Why Markets Are Voting 'No' to Scottish Independence

Photograph by Scott Heppell/AP Photo

Investors have cast an early vote on the question of Scottish independence. The result is a resounding “no.”

Britain’s currency tumbled to its lowest level this year against the dollar, and shares in major Scottish lenders fell sharply as investors on Monday reacted to a weekend poll that showed a majority of Scottish voters supporting independence. “The markets are in shock,” Lena Komileva, chief economist at G Plus Economics in London, said on Bloomberg Television.

The poll by survey group YouGov for the Sunday Times, the first major poll to suggest the “yes” campaign might win a Sept. 18 referendum, showed 51 percent supporting independence and 49 percent opposed.

“Markets don’t like uncertainty,” former Chancellor of the Exchequer Alistair Darling, leader of the anti-independence campaign, said at a rally in Edinburgh on Monday. “The best way to deal with that is a ‘no’ vote.”

Today’s market sell-off could be a harbinger of even worse disruptions. A “yes” vote would trigger negotiations, expected to last until 2016, on details of Scotland’s exit from its 307-year union with its neighbor to the south. During that period, investor nervousness could have dire consequences.

Douglas Flint, the Scottish-born chairman of HSBC, predicted that uncertainty over Scotland’s currency arrangements could “prompt capital flight from the country, leaving its financial system in a parlous state.” Independence advocates haven’t said whether Scotland would establish its own currency or maintain an informal link to the British pound. Whatever approach is taken, Flint wrote in a recent column for the Telegraph, “Scotland’s borrowing costs and those of its businesses and consumers would rise, at least in the near term.”

The flow of pension and insurance money into Scottish insurance companies could dry up, as clients in England worry about possible new taxes on their holdings, and wonder if they would receive payments in pounds. “They will run for cover, to a safe haven,” Douglas Baillie, a London-based pensions consultant, told the Economist.

The outlook for Scottish businesses also is worrisome. Borrowing costs are likely to rise because of “new monetary arrangements and the long-term fiscal pressures that an independent Scotland would face,” the Oxford Economics consultancy wrote in a report earlier this year commissioned by the Weir Group, a Scottish engineering company. Higher taxes and cuts in government spending also are likely. “Businesses in Scotland,” the report said, “are unlikely to escape unscathed.”

In a survey in May by the Scottish Chambers of Commerce, 8 percent of businesses in Scotland said they would move out of the country if it became independent while an additional 10 percent said they were considering such a move.

Even renewable-power projects, a key feature of Scotland’s energy policy, could be endangered by independence. Green Energy, a London-based energy supplier, told Bloomberg News that some $23 billion of investment in renewable projects could be jeopardized. The projects, which until now have been supported by subsidies from London, “could get canceled, because who is going to pay?” asked Doug Stewart, Green Energy’s chief executive.

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