SME: One small word, three letters, huge implications.
It’s difficult right now to separate the rhetoric from the hyperbole from the reality but the Scottish Referendum is certainly one thing, and that is it’s “in the balance”.
For every claim of new found freedom there are murmurings of uncosted elements, for each newly enshrined power there are warnings of financial meltdown.
And in essence, beyond the nationalist politics, all the Scottish referendum boils down to is the economics.
Who gets what out of the divorce and what can be done to scare the want away partner from fleeing the marital home.
With RBS (and its motley group of companies), Aberdeen Asset Management and Standard Life all major players in the financial markets there is very real concern that an independent Scotland will out-Iceland Iceland in not having an economy to support its financial institutions. Meaning either an enforced split or domicile in England to ensure continued operations. Neither of which signal strength in a newly independent Scotland.
Indeed already Lloyds have opted to domicile the TSB in England and more are threatening to follow. But UBS the Swiss bank have reported that micro level impacts will also be a danger in a newly independent Scotland with small investors leaving for safer climes, saying:
“In a scenario where there is even a possibility that Scotland could have anything other than full monetary union, we believe Scotland is likely to be perceived as the weaker part of the sterling area. On that basis, aversion on the part of depositors may lead to savings shifting rapidly.”
Chancellor of the Exchequer, George Osborne, has already warned that any continued use of the pound after independence, would be done without the authority of the Bank of England.
Taking the examples of Quebec in 1995 and Slovakia in 1993 as runs on the banks with depositors moving to safe havens under the prospect of independence UBS said any such occurrence could be:
“An incentive to reduce credit creation in Scotland in the absence of full monetary union, or [to] raise interest rates for Scottish domiciled customers in order to induce deposits to stay north of the border”.
And higher interest rates are absolutely not in the interest of businesses who have growth and job creation as goals.
Indeed Thales, the defence contractor, is the latest business to warn that a Yes vote in September would bring
“no discernible benefits to our domestic or export prospects from independence”.
Victor Chavez, chief executive of Thales UK, said:
“For our Glasgow business, independence would take its largest domestic customer and make it an export customer, with all the inherent complexities and challenges that would involve. This could clearly have a negative impact on Thales.”
Babcock have similarly warned that a positive vote would mean:
“A lengthy period of uncertainty”
and would result in
“adverse consequences”.
Whilst BAE Systems has been explicit in cautioning that its planned £270m investment in the Scotstoun shipyard would be in major doubt if independence were successful.
Interestingly all these companies are in the defence industry, and whilst some would rightly point out their strong ties to the No supporting UK government, their status as major employers and economic drivers in Scotland leaves no-one in any doubt that the post referendum future for business is uncertain.
So what could this mean for the thousands of SMEs in a newly independent Scotland?
Of course some would thrive with new found focus and markets but for others, dependent on wider supply chains, exposed to currency risks (even without a move to the Euro), lower investor confidence and potentially higher tax rates to fund the uncosted elements, the future is far from rosy.
In truth the expectation is that nothing will change, a No vote will prevail and Westminster will cede a few more powers to Holyrood. But if Yes is the conclusion then real uncertainty will cloak Scottish based businesses for the rest of the decade and only time will tell whether the inevitable pain will have been worth it.