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HOW SCOTLAND MIGHT ACHIEVE

JULY 2021 HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE Scotland may have voted, in 2014, to remain part of the UK, but and the SNP's persistent political ascendancy mean that the dream, or spectre, of remains alive. In this briefing – the first in a short series – we explore some of the legal issues that will arise and how Scotland might achieve independence – a matter probably more of politics than of law.

The between concerned and for everyone else. (which included ) and Scotland The rest of the (rUK) provided that the two Kingdoms "shall could not ignore Scotland's democratic upon the first day of May [1707] and will, but nor could Scotland dictate the forever after be United into one Kingdom terms on which it seceded from the by the Name of ." Forever is union. The negotiations between a long time. Similar provisions in the Irish representatives of rUK and of Scotland treaty of 1800 have only survived for six to establish the terms upon which out of the 32 Irish counties, and Scotland Scotland should become an independent has already had one referendum on would unquestionably affect the whether to dissolve the union. In that way business is carried on both north vote, in 2014, the electorate of Scotland and south of the border, as would the decided by 55% to 45% to remain within choices made by Scotland as an the union, but Brexit and the electoral independent country. success of the SNP mean that Scottish Now might not be the time for full-scale independence remains very firmly on contingency planning for Scottish the agenda. independence, but it is certainly the time The 2014 referendum followed the SNP's to consider how a (second) Scottish winning 69 of the Scottish 's referendum, followed by independence, 129 seats at the election in 2011. This might affect the organisation and conduct majority in favour of a party whose raison of business. If independence were to d'être is independence persuaded the occur, the planning horizons could be UK's Prime Minister that he could not uncomfortably short, still more so the deny Scotland the opportunity to decide time available to execute any plans. whether or not it wished to remain within A second independence vote could be the UK. followed swiftly by actual independence, The SNP might have lost the ensuing even though unpicking the relations referendum, but it regards Brexit (which between Scotland and England, Wales 62% of the Scottish electorate opposed) and Northern will make Brexit as having changed everything, and it seem like a trivial undertaking. A divorce continues to enjoy enviable electoral would, however, have profound success. The SNP won 64 Scottish implications for anyone doing business in parliamentary seats in the elections of or with Scotland, and there may not be May 2021, but the Party, which much time to explore those implications also supports independence, won a after a vote. further eight seats, bringing the number This is the first in a short series of of pro-independence MSPs to 72; briefings exploring some of the legal more, even, than in 2011. issues that will arise, including the Independence, should it happen, will potential impact of separation on affect anyone who does business in or businesses. This briefing looks at how with Scotland. Scotland can be part of Scotland might achieve independence – the United Kingdom or it can be an a matter probably more of politics than of independent country, but moving from law. Subsequent briefings will look at: the former status to the latter is highly complex both for the Governments

2 CLIFFORD CHANCE HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE • The effect of Scottish independence on Government before the elections said that Scotland's international status, laws, a referendum should take place in the first people and companies. half of the current 's , which runs to May 2026, • The division of assets and liabilities suggesting a referendum before the end between rUK and Scotland, what of 2023. currency Scotland might use (the most complex issue likely to face Scotland The SNP Government in Scotland on independence) and the effect of will, in practice, want to ensure that independence on contracts. independence formally occurs at the very latest before the next Scottish • The implications on tax and pensions parliamentary election. If it did not, regimes and financial services, as well the 2026 election could offer opposing as the consequences if Scotland were parties the opportunity to reverse the to join the EU. initial decision, particularly if the preparations for independence, including Achieving independence negotiations with rUK, were not going As mentioned above, the Scottish well. At the time of the first referendum, of 2014 the SNP anticipated that it would take followed the SNP's triumph in the 2011 18 months of negotiations between If independence were to Scottish elections. This persuaded the Scotland and rUK after a vote in favour occur, the planning UK's then Prime Minister, David Cameron, of independence to put in place horizons could be that he could not, consistently with arrangements sufficient for independence democratic principles, resist an (though many regarded that as a very uncomfortably short independence referendum in Scotland. optimistic timetable). Given that a As a result, the Agreement of referendum and its campaign will also 15 October 2012 between the take time, this indicates that the First Governments of Scotland and the UK Minister does not have long before provided for the transfer to Scotland of she must push the issue, though the the power to hold a referendum. This was timing is complicated by the done formally by an in council COVID-19 pandemic. under section 30 of the Scotland Act Prime Minister has said 1998. The object of the referendum was, that he will refuse any request for a according to the Edinburgh Agreement, section 30 order, but he would need to to "deliver a fair and a decisive consider the politics of refusal at the expression of views of people in Scotland relevant time. If he were to refuse, the and a result that everyone will respect." Scottish Parliament could contemplate These steps put the legality – and the itself legislating for a new referendum, binding nature – of the 2014 referendum though Nicola Surgeon has beyond doubt. The outcome of the generally been reluctant to take legally referendum was not the one the SNP had doubtful steps towards independence. hoped for. In 2017, following the Brexit As explained below, it is unlikely that the vote, Scotland's First Minister, Nicola Scottish Parliament currently has the Sturgeon, asked the UK Prime Minister necessary powers to call a referendum. for another section 30 order giving the Scottish Parliament power to The Scottish call a second referendum. That request Parliament's powers was refused on the basis that the UK's impending withdrawal from the EU gave The Scottish Parliament was established the UK and its Government more than by the UK Parliament's Scotland Act enough to occupy its time without also 1998. It has limited legislative contemplating another Scottish competence, and anything done outside independence referendum. that competence is not law (section 29(1)). A measure is outside the Scottish The success of the SNP and the Green Parliament's competence if it "relates to" Party in the May 2021 Scottish elections a reserved matter (section 29(2)()). makes it inevitable that the First Minister Reserved matters include "the Union of will again demand a section 30 order to the Kingdoms of England and Scotland" enable a second referendum to take (paragraph 1(b) of Schedule 5). Measures place. A White Paper from the Scottish can be taken under section 30 to enlarge

