SCOTLAND THE BRAVE? AN OVERVIEW OF THE IMPACT OF SCOTTISH INDEPENDENCE ON BUSINESS JULY 2021 SCOTLAND THE BRAVE? AN OVERVIEW OF THE IMPACT OF SCOTTISH INDEPENDENCE ON BUSINESS Scottish independence remains very much a live issue, as First Minister, Nicola Sturgeon, continues to push for a second referendum, but the prospect of possible independence raises a host of legal issues. In this overview, we examine how Scotland might achieve independence; the effect of independence on Scotland's international status, laws, people and companies; what currency Scotland might use; the implications for tax, pensions and financial services; and the consequences if Scotland were to join the EU. The Treaty of Union between England of pro-independence MSPs to 72; more, (which included Wales) and Scotland even, than in 2011. provided that the two Kingdoms "shall upon the first day of May [1707] and Independence, should it happen, will forever after be United into one Kingdom affect anyone who does business in or by the Name of Great Britain." Forever is with Scotland. Scotland can be part of a long time. Similar provisions in the Irish the United Kingdom or it can be an treaty of 1800 have only survived for six independent country, but moving from out of the 32 Irish counties, and Scotland the former status to the latter is highly has already had one referendum on complex both for the Governments whether to dissolve the union. In that concerned and for everyone else. The vote, in 2014, the electorate of Scotland rest of the United Kingdom (rUK) could decided by 55% to 45% to remain within not ignore Scotland's democratic will, but the union, but Brexit and the electoral nor could Scotland dictate the terms on success of the SNP mean that Scottish which it seceded from the union. The independence remains very firmly on negotiations between representatives of the agenda. rUK and of Scotland to establish the terms upon which Scotland should The 2014 referendum followed the SNP's become an independent country would winning 69 of the Scottish Parliament's unquestionably affect the way business is 129 seats at the election in 2011. This carried on both north and south of the majority in favour of a party whose raison border, as would the choices made by d'être is independence persuaded the Scotland as an independent country. UK's Prime Minister that he could not deny Scotland the opportunity to decide Now might not be the time for full-scale whether or not it wished to remain within contingency planning for Scottish the UK. independence, but it is certainly the time to consider how a (second) Scottish The SNP might have lost the ensuing referendum, followed by independence, referendum, but it regards Brexit (which might affect the organisation and conduct 62% of the Scottish electorate opposed) of business. If independence were to as having changed everything, and it occur, the planning horizons could be continues to enjoy enviable electoral uncomfortably short, still more so the success. The SNP won 64 Scottish time to execute any plans. parliamentary seats in the elections of May 2021, but the Green Party, which This briefing explores some of the legal also supports independence, won a issues that will arise, including the further eight seats, bringing the number potential impact of separation on businesses. 2 CLIFFORD CHANCE SCOTLAND THE BRAVE? AN OVERVIEW OF THE IMPACT OF SCOTTISH INDEPENDENCE ON BUSINESS Summary • Scotland is likely to require independent Scotland. A Commission Westminster legislation to hold a valid established by the SNP recommended referendum, which may come down to the continued use of sterling for an politics, rather than law. The SNP extended period, but an SNP wants a referendum in 2023 and, if conference rejected that in favour of successful, is then likely to want preparing immediately after any independence before the next Scottish independence vote for a currency of elections in 2026. its own. • An independent Scotland would be a • Contracts with Scottish parties will new player on the international stage. likely continue as before, but there A conundrum is how Scotland can may be, for example, currency risks if enter into agreements with other a contract requires payment states before it has legal status in in Scotland. public international law as an • For tax purposes, Scotland will need independent nation. to enter into double taxation treaties • Scotland will inherit a complete legal with other states, including rUK, to framework, but will need to amend its prevent multiple taxes. There is a laws in the same way that the UK did possibility of competition in tax rates (and continues to do) as a result of between Scotland and rUK and Brexit, as well as establishing other states. regulators and such like to take the • Pension schemes that use Scottish place of UK-wide