Rathbones Review Summer 2014
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Rathbones Review Summer 2014 Divided opinion Safety first Searching for hard facts in the How Britain learnt from Scottish independence debate the tragedies of the 1980s Easy does it Quantitative easing: is the biggest challenge still to come? Interesting times Why a regional power struggle might benefit both China and Japan Contents Contents 4 Beyond the rhetoric in the Scottish independence 4 Divided opinion debate Looking for the “known knowns” of Scottish independence 10 Safety first Why the rise of health and safety is a blessing, not a curse 26 17 Irrational exuberance Easy does it What psychology can tell us about our financial decisions 22 Scale of the challenge Is aquaculture a recipe for troubled waters? 26 Easy does it 32 Where next after quantitative easing? A constructive 29 For valour rivalry Captain Noel Chavasse, hero of World War I 32 Interesting times Why a regional power struggle might benefit both China and Japan 36 Live crowdfunding Transforming lives through a new way of charity fundraising 40 Dealing with dementia Confronting a delicate and difficult issue 10 How the UK 44 Vällkommen till Liverpool learnt from the The Investment Director who is also a Swedish consul tragedies of the 1980s Cover image: grahamhughes.com 2 Rathbones Review www.rathbones.com A word from paul chavasse Welcome to the summer edition of Rathbones Review his issue of Rathbones Review leads with an analysis of the Scottish independ- ence debate. The referendum on 18 September could lead to one of the biggest Tupheavals in the history of the United Kingdom. From a business perspective, there has been much conjecture about what impact the referendum – let alone a ‘yes’ vote – is having on UK Plc. We try to cut through the debate and increasingly heated political arguments to uncover the potential business consequences of this historic event. We also take a look at a series of shocking health and safety failures that took place during the 1980s. Disasters from Hillsborough to the sinking of the Marchioness reflected the inadequate health and safety procedures of the time. Over 30 years on, we assess how these tragic events unfolded and how they helped shape modern day health and safety in the UK. With the centenary of the outbreak of the First World War nearly upon us, we take time to look back and reflect on an extraordinary young man who was the only solider to win two Victoria Crosses during the conflict. Noel Chavasse, a relative of mine, has an inspiring story that reflects the spirit and gallantry of the age. I hope you enjoy these and all the other articles in this issue. We put a huge amount of effort into Rathbones Review to make it both relevant and engaging. As always, we appreciate your feedback. Paul Chavasse Head of Investment Management [email protected] Editor Connect with Rathbones James Maltin Investment Director @Rathbones1742 If you have any comments on this publication or suggestions in Rathbone Brothers Plc for topics that you would like to see discussed in the future, Rathbone Brothers Plc please do let me know. [email protected] www.rathbones.com Rathbones Review 3 Divided opinion 4 Rathbones Review www.rathbones.com Divided opinion Divided opinion “Should Scotland be an independent country?” The Scottish referendum question may be binary, but there are other questions that demand further consideration and in most cases the answers are decidedly unclear. As a detailed Rathbones research report identifies, dissolving the union would be much more complicated than people might imagine. John Henderson, Regional Director, Rathbones’ Aberdeen office t would be foolish to underestimate the lose the same amount. On the face of it, voting role that national pride will play when the intentions seem to be influenced by the prospect Ireferendum on Scottish independence is of gaining or surrendering £1.37 a day, but the held on 18 September. Both sides have routinely truth is more complex, with voters influenced appealed to sentiment and emotion rather than by the fear of being materially disadvantaged to logic and common sense. The ‘yes’ campaign by one or other outcome. has gathered momentum since the start of 2014 and it is no longer possible to say that the ‘no’ Voters want more hard facts about the impli- lobby will prevail by a comfortable margin. cations of independence. Political and cultural issues undoubtedly have their place, but in the Yet many a debate about independence begins end, when pencil is poised over ballot paper, on a wave of patriotism before crashing against many people will be influenced by the likely economic reality. This seems especially apt impact on their finances and their prospects. in the birthplace of Adam Smith, the father of modern economics, and there is strong The problem, however, is