CLIFFORD CHANCE 3 HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE the powers of the Scottish Parliament. without significantly exacerbating This was done in order to enable the resentment in Scotland towards rUK Scottish Parliament to call the 2014 (generally referred to derogatorily as referendum, but that enlargement of the "" or "Westminster") and Scottish Parliament's powers was strengthening the SNP's hand? An time-limited and has now expired. enhanced sense of bitterness towards rUK might help the SNP, but the SNP Would a referendum on Scottish must also get the timing right. Will its independence called by the Scottish electoral dominance continue? Even if Parliament, without a section 30 order, it did, to lose one referendum may be "relate to" the union of England and regarded as a misfortune; to lose two Scotland? The predominant view is that it in relatively quick succession would surely would, not least in the light of the draft the issue for at least a generation. Scottish legislation published in March 2021 in which the One compromise possibility that has been proposed that a second referendum raised is that a section 30 order could be should pose exactly the same question conditional on varying the electorate to as in the first referendum ("Should include not only all UK voters resident in Scotland be an independent country?"). Scotland but, in addition, Scots resident Some argue, however, that there is in rUK. This would be controversial (if nothing to stop the Scottish Parliament Scots in rUK, why not Scots outside rUK legislating for an advisory, or consultative, too?), novel and time-consuming. Who is referendum which, unlike the 2014 a Scot? Is it necessary to be born in referendum, would not be accepted by Scotland, to have one or both parents the UK Government as binding. This is born in Scotland, or perhaps a single not convincing. A referendum asking grandparent (enough to qualify to whether Scotland should be an represent the Scotland football team)? independent country relates to the union Or should the SNP's definition of Scottish of Scotland and England whatever the in the event of independence legal or political status of the outcome. (see the next briefing in their series) be adopted? Further, there is no register of If the Scottish Parliament were to seek to such "Scots." A register would therefore legislate for an independence referendum have to be created, which would be time without securing a section 30 order, the consuming and expensive, as well as question of the Scottish Parliament's raising still more issues. For example, competence to do so would have to be what proof would be required, and what resolved by the UK Supreme Court. political or other consequences would There are various means by which a follow if these expatriate Scots were challenge to Scottish legislation could enough to swing the vote one way or the reach the Supreme Court, including a other? direct reference by a UK or Scottish law officer or through the normal litigation Another suggestion is that a vote for process, but there would need to be a independence should require a definitive legal answer. majority (whether of those voting or of the electorate) than 50%+1. In a referendum If the Scottish Government did not in 1979, Scottish was want to legislate unilaterally for a supported by 51.6% of those voting but referendum, there could still be legal was not implemented because the challenges, for example to the refusal by legislation required, in addition, that at the UK Government to a section 30 least 40% of the electorate as a whole order, but the key is likely to lie in politics, should vote in favour. The 51.6% majority rather than the law. The first referendum amongst those who voted represented was said by the SNP's leaders to be a only 32.9% of the electorate. This option "once in a generation" opportunity for of entrenching the union against a independence, and that generation has temporary bare majority is, however, yet to pass. But since the first unlikely to commend itself to a referendum, Brexit has taken place, Government that was content for Brexit against the wishes of the Scottish to occur when supported by only a little electorate, and the SNP continues to over a bare majority of those voting. dominate Scottish politics. Can a UK Government refuse a second referendum

