Without a large domestic market underpinned by a common currency, taxes, rules and regulations with no borders, transaction costs or restrictions on investment or people, UK customers of firms based in Scotland would be put at risk.
The Scottish financial services industry accounts for some 200,000 jobs and £800bn of assets, according to Hargreaves Lansdown. The industry reported earnings of £11.2bn in 2012 – 86 per cent of which came from sales to the rest of the UK.
About a quarter of all assets managed by groups with headquarters in the UK are managed by Scottish fund groups, and 41 investment trusts are incorporated in Scotland.
Tom McPhail, head of pensions research at Hargreaves Lansdown, said, “The more that the two jurisdictions diverge in their legislation and regulation, the more investors are likely to have to pay for their financial products. Scotland already has powers to vary income tax by up to three per cent, as yet unused.
“Different tax rates, different regulators, different compensation schemes all add additional costs to financial products such as bank accounts, loans, and investments. This is because any financial institution operating across both an independent Scotland and the rest of the UK would have to have two sets of processes, record keeping, literature, training systems, call centres, etc.”
The Centre for Economics and Business research determined that Scottish independence would result in approximately 20,000 to 40,000 jobs in Scotland’s financial services sector being moved to the UK.
According to UK Treasury figures, the finance and insurance sector contributes around £9bn to the Scottish economy every year. This accounts for more than eight per cent of Scottish economic activity, excluding North Sea oil and gas extraction.
The Treasury stated that UK Nisas would no longer be available to Scottish savers in their current form if Scotland becomes independent, even though 89 per cent of the Nisas and 91 per cent of the pensions managed by Scottish firms are on behalf of non-Scottish clients.
Companies based in an independent Scotland would face regulation costs and uncertainties, and a new financial regulator would have to be established for the independent countries.
BlackRock stated that bank and insurers would face pressure to move headquarters to a stronger fiscal state with a more certain regulatory backdrop, though a wholesale exodus of staff would be unlikely owing to Scotland’s cost advantage over London and other locations.
In a speech to the CBI Scotland conference in Glasgow, prime minister David Cameron warned that 90 per cent of Scottish financial services’ clients live in the rest of the UK, and a Scottish yes vote would make business more difficult.
Alliance Trust, which is based in Scotland but has offices in London, has started to prepare a plan to transition its customers in the case of Scottish independence.
Karin Forseke, chairwoman of Alliance Trust, said, “To remove any uncertainly, we have started to work to establish additional companies which will be registered in England, in order to provide operational flexibility and to complement our existing business in Scotland.
“This gives all our customers, regardless of their location, full confidence that we will be able to provide continuity of service and protection for their investments and savings.”
A transition to Scottish independence would introduce costs, risks, and uncertainties to both Scotland and the rest of the UK, including currency disagreements, division of hydrocarbon bounty, opening balance sheet for Scotland, financial regulation, EU membership, and taxes.
Depending on its share of North Sea oil revenue, Scotland would have an estimated deficit of five per cent to 15 per cent of GDP, and an aging population and promise of tax cuts post-independence make a fiscal surplus unlikely.
