A beginner’s guide to the referendum in Scotland

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On 18 September, residents of Scotland will be asked to vote yes or no in response to the question ‘Should Scotland be an independent country?’ A victory for the ‘Yes’ vote would have potentially momentous repercussions. Here’s a short overview of what’s happening in Scotland:

THE BACKGROUND TO THE REFERENDUM
In October 2012 the Scottish National Party (SNP) secured a mandate from UK Prime Minister, David Cameron, to hold a legally binding referendum on independence. This came after the SNP’s landslide victory in the 2011 parliamentary elections (the objective of securing a referendum having been central to the SNP’s manifesto in those elections).

THE CURRENT STATE OF PLAY
Back in 2012 it was generally assumed that only a minority of Scots would vote to end the Union. Over the last 12 months, opinion polls seemed to confirm this view – showing a consistent lead for the Better Together campaign (against independence). However, on the weekend of 6/7 September came a marked shift in favour of the ‘Yes’ vote, with one poll actually showing the ‘Yes’ vote taking the lead. Since then, the Better Together campaign appears to have reasserted its lead in the polls (to see the latest polls from one pollster click here). The outcome of the Scottish referendum is still likely to be in favour of remaining part of the Union but the uncertainty of the result has risen markedly.

NEGOTIATING INDEPENDENCE
There is much uncertainty about what independence would involve as the referendum is taking place, without clear agreement on the terms of such independence. In the event of a ‘Yes’ vote, negotiations would be necessary between the two sides in order to reach an agreement on:

  • Division of the national debt.
  • Divison of the national assets (mainly North Sea oil and gas)
  • Scotland’s future currency.
  • Defence issues.

The SNP has stated it expects that a constitutional framework for independence could be achieved by March 2016. Given the issues to be resolved this seems a very ambitious objective particularly as the Westminster Parliamentary timetable could also prevent a rapid constitutional agreement.

POTENTIAL IMPACT OF A ‘YES’ VOTE
Scottish independence would be the UK’s biggest constitutional change since the Government of Ireland Act in 1920 and the formation of Great Britain in 1707. Given the scale of the issues to be resolved, a ‘Yes’ vote would engender a high level of uncertainty. It is likely this uncertainty would weigh on GDP growth in the UK and on sterling. Under this scenario it is probable that a tightening of monetary policy in the UK would be deferred.

Andrew C. Craig

Head of Financial Market Analysis & Publications

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