that facts are difficult evidence that Scottish voters are less moved by to come by. It is tempting to recall Donald rhetoric and more interested in the financial Rumsfeld’s comment about “known knowns, repercussions of their choices. As a headline in known unknowns and unknown unknowns”. The Scotsman declared earlier this year, “Vote Yet this cannot excuse the vagueness and hinges on wealth”. evasiveness that have characterised the arguments since the Scottish Referendum Bill A recent ScotCen poll found that 52% of Scots was first put forward in March last year. would opt for independence from the UK if to do so would leave them with an extra £500 a Our report considers the implications of year. Only 15% would vote ‘yes’ if they stood to independence from an investment rather Planet Holyrood: The Scottish Parliament building in Holyrood, Edinburgh (left), has been hailed as one of the most innovative designs in the UK. Will such praise still be geographically accurate after 18 September? Image: Keith Hunter/Arcaid/Corbis Image: Keith www.rathbones.com Rathbones Review 5 Divided opinion “ When pencil is poised of disruption in the event of a ‘yes’ vote and benefit Scotland financially – it is difficult to see while the details of secession, including the how UK politicians could justify an increased over ballot paper, currency and EU membership, are negotiated. transfer of value. many people will be The primary issue is whether an independent Roll out the barrel influenced by the Scotland would be able to balance its budget. This is the macroeconomic question that feeds If an independent Scotland were to face a likely impact on their into all others. Opinion, as might be expected, budget deficit, how might it plug the gap? is starkly divided. Nationalists argue that North Sea oil and gas are the default solution finances and their Scotland subsidises the union, in the main for nationalists, but much depends on the split prospects.” through North Sea oil and gas, whereas of assets between Scotland and the rest of the unionists believe the opposite is true. UK – this would be a source of fierce disagree- ment in the event of a ‘yes’ vote. The Institute for Fiscal Studies has estimated than political perspective. It has no political the long-term structural deficit in the UK More than 40 billion barrels of oil have been agenda and considers only how independence at 0.8% and the deficit for an independent produced since the first North Sea extraction might affect our clients. We concentrated on the Scotland at 4.8%. Given the volatility of oil licences were issued in 1964. It is thought facts and where these were not available, we prices, there could be considerable variability that another 24 billion – sufficient to sustain analysed the various alternatives, considering in the latter figure. These projections make up to 40 years of production – are still to be relevant precedents. assumptions about the share of North Sea oil tapped. Scotland generates more GDP per head revenues to which Scotland would be entitled of population than the UK as a whole if all It confirms that there are far more questions – more of which later. the revenue from North Sea oil is included in than answers. Nonetheless, it makes meaning- the calculations. ful distinctions between what is known and To complicate matters further, it is difficult to what is not. In doing so it aims to provide forecast government spending in an independ- Yet production has steadily declined since its informed and much-needed insights for those ent Scotland. Factors such as defence, foreign peak in 1999 and the richest reserves have on both sides of the vote and, perhaps just as embassies and interest on national debt cannot already been exploited. A recent government importantly, those on both sides of the border. be ascertained at this stage. How much would report into the industry called for more invest- an independent Scotland spend on its army? ment in infrastructure and exploration to make Breaking up is hard to do Would it have a navy? Where would it open the most of what remains, but these compar- embassies? What is Scotland’s share of the UK atively inaccessible supplies might become Scotland has been part of the UK since the national debt? unviable if global oil prices fall. 1707 Acts of Union, and it is impossible to preserve meaningful links for more than 300 Calculating the tax revenue attributable to David Cameron argues that the UK as a years without developing a level of entangle- Scotland is similarly complicated, given that whole is best placed to address this challenge. ment that precludes painless unravelling. many people and companies living or based Alex Salmond advocates establishing a sov- north of the border are taxed elsewhere in the ereign wealth fund, based on the successful A major proportion of Scotland’s business is UK.