Partner Article

The Scottish Question: How independence will change business forever

Stephen Attree is managing director of MLP Solicitors, the North West-based commercial and private client law firm. Here, he examines the business implications of Scotland voting for independence.

On Thursday, the people of Scotland hit the voting booths to decide whether or not to end more than three centuries of union with the UK.

The outcome is on a knife-edge. The yes campaign, led by First Minister Alex Salmond, and the Better Together or no campaign, led by former Chancellor of the Exchequer Alistair Darling, are neck and neck in the polls. A huge swing in favour of the yes campaign over the last couple of weeks has meant businesses across the UK are now waking up to the very real possibility that Scotland will go it alone.

However, if Scotland became independent, there would be a massive hidden cost for businesses.

Especially small- and medium-sized enterprises (SMEs) that typically have less money put away to absorb exceptional costs.

Currency

For instance, what currency would businesses use to pay staff, suppliers and contractors in Scotland? Money makes the world go round so perhaps it is unsurprising that the currency question has become the defining issue of the campaign.

Salmond is adamant that Scotland would be able to retain the pound, yet the UK’s three main political parties have all ruled this out. Failing a major change of heart in Westminster, this would leave Holyrood having to persuade Scotland to enter the euro or even launch its own currency.

But switching currency is fraught with difficulties – companies would need to decide whether to pay in pounds, euros or the new currency. Scottish recipients may demand payment in their native currency, but this would leave businesses taking a big financial hit because of the cost of conversion. And that’s without even taking into account how much it would cost companies to move all of their business processes away from sterling.

Commercial contracts

There would also be a big impact on commercial contracts.

In the event of a yes vote, the onus would probably fall on businesses to review the terms of their existing agreements with suppliers and distributors to reflect the new geographical boundary. Historically, contracts relate to the UK as a whole rather than breaking this down into its constituent parts of England, Scotland, Wales and Northern Ireland. Similarly, many contracts refer just to the EU rather than laboriously listing all 28 member states.

All of these contracts would need updating after a vote for independence. For example, an agreement that grants a company UK-wide exclusivity might no longer include Scotland. And a contract that covers the EU might not include Scotland if, as Better Together and senior figures in Brussels contend, the country was required to reapply for European membership.

Employee rights There would also be significant implications for employment law.

Where a company has employees spread across England and Scotland, for example, there is an important question to be asked about which set of laws would apply. For the sake of simplicity and certainty, businesses might want to stipulate that their staff are subject to English law. But if the employee is based in Scotland or primarily works in the country, the company would have to abide by Scottish legislation.

Of course, Scotland has always had a different legal system, but this could become more and more pronounced over time as yes campaigners gradually implement their social justice agenda. If Scottish workers did enjoy better employment rights, though, there is a danger that employees based across multiple sites could prefer Scottish contracts to English ones. Employees would be perfectly within their rights to shop around for the best contracts so employers may need to change their offering to attract and retain the best talent.

The cost of doing business

An independent Scotland would have the power to run the country as it sees fit.

In some circumstances, this might be beneficial to companies, such as with Salmond’s pledge to keep corporation tax 3 per cent lower than the rest of the UK. The fact that Scotland would be able to collect and redistribute tax receipts might in theory allow it to better invest in priority areas.

In other circumstances, however, the change might be far less amenable to businesses. Major retailers such as John Lewis, Asda and Morrisons have warned that prices could rise in Scotland unless the Scottish Government stepped in because of the cost of distributing to the remoter parts of the country. Meanwhile, big energy companies such as BP, Shell and The Wood Group have come out strongly against independence, with the no campaign claiming that energy costs could skyrocket following a yes vote because of the country’s reliance on renewable energy and uncertainty over how much oil is left in Scottish waters.

And of course, Scotland (with 5 million citizens) would not be able to rely on the additional financial muscle of the rest of the UK (with 59 million citizens) if tax receipts fell below expectations.

A timeline for independence

It is important to stress that the business landscape would not change overnight should the Scots vote yes on Thursday.

Rather, the UK and Scottish governments would then embark on a period of intense negotiations to disentangle everything from taxation and banking to energy and transport. The Scottish Government hopes that the key points would be ironed out within 18 months, in time for the people to celebrate Scotland’s Independence Day on 24 March 2016. The Better Together campaign, by contrast, argues it could take years to finalise the details.

Whatever the truth, the fact is that Scotland would enter a transition phase for at least 18 months. During this period, the country would have to issue a raft of legislation to pave the way for independence.

A timeline for devolution

However, even if Scotland votes to retain the union, this would not be the end of the matter. In an effort to woo undecided voters, the three main Westminster parties have pledged to offer a package of measures to give Scotland greater autonomy. It is effectively a speeding up of the existing devolution process, leading some commentators to dub it a new version of Devo Max. Unfortunately for businesses, however, the exact details of what will be offered are not expected to be confirmed until after Thursday’s vote.

What next?

It is clear that companies based in Scotland, and those that do business in the country, will face plenty of uncertainty over the coming months.

A yes vote would kickstart a radical and truly unprecedented period of upheaval. But a no vote would also lead to substantial change.

Once the outcome of the vote is known, companies will need to move fast to ensure they stay within the law. For starters, they may need to update their commercial contracts and rethink what rights they offers employees, and a good law firm will help ensure they are on the right track. At MLP Solicitors, we have been working with our clients for months to make them more resilient whatever happens in the referendum. But there are still so many details to be decided. It is likely that vital decisions such as what currency would be used and how much would it cost to do business will only become clear after months or years of negotiation between Westminster and Holyrood.

One thing is for sure, the reverberations from the Scottish referendum will echo long after Thursday’s vote.

This was posted in Bdaily's Members' News section by Stephen Attree .