland’s monetary policy, while having no influence over it.

THE business of (un)certainty Until recent time, there has been almost deafening silence on whether Scotland should become an independent country from local business companies. We could argue whether the reason for the lies in potencional risk of going out on a limb, as Douglas Fraser suggest in one of his articles, or if it more simple than that and the business leaders are just too occupied with the current financial crisis. Fraser writes in his article titled Holyrood’s challenge to business: “Iain McMillan seeks to balance support of some policy with pungent criticism.

On balance, he says members say the potential advantages of devolved business taxation are outweighed by the likely costs. But it is the criticism that gets McMillan noticed, and nationalist voices can increasingly be heard questioning the legitimacy of the CBI as a voice for business in Scotland. The Federation of Small Businesses, the Scottish Council Development and Industry and Scottish Chambers of Commerce are careful to sit on the fence, probably because their memberships are split on constitutional questions.

It is also because the implications of the Scotland Bill, or of increased devolution of taxation powers, are so unclear. […] Representing the banks, insurers and asset managers, Scottish Financial Enterprise wants to know if the tax base could be changed as well as the rate. Would there be additional complexity, and at what costs to business? How volatile would tax receipts be, and can a value be placed on the value of being part of a larger, more diverse tax base, as at present?

Even asking questions, which might be seen as hostile or at least awkward, is risky territory for business. ” SFE Chairman, Mark Tennant, expressed his concernes regarding independence at the end of his speech at the annual dinner in December last year: “Our approach, however, should be empirical and focused on facts and the removal of uncertainties. […] Our role is to identify the questions that need to be answered and ensure that the electorate receives an answer before they vote. ” Also Danny Alexander who is MP for Inverness, Nairn, Badenoch and Strathspey, and Chief Secretary to he Treasury shares opinion that uncertainty hurts economy and remarks that „if the Eurozone has taught us anything, it is that monetary union between fiscally independent states is an extremely difficult challenge. “ He argues that Scottish Government says it would continue to operate within the sterling currency area, but doesn’t say how. His message to the Scottish leader „think carefully before sacrificing stability through independence. “ Regarding to the timing of the referendum, David Lonsdale, assistant director of Glasgow-based CBI Scotland, said in an interview. We want it sooner rather than later. ” From the comments above is obvious that umbrella organizations associating Scottish business companies such as CBI and SFE are taking the side of UK government claiming that referendum should be held as soon as possible and at the same time expressing serious concers about the benefits of country’s independence. For a long time it seemed that the individual business leaders adopted an ostrich strategy because few Scottish business leaders have spoken publicly about constitutional change.

However, year 2012 brought a turnover as some one of managers decided to stir up the still waters a bit. Martin Gilbert, chief executive officer of Aberdeen Asset Management Plc, Scotland’s largest fund manager, spoke out: “Whether it is independence or not is a matter for the voters to decide. I would like to see all the figures so you can make an informed judgment. At the moment you don’t know what the true figures are. ” Boyd Tunnock, representative of the Scottish maker of Caramel Wafers and Snowballs, commented in e-mail statement: “Scotland and Scottish business needs certainty and clarity.

We need the independence referendum to be held as soon as is reasonable so that investors know where they stand. ” To some extent the uncertainty was diminished by the Salmond’s clear statement about the referendum date. One of country’s leading businessmen Jim McColl welcomed the Scottish Government’s upcoming consultation on Scotland’s constitutional future by saying: “Many of us in business are convinced a prosperous future for this country depends on more powers for the parliament. Article Business leaders join in referendum debate published on Tuesday this week shows slighty more positive attitudes towards the constitutional change and vice versa express criticism towards the representatives of CBI, SFE and Westminster politicians: “Members of Scotland’s business community have refuted questions over the timing of an independence referendum and called for an end to scaremongering and a proper discussion on the merits of taking all decisions about Scotland within Scotland. […] There is little hard evidence that the referendum or the prospect of Scottish independence is damaging the Scottish economy.

Business leaders have in the main expressed either a neutral or a positive attitude towards constitutional change in Scotland. ” The author of the article supports his argument by quoting some of the local business leaders: “Recently David Watt, Executive Director of the Institute of Directors in Scotland was asked by the BBC’s Huw Edwards whether he was concerned by the prospect of a Scottish referendum in autumn 2014, as opposed to the Westminster government’s preference for a vote as soon as possible.

