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Scotland’s Future
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1 Response to the Scottish Government consultation on Non-Domestic Rates
Scotland’s Future On 18 September 2014 the people of Scotland will vote on the constitutional future of Scotland, voters will be asked the question: Should Scotland become an independent country? This will be the most important decision the people of Scotland will make for 300 years, and each person will come to a view about how to vote based on the information provided between now and September. But whatever the outcome of the referendum, the key challenges facing Scottish businesses will remain. Your Chamber’s approach Aberdeen & Grampian Chamber of Commerce is North-east Scotland’s leading private sector, member-focused, business organisation. The Chamber represents more than 1,250 businesses with almost 130,000 employees in the private sector covering all industry sectors, ranging in size from sole traders to multi-national corporations. The Chamber wishes to play a constructive and mature role in the constitutional debate and as such, will remain impartial and apolitical as the debate moves forward. We will be looking to support members so that they can become as informed as possible about the likely outcomes in the event of a Yes or No vote. This will take the form of “filling in the gaps” where there is a lack of clear information, and cataloguing and summarising the evidence published by the respective campaigns. This booklet is part of that process. We have endeavoured to read all the information coming from the Yes and No campaigns, the Scottish Government, UK Government, and external agencies on the main issues businesses want more information on. The papers summarise the potential outcomes facing Scotland in the event of a Yes or No vote, each campaign’s preferred outcome, and our analysis of the likely end result. As you will see, there are still many unknowns, with many of the preferred policy outcomes subject to negotiation or the next political party which forms the next Scottish or UK Government. However, we will continue to hold both campaigns to account and press them to clarify what the final outcome will be.
James Bream Research & Policy Director james.bream@agcc.co.uk
Rachel Elliott Policy Executive rachel.elliott@agcc.co.uk
Scotland’s Future – Briefing Paper 1
August 2013 VERSION 1.6
CURRENCY
Updated March 2014
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, currency was identified by 82% of AGCC’s 159 respondents as an important factor for their business. Two thirds also stated that they wanted more information to help them understand the current policy direction promoted by the respective campaigns.
Currency is important Currency policy impacts on imports and exports through exchange rates. It also impacts on government borrowing and investment; and on monetary policy
The options available with a ‘no’ vote
The options available with a ‘yes’ vote 1. Scotland enters into a currency union with the rest of the UK 2. Scotland continues to use sterling without a formal agreement with the rest of the UK 3. Scotland sets up its own currency 4. Scotland joins the single European currency
1. Sterling continues to be used 2. The UK joins the single European currency
The Policy Direction
The Policy Direction
Option 1 is the favoured option of the Scottish Government. Yes Scotland campaign do not appear to have a consistent favoured option for the currency, this requires more clarity.
There does not appear to be a will from the UK Government or Better Together Campaign to adopt the Euro.
AGCC view of likely end game position
AGCC view of likely end game position
Scotland seeks to use sterling. It is not clear whether this will involve a currency union.
Sterling continues to be used.
Some further thoughts and information The Scottish Government has set up a Fiscal Working Group who have been tasked with overseeing the design of a fiscal framework for an independent Scotland. It is out of their work that the Scottish Government has come to their favoured position. The UK Government, however, has stated that Scotland entering into a currency union with the rest of the UK would be subject to negotiations, and would expose both Scotland and the UK to significant macroeconomic risks. Better Together are of the view that an independent Scotland, if it assumes EU membership, would be required to join the Euro.
Information updates 17 September 2013 – Research published by the National Institute of Social and Economic Research, assessing choices on currency, concluded it would be a prudent option to set up a new currency in an independent Scotland. The research highlighted that retaining the pound would limit how the country could deal with a financial crisis. 26 November 2013 – The Scottish Government White Paper Scotland’s Future states that it is in Scotland’s interests to retain Sterling and asserts that monetary policy would be set according to economic conditions with ownership and governance of the Bank of England undertaken on a shareholder basis. They also indicate that it would be open in the future for the people of Scotland to choose a different option. 29 January 2014 – On a visit to Scotland, Bank of England Governor Mark Carney did not endorse or oppose Scottish Independence. In a speech to the SCDI he outlined that three elements would be essential for a successful currency union; an integrated economy with free movement of labour, capital and goods, a banking union, and a fiscal pact. 13 February 2014 – The Scotland Analysis paper, Assessment of a sterling currency union, concludes that HM Treasury “would advise the UK Government against entering into a currency union” due to the lack of evidence that adequate proposals and policy agreements could be secured to ensure a stable currency union. Launching the paper, Chancellor George Obsorne said there was “no legal reason” why the rest of the UK would want to share sterling with an independent Scotland. He stated that “if Scotland walks away from the UK, it walks away from the UK pound.” 31 March 2014 – Media reports quote an unnamed UK Government Minister suggesting that a deal could be done which would allow an independent Scotland to retain the pound. In a joint statement following the reports, George Osborne and Danny Alexander denied this would be the case. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 2
AUGUST 2013
MEMBERSHIP OF THE EU
VERSION 1.3
In the Scottish Chambers survey conducted between 4 June and 19 June 2013, Scotland’s future status in the EU was identified by 73% of AGCC’s 159 respondents as an important issue for their business. Two thirds of businesses also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.
The EU is important As a member of the EU, Scotland has access to the free market, which enables free movement of goods and people across member states.
The options available with a ‘yes’ vote 1. 2. 3. 4. 5. 6.
Scotland automatically assumes EU membership, with the same terms Scotland automatically assumes EU membership, and renegotiates terms whilst a member Scotland has to apply to join the EU with the same terms. All EU states agree to membership Scotland has to apply to join the EU and has to renegotiate terms. All EU states agree to membership Scotland has to apply to join the EU, an EU state vetoes membership Scotland does not join the EU
The options available with a ‘no’ vote 1. 2.
3. 4.
The UK remains a full member of the EU The terms of the UK’s membership of the EU is renegotiated, and a referendum is held based on the renegotiated settlement A referendum is held in the UK without renegotiation, which results in the UK remaining in the EU A referendum is held in the