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Scottish independence: the cost of uncertainty

Stephen Beard Sep 17, 2014
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On Thursday, the people of Scotland go to the polls for the most important economic decision of their lives. They’ll vote on whether or not they want to separate from the United Kingdom. They’ll also be voting with an unprecedented chorus of warnings ringing in their ears.

More than a hundred companies with Scottish operations have spoken of the perils of independence; five major banks, a big insurance company and one of the UK’s largest investment funds have threatened to pull their headquarters out of Scotland if there’s a “yes” vote; and supermarket chains say it could mean higher prices.

The pro-independence leader Alex Salmond blames the ‘No’ Campaign for this outpouring of corporate angst.

“I think the problem lies entirely with the ‘No’ campaign,” Salmond told a news conference in Edinburgh. “The ‘No’ campaigners have been caught red-handed as being part of a campaign of scaremongering.”

Salmond claims that those opposed to independenceincluding the UK’s national government at Westminsterhave pressured the companies into speaking out.
But the warnings of turmoil have been widespread and cannot be so easily dismissed. The main concern is acute uncertainty.

Following a “yes” vote, there would be at least 18 months of intense negotiation over some highly contentious issues: What currency would Scotland use? How much of the UK’s national debt would it shoulder? How much of the North Sea oil would it inherit?

Mike Amey of the Pimco bond investment firm says this would create uncertainty which could be economically damaging.

“We wouldn’t know who’d end up with what. As a result you’d find some business investment put on hold during that period, the economy would be weaker,” says Amey.

Some economists say that, at a stroke, the UK’s reputation as a global safe haven would be smashed. A survey of foreign exchange traders has indicated that the British pound could fall by 10%, and it would be more difficult for the UK to attract the inward investment flows that it needs to balance its books.

Dire predictions are coming thick and fast. A well-known property website forecasts that if there’s a “yes” vote, Scottish house price could crash, wiping $130 billion of the value of Scottish real estate and rattling Britain’s mortgage banks.

Scottish businesswoman and “Yes” campaigner Michelle Rodger says these forecasts are ludicrously negative.

“A ‘yes’ vote would send the most positive message to the rest of the world,” she says. “It would be Scotland saying: We’ve taken this opportunity, we’ve grasped it with both hands and we’re going to change Scotland for the better.”

No one doubts the Scots would be able to run their own successful economythey’ve played a leading role in the UK’s political, corporate, scientific and creative life for centuries. But divorce can be messy. Disentangling the 307 year old union with the rest of Britain would be monumentally difficult and costly.