Scottish independence is merely about oil, whisky and finance

Currency conundrum
One much-talked about issue facing Scottish industry is what currency it would use. A poll by YouGov in February showed that more than half of Britons were opposed to a currency union with an independent Scotland. UK Chancellor George Osborne has since quashed hopes of Scotland using the pound, leaving three options: using it without Britain’s consent (sterlingisation) in the same way that Panama uses the American dollar; adopting the euro; or establishing an entirely new currency.

Forming an effective single market, maintaining international competitiveness and adapting to new financial regulation are other pressing uncertainties that businesses could face. Scotland is unlikely to suffer from a flight of foreign trade, though. Its biggest international market is the US, with an estimated £3.55bn in exports in 2012. China’s growing middle class could also give the sales of luxury items – like single malt whisky and salmon – a significant boost. Big importers like America and China will be crucial to strengthening the export sector if Scotland were not quickly accepted into the EU.

If this is the case, Scotland could join the Nordic Council, according to co-founder of Biggar Economics Graeme Blackett. He told World Finance that joining the Nordic Council would ensure Scotland maintained good trade relationships. “It would help in the global exportation of Scottish goods and to develop connections with countries involved in green growth,” he said.

He added that it’s imperative the financial industry retains close ties with London banks. Scotland exported £11.2bn in financial services in 2012, and the strength of the industry is linked to its close association with the city. “A single market that continues to benefit from relative proximity,” is key to the industry, said Blackett.

Business perspectives
Most Scottish businesses remained impartial in the run up to the independence vote – but not all of them stayed on the sidelines. Bus tycoon Sir Brian Souter, owner of Stagecoach, donated £100,000 to the Yes Scotland campaign for independence, while distillery William Grant and Sons donated a six-figure sum to the Better Together team. The fact that both Yes and No campaigns received donations from Scottish businesses goes someway to illustrating how divided the business community has been on the issue. It was unable to equivocally agree on what outcome would be more beneficial for businesses.

Scotland needs a individual approach to economic policy. It needs to ensure growth and demonstrate that it is capable of making its own decisions. Edinburgh provides an interesting example of the need for economic reform. Scotland’s second-biggest city has had control over a range of policy areas for 42 years thanks to the Local Government Act, and has done surprisingly little with it. Among its powers includes the ability to vary income tax by up to three pence to the pound. Its leaders have not exercised this right in over 40 years, which is hardly indicative of a country desperate to make its own decisions. Independent or not, local Scottish governments need to be given more power, and to exercise it.

Glasgow is set to receive a £1.13bn grant to help pay for infrastructure projects and employment programmes in the city. The grant is part of the City Deal policy, an initiative set up by the coalition government to give cities control over decisions that affect them. The deal will see the “creation of 28,000 jobs, generate £1.75bn annually and unlock £3.3bn of private sector investment”, said a Glasgow City Council spokesman. Westminster and Holyrood will both invest £500m in the scheme with the remaining £130m coming from local authorities in the Clyde Valley region.

The huge infrastructure fund – one of the largest City Deals in the UK – will be used to support projects like the long-awaited city centre to airport rail link, new roads and an improved bus service. The policy is one of the few nationally approved plans from the coalition government, but it may be politically motivated. Glasgow will only receive the sum of £500m from the British government if it chose to remain part of the UK, which at the time of writing was as yet undecided. Asked if the deal was a parliamentary bribe disguised as a sweetened pill, the spokesman denied it was a “gift”. Blackett was equally coy on the political undertones that have dogged the Glasgow City Deal, but emphasised £1bn isn’t enough. “Scotland needs an infrastructure fund of at least £5bn to compete internationally. And any such infrastructure package needs to be funded by Scottish investment rather than deficit funding,” he said.

The cost of change
Professor Patrick Dunleavy of the London School of Economics believes that independence would cost the Scottish taxpayer between £600m and £1.4bn over the course of a decade. His figure includes the cost of forming government bodies, an army and intelligence service, and would be equivalent of up to 1.1 percent of Scotland’s GDP. It is a high price, but Scottish nationalists would gladly take it over another 307 years with Britain.

If the people of Scotland choose to leave the UK on September 18, businesses will be faced with a number of risks and uncertainties. It is fair to question if exports will be worth £100bn, or if Scotland can become one of the world’s wealthiest nations, as Graeme Blackett hopes.

The headaches over oil and gas reserves, demography, productivity and international competitiveness are all ones that will need to be addressed. Regardless of whether Scotland is independent or not, the most important thing for its industry is that a dynamic economic policy is developed to nurture growth and support exports like oil and whisky.