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Potential impact of Scottish Independence Referendum

Thursday will see the end of the long political campaign as Scotland goes to the polls to deliver its final verdict on the independence referendum. The result is expected to be known by 7.30am on Friday morning.

Ahead of the referendum, we outline below the expected timetables for the changes proposed by both sides once the decision is delivered. We also briefly recap on two of the core issues which have dominated the debate – currency and EU membership – and how either outcome could potentially affect these, and the Scottish legal system itself.

Timeline

  • Thursday 18th September 2014 – voters in Scotland will answer either "yes" or "no" to the question on Scottish independence: "should Scotland be an independent country?"
  • Friday 19th September 2014 – the result of the referendum is unofficially estimated to be announced between 6.30am and 7.30am.

If there is a Yes vote:

  • 24th March 2016 – the proposed "Scottish Independence Day" to ensure that the parliamentary elections scheduled for 5th May 2016 will be the first elections of an independent parliament.

If there is a No vote:

  • By 31st October 2014 – the current UK Government plans to publish a "command paper" setting out proposals for devolution of an increased range of powers to the Scottish Parliament, followed by initial consultation – so-called "devolution-max" or "devo-max".
  • By 30th November 2014 – publication of a White Paper setting out "heads of agreement" for a new Scotland Act, followed by further consultation on the proposed new powers.
  • By 25th January 2015 – draft of the new Scotland Act to be published for the House of Commons to vote on.
  • Immediately after the May 2015 General Election – Second Reading of the new Scotland Act.

Key Issues

Currency
Currency has been one of the topics which has been widely debated in the lead up to the referendum. It is likely that a vote for independence would have the biggest impact on Scotland's currency as a vote to remain part of the UK would result in the status quo being maintained with the pound sterling and control lying with the Bank of England.
The current SNP Government is in favour of an independent Scotland keeping the pound sterling to provide stability for business and direct access to markets in remaining UK ("rUK"). This would be achieved creating a formal sterling monetary union between rUK and an independent Scotland. 

Despite proposing a formal currency union with rUK, the current SNP Government's policy position is that, with independence, Scotland will have full control over fiscal policy, including powers in relation to taxes, spending and borrowing. However, the UK Government's current policy position is that a formal monetary union between an independent Scotland and rUK is unachievable and that, in any event, an independent Scotland would not enjoy the level of fiscal control envisaged by the Scottish Government under a formal monetary union, even if a formal monetary union arrangement was agreed. This view has been reinforced by the Governor of the Bank of England, Mark Carney, who described a formal monetary union as "incompatible with sovereignty" in his speech to the TUC Congress on 9 September 2014.

The possibility of creating a new Scottish currency has also been considered, despite a lack of support from the current SNP Government. This would require a new Scottish central bank to issue the currency, oversee the financial system and conduct monetary policy on behalf of the Scottish Government. Alternatively, depending on an independent Scotland's membership of the EU, which is discussed below, the Euro may be adopted. In the event that the pound sterling does not remain the currency in an independent Scotland, current contracts and agreements across all sectors may require renegotiation, particularly in relation to payment structures. This places an additional obligation on businesses to understand what is required to comply with any differences which may arise.

Throughout recent debates, however, it has become clear that the current SNP Government's first option will be to seek to create a formal currency union with rUK if Scotland becomes independent and, failing which, it will seek to retain the pound sterling even if no formal monetary union can be agreed. Whichever option is achieved, a vote for independence would potentially impact greatly on currency.

EU Membership
An independent Scotland's membership of the EU is another highly debated topic which has received wide coverage in the lead up to the referendum. The current SNP Government insists that an independent Scotland will continue to be a member of the EU on the same terms as the current UK. The current SNP Government, relying upon the principle of "continuity of effect", is of the view that it would not be consistent with the terms of the various EU Treaties for Scotland's citizens to be deprived of their legal status and rights as EU citizens merely because they had voted in favour of an independent Scotland in a legally constituted referendum approved by the UK Government. Accordingly, in the event of a Yes vote, the UK Government and the Government of a newly independent Scotland would rely upon the procedure set out in Article 48 of the Treaty on European Union to negotiate any Treaty amendments necessary to facilitate Scotland remaining within the EU, albeit as a distinct Member State.

Conversely, the UK Government and European Commission President have indicated that Scotland would not be a part of the EU following independence and would be required to apply for membership in its own right Article 49 of the Treaty on European Union if it wished to become part of the EU. This would also apply to other international organisations such as the United Nations (UN), North Atlantic Treaty Organisation (NATO), the European Free Trade Association (EFTA), the European Economic Area (EEA) and the Council of Europe.

The main implications, should Scotland require to accede to the EU as a new Member State, are likely to include negotiating the same Treaty opt-outs currently enjoyed by the UK.  For example, the UK has opted-out of the Schengen Agreement, which provides for EU citizens to cross internal borders without border checks within Europe's passport-free zone. New EU member states have not been able to opt-out of the Schengen Agreement so the risk is that if an independent Scotland is considered to accede to the EU as a new member state, it may be required to join the Schengen area. This could result in border checks between an independent Scotland and rUK, the latter of which would remain outwith the Schengen Area. The introduction of border controls between an independent Scotland and rUK would impact on business, including trade; migration; and potentially employment. One result could see the opening up of borders across Europe and the tightening of the border between Scotland and England, which will have implications for trade between Scotland and rUK.

The impact Scotland's membership of the EU would also be felt in the legal sector.  Whilst Scotland already operates its own legal system, as part of an EU member state, it is currently required to implement a range of EU legislation. Accordingly, much of the legislation passed by the Scottish Government is derived from EU law. If Scotland, for whatever reason, did not accede to the EU as an independent Member State, this would be likely to have significant implications for the Scottish legal system.

Legal System

As mentioned above, Scotland currently has its own legal system, which is separate from the rest of the UK. This means that a Yes vote may have minimal impact on the legislation currently in force. That being said, the areas of law which could see the most reform in an independent Scotland would be those which are currently reserved to the UK Parliament and Government as these would be reallocated to the Scottish Parliament and Scottish Ministers.

One area of law in particular which would be reallocated if Scotland votes for independence would be company law. The decision on whether to substantially reform company law to follow a different approach to rUK in an independent Scotland would lie with the Government in power, which may or may not be the SNP following the Scottish Parliament election scheduled for May 2016. Substantial reform of company law would have major implications for businesses in Scotland and it is hoped that any legal regime would incentivise investors and entrepreneurs rather than deter inward investment.

Summary

Whatever the result following the referendum there is no doubt that everyone will be watching closely to see what happens next. Regardless of which way the vote goes, the common end goal for both sides appears to be greater power for Scotland.

Should you have any further queries in relation to the above or in connection with any other matter, please do not hesitate to contact us via info@harpermacleod.co.uk This e-mail address is being protected from spambots. You need JavaScript enabled to view it
Please note that the contents of this paper are provided for guidance purposes only and do not constitute, should not be construed or taken as constituting legal, financial or taxation advice.