Mr Watt said that he thought that the date of the referendum made no difference. Having a timetable leading up to the second half of 2014 allowed businesses to plan. ” Similar opinion has Dan Macdonald of Macdonald Estates: “The fact is the biggest decision in three centuries lies before us and we owe it to our children, and those who succeeded us to take whatever time is required to discuss the form and detail of what will be our New Scotland. In order to do that London politicians need to stop peddling scare stories and focus on a meaningful debate about Scotland’s future. On the same is also owner of The Residence Glasgow, Sarah Jane Walls who feels that there should be “less negative scaremongering and more positive debate about Scotland’s future,” continuing that she is “excited about the possibilities for Scotland as independent country. ” According to the survey processed for the Business Insider that covered opinions of business on Scotland’s independence, the majority of businesses (67 per cent) think independence for Scotland would not have a positive effect on their business with only five per cent saying it would be positive and 17 per cent unsure.

Questionnaires were sent to companies listed in Insider’s TOP500, SME300 and SPRINT100 lists. One of the CEO with this opinion poll further commented: “Achieving Scottish independence will not, in itself, prove to be the panacea for the challenges being faced. After all, there is little or no evidence to show any change will be positive. Therefore, to help improve our economy appoint independent Scottish and international business experts to properly advise our inexperienced politicians to tackle the real, everyday issues of business rather than spend unnecessary time debating the future of Scotland without ny clear evidence to support how, and indeed why, the status quo should be changed. ” The contrary opinion expressed David Watt, executive director in Scotland of the Institute of Directors, by saying that none of the institute’s 1600 members have expressed any concern as to a delay in a referendum vote. A spokesperson for UK Oil & Gas said although the body has no member consensus on the issue of independence, none of its members has raised the issue as a specific concern. Conclusion The aim of this essay was to deal with the issue of Scotland’s independence from the perspective of local business leaders.

By analyzing especially newspapers articles that are dealing with the topic I learned that there are three possible attitudes towards Scotland becoming independent. One side represented mostly by CBI and SFE publicly claims that independence vote could harm Scottish economy. The opposite camp, which is primarily constituted of blue-chip companies, suggests the contrary. These positively thinking business leaders are denying comments that a delay on independence and the independence in general will destabilise the Scottish economy. The third group is classified by being neutral or by refusing to comment on the independence question.

It is logical that CBI and SFE are speaking less in favour of independence and the later date of referendum as they have closer relations with the government in London than the individual organization do. In my opinion, even the business leaders that proclamated their support for independence cause and Salmon’s referendum timing feel at least some doubts. Also I think that a lot of the is actually tired of the independence talk and they would rather here from both UK’s and Scottish Government some warranties in the time of economic crisis and that the politicians will support their efforts to kick-start the ailing economy.

From the side of the local business leaders there is understandable demand for answers on number of important question. That brings us back to the introduction of the essay where I comment that most of the issues regarding the economic situation of independent Scotland cannot be precisely predicted. However it sounds disappointing. Many options might take place and the situation depends on various factors that Scottish Government cannot influence. We don’t even know the answer to the fundamental question – whether there will be an independent Scotland. UK’s government is strictly against the eparation of the Union, neither the Scots itself are united on the matter and as stands out from the lines above, nor the Scottish businessmen. Still, the independence is surely more realistic than it was couple months ago. I believe that CBI and SFE could be potencial partner of the central government during the future negotiations over independence. They associate number of important companies and they could have certain influence on their members. On the other hand, there is a quite large number of companies, which are managed by people who decided to prove that the idiom “You can’t fight City Hall” is a false statement.

My belief also is that business could influence the negotiations, however I wouldn’t say that companies could be determine the public opinion in general. Which side in end the majority of the business leaders joins will depend on numerous factors, especially on how skilfull in answering difficult questions will Scottish political representatives be. SNP with Alex Salmond in lead is trying something that no-one has ever tried before. To conclude I would say that I propably wouldn’t bet on my own prediction because predicting something in terms of the economic situation of independend Scotland is like predicting the unpredictable.

References Murkens, Jo E. ; Jones, Peter; Keating, Michael. Scottish Independence: A Practical Guide. Edingburgh University Press, Edinburgh, 2002. Tom Clark. If one day it really is Scotland’s oil … what will we do with it? The Herald Scotland, 29 October 2011. Available online: http://www. heraldscotland. com/news/home-news/if-one-day-it-really-is-scotlands-oil-what-will-we-do-with-it. 15567484 (accessed on 16 January 2012). Douglas Fraser. What would happen to Scotland’s economy after independence? BBC. 15 January 2012.

Available online: http://www. bbc. co. uk/news/business-16548644 (accessed on 16 January 2012). Douglas Fraser. Holyrood’s challenge to business. BBC. 30 September 2011. Available online: http://www. bbc. co. uk/news/uk-scotland-scotland-politics-15122749 (accessed on 10 January 2012). Scotland’s Future: Draft Referendum (Scotland) Bill Consultation Paper. 15 February 2010. Available online: http://www. scotland. gov. uk/Publications/2010/02/22120157/0 (accessed on 10 January 2012). Danny Alexander. Uncertainty hurts economy. Scotland on