4 CLIFFORD CHANCE HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE If Scotland were to vote for The position of the UK Government is independence, what then? In the complicated by the fact that there will be remainder of this briefing and the a general election in the United Kingdom subsequent briefings, we look at some on 2 May 2024 at the latest, which is of the issues that would arise following likely to be before Scotland could achieve a successful (from the SNP's point of independence even on an optimistic view) second referendum. timetable. The election could result in a change of UK Government and therefore of negotiating position. Indeed, the The timing Scottish independence may of independence identity of the UK Government could even be determined by the (currently) not only create a new If the SNP had won the first referendum, 59 Scottish MPs who sit in the House of country; it could bring about it wanted Scotland to become Commons (e.g. at the 2010 general a change of Government in independent on 24 March 2016, election, the Conservatives would have the anniversary of the secured an absolute majority but for the the old one. of England and Scotland in 1603 (ie the Scottish MPs), though the large date of the death of Queen of Conservative majority resulting from England and on which King James VI of the 2019 UK general election perhaps Scotland became also King James I of makes this less likely than at the time of England). That timetable gave 18 months the first referendum. from the referendum for completion of the negotiations with rUK, though many Although Scotland will remain part of the expressed scepticism as to whether United Kingdom until independence, that was long enough to unpick over some have questioned the continuing three hundred years of intimate union. position of Scottish MPs in the House of It would not be necessary for all issues Commons in the intervening period or, between Scotland and rUK to be finalised at the least, whether they should be able by independence day but a sufficient to vote on legislation only affecting number of such issues would need to be England, Wales and or resolved for Scotland to function as an relating to Scotland's independence (the independent country. The UK and already has some Scottish Governments may, for example, procedures providing for English votes for want to enter into a separation agreement English laws – EVEL). If Scottish MPs do (akin to the UK's Withdrawal Agreement affect the identity of the UK Government with the EU) initially to provide for in 2024, their departure on independence independence, perhaps with (time-limited) day may not only reflect the creation of a transitional provisions, to be followed by new country, but it could also bring about one or more agreements between a change of Government in the old one. Scotland and rUK dealing with more detailed issues. The Czech Republic Conclusion and Slovakia were still negotiating almost The route to Scottish independence, a decade after their "velvet divorce" should that be the wish of the Scottish took effect. people, is not straightforward. The Scottish Government would, The Scottish Government can say that its presumably, conduct the negotiations for mandate for a second referendum is Scotland, though it has been suggested stronger than the UK Government that others could be invited to participate conceded for the first referendum, and it (the UK Parliament may also need to will undoubtedly want to push for transfer powers to the Scottish "indyref2" in the near future. The UK Government to enable it to prepare fully Government probably holds the legal for independence), but who should cards, but whether it can resist politically negotiate for rUK? In practice, it would is a different question. be the UK Government, but it could be a group representing all the political factions in rUK.

CLIFFORD CHANCE 5 HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE CONTACTS

Chris Bates Melissa Fogarty Kate Gibbons Consultant Joint Head of Corporate, London Partner T: +44 207006 1041 T: +44 207006 4699 T: +44 207006 2544 E: chris.bates@ E: melissa.fogarty@ E: kate.gibbons@ cliffordchance.com cliffordchance.com cliffordchance.com

Simon Gleeson Simon James Dan Neidle Partner Partner Practice Area Leader, T: +44 207006 4979 T: +44 207006 8405 TPE London E: simon.gleeson@ E: simon.james@ T: +44 207006 8811 cliffordchance.com cliffordchance.com E: dan.neidle@ cliffordchance.com

Mark Poulton Hywel Robinson Phillip Souta Partner Partner Head of UK Public Policy T: +44 207006 1434 T: +44 207006 8387 T: +44 207006 1097 E: mark.poulton@ E: hywel.robinson@ E: phillip.souta@ cliffordchance.com cliffordchance.com cliffordchance.com

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6 CLIFFORD CHANCE HOW SCOTLAND MIGHT ACHIEVE INDEPENDENCE This publication does not necessarily deal with every important topic or cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice. www.cliffordchance.com

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