Strategy

Alliance Trust Warns Of Scottish Independence

Stephen Little, Reporter, London, 10 March 2014

articleimage

In anticipation of Scotland gaining independence from the UK in September's referendum, Alliance Trust is taking steps to build a presence in England, adding to the growing business concerns over the looming vote.

In anticipation of Scotland gaining independence from the UK in September's referendum, Alliance Trust is taking steps to build a presence in England, adding to the growing business concerns over the looming vote.  

Dundee-based Alliance Trust said in its annual statement for 2013 that due to the uncertainty surrounding the referendum on Scottish independence in September, it was creating companies in England as a precautionary move.

"We have always been and continue to remain focused on the service we provide to all our shareholders and customers across the UK and beyond. 2014 is an important year for Scotland. The referendum in September is creating uncertainty for our customers and our business, which we have a responsibility to address," said Katherine Garrett-Cox, chief executive of Alliance Trust.

"Regardless of the outcome it is critical that we are able to provide continuity of service and protection for their investments and savings. To give them full confidence, we have started work to establish additional companies registered in England, in order to provide operational flexibility and to complement our existing business in Scotland," said Garrett-Cox.

Earlier this month, Standard Life warned that it might have to relocate significant operations and assets outside of the country if Scotland gains independence, and Royal Bank of Scotland has also said a yes vote could damage its credit rating.

Despite the Scottish Nationalist Party reassuring voters on the impact of breaking away from Britain, concerns remain regarding financial regulation, currency, tax and membership of the European Union.

In February, Jose Manuel Barroso, president of the European Commission, said that it would be "difficult, if not impossible" for an independent Scotland to get the necessary approval from member states to join the EU.

The three main UK political parties have also said that Scotland would be unable to keep the pound in the wake of independence. Scotland would also be forced to implement its own financial and regulatory laws, creating further red-tape for financial firms.

Uncertainty

According to Citi Research, a division of Citigroup Global Markets, with the latest polls showing 35 per cent in favour of independence and 53 per cent against, Scottish independence seems highly unlikely.

Citi also highlighted a number of concerns surrounding independence including the recent drop in oil revenues, the fiscal risks associated with its banking system and the uncertainty over currency and monetary policy.

"With the recent drop in oil revenues Scotland’s fiscal deficit is now significantly above UK levels. We estimate that Scotland’s fiscal deficit (including a geographic share of oil and gas tax revenues) has risen from 5 per cent of GDP in 2011/2012 to about 7.9 per cent of GDP in 2012/13 and about 8.3 per cent of GDP in 2013/2014. In addition, Scotland’s large banking system, with bank assets of more than 1000 per cent of Scotland’s annual GDP, creates additional fiscal risks, and might be too big to save for Scotland alone should it ever come to that," Citi said.

"There is also great uncertainty over the currency and monetary policy for an independent Scotland. The UK government has ruled out the Scottish government’s preferred option of a monetary union, and possible alternatives all have sizeable costs and risks attached," Citi added.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes