The Potential Impact of Scottish Independence on the UK’s Business and Consumer Landscape
As Scottish citizens prepare to vote on the 18th September 2014 on the issue of Scottish independence, the outcome will have a major impact on the United Kingdom, and the EU as a whole. The UK is one of the most robust economies in the EU, accounting for 14.6% of total EU GDP in 2013. If Scotland becomes independent, the impact on the consumer landscape and business environments in both Scotland and the remainder of the United Kingdom will be far reaching, potentially impacting many areas such as retailing and consumers, the employment landscape and government finances.
Impact if Scotland leaves the UK
Retailing Environment and Consumers
- Retail prices in Scotland could well go up if Scotland becomes independent. Retailers John Lewis, Next, B&Q and Asda have all warned that prices of consumer goods in Scotland rise if it splits from the UK;
- Scotland’s sparse population drives up delivery costs for the rest of the United Kingdom. If it breaks away, this could also cause delivery costs to rise in Scotland, and potentially become more competitive in the rest of the United Kingdom;
- It has been predicted that the uncertainty independence could bring may trigger consumer caution on the property market, and trigger house prices to fall in both Scotland and the United Kingdom. This could cause more instances of negative equity and potentially harm consumer spending, although conversely it could make housing more affordable.
- Scotland has a thriving financial sector. It could be diminished if the yes vote goes ahead. The Royal Bank of Scotland (RBS) has stated that if Scotland becomes independent, it would move its headquarters out of Scotland to England, as it is likely to to encounter difficulties with borrowing;
- Unemployment could rise in Scotland as a result of the loss of businesses from the country if others follow suit and transfer work to the rest of the UK. Yet it is unclear whether Scotland would remain in the EU if it left. If it did not then it could likely see a reduction in its unemployment in low skilled jobs, as workers would face less competition from workers from other EU member states;
- The other side of Scottish independence is that it would actually need more workers to sustain its pension bill. So if it leaves, and it loses workers, this could potentially trigger a rise in its retirement age in order to ease the burden of its rapidly aging population.
- The UK’s natural resources assets, namely oil and gas are primarily found in Scotland. Scottish independence could trigger a rise in the current account deficit in the remainder of the UK if it lost these assets, which was already quite high at 4.5% of total GDP in 2013;
- On the other hand, Scottish independence would cut the welfare budget of the UK. According to data from the UK Department of Work and Pensions (DWP), Scotland accounted for 8.8% of total government benefit expenditure in 2013. If this were cut, it could help to reduce public debt in the remainder of the UK;
- Independence could give Scotland greater autonomy to tailor make its policies and direct government spending to where it is needed. This could make its economy more efficient;
- The uncertainty caused by the looming referendum has meant that the pound has already fallen against the dollar in the beginning of September 2014, and could do so further if the yes vote goes ahead. It has also shaken investor confidence, with Japanese bank Nomura advising its clients to scale down their exposure to the UK.
The benefits of staying appear on the whole to be higher to the economies of both Scotland and the remainder of the United Kingdom, primarily because of the certainty it will provide. Recent events in other EU countries such the change of government as Italy and France triggering a loss of consumer and business confidence in these markets demonstrate the importance of political certitude for investors.