ones. limited partnerships may need to • Scotland will need to establish restructure. Schemes with Scottish citizenship rules, and rUK will have to members may also need to ensure consider which of those who obtain, that assets and obligations are or can obtain, Scottish citizenship matched if Scotland adopts a should be able also to hold rUK new currency. citizenship. The SNP wants a common • At independence, Scotland may face travel area with the UK, but that might its own hard Brexit unless it is able to be difficult if and when Scotland joins assume the rights and obligations of the EU. the UK under the Trade and • Scottish companies will continue to be Cooperation Agreement between the recognised, but legislation may be UK and the EU. Longer term, the SNP needed to allow companies on one wants Scotland to join the EU, which side or other of the border to migrate, could lead to a hard border – for should they wish to do so, to the other goods, services and people – between side. rUK and Scotland in order to protect the EU's single market. • The UK's assets and liabilities will need to be divided between Scotland • Scotland would need to establish its and rUK. rUK would likely retain the own financial services regulator, and whole of the UK's current national rUK and Scotland would need to debt, but receive an IOU from decide how to treat firms providing Scotland in respect its proportionate cross-border services, whether share of that debt. Scotland's largest through mutual recognition or creditor would, initially at least, be rUK. otherwise (though that might not assist non-rUK firms). • Currency is perhaps the most difficult issue that would face a newly CLIFFORD CHANCE 3 SCOTLAND THE BRAVE? AN OVERVIEW OF THE IMPACT OF SCOTTISH INDEPENDENCE ON BUSINESS Achieving independence 2026 election could offer opposing parties the opportunity to reverse the As mentioned above, the Scottish initial decision, particularly if the independence referendum of 2014 preparations for independence, including followed the SNP's triumph in the 2011 negotiations with rUK, were not going Scottish elections. This persuaded the well. At the time of the first referendum, UK's then Prime Minister, David Cameron, the SNP anticipated that it would take 18 that he could not, consistently with months of negotiations between Scotland democratic principles, resist an and rUK after a vote in favour of independence referendum in Scotland. As independence to put in place a result, the Edinburgh Agreement of 15 arrangements sufficient for independence October 2012 between the Governments (though many regarded that as a very of Scotland and the UK provided for the optimistic timetable). Given that a transfer to Scotland of the power to hold referendum and its campaign will also a referendum. This was done formally by take time, this indicates that the First an order in council under section 30 of Minister does not have long before she the Scotland Act 1998. The object of the must push the issue, though the timing is referendum was, according to the complicated by the COVID-19 pandemic. Edinburgh Agreement, to "deliver a fair test and a decisive expression of views of Prime Minister Boris Johnson has said people in Scotland and a result that that he will refuse any request for a everyone will respect". section 30 order, but he would need to consider the politics of refusal at the These steps put the legality – and the relevant time. If he were to refuse, the binding nature – of the 2014 referendum Scottish Parliament could contemplate beyond doubt. The outcome of the itself legislating for a new referendum, referendum was not the one the SNP had though First Minister Nicola Surgeon has hoped for. In 2017, following the Brexit generally been reluctant to take legally vote, Scotland's First Minister, Nicola doubtful steps towards independence. As Sturgeon, asked the UK Prime Minister, explained below, it is unlikely that the Theresa May, for another section 30 Scottish Parliament currently has the order giving the Scottish Parliament necessary powers to call a referendum. power to call a second referendum. That request was refused on the basis that the UK's impending withdrawal from the EU The Scottish gave the UK and its Government more Parliament's powers than enough to occupy its time without The Scottish Parliament was established also contemplating another Scottish by the UK Parliament's Scotland Act independence referendum. 1998. It has limited legislative competence, and anything done outside The success of the SNP and the Green that competence is not law (section Party in the May 2021 Scottish elections 29(1)). A measure is outside the Scottish makes it inevitable that the First Minister Parliament's competence if it "relates to" will again demand a section 30 order to a reserved matter (section 29(2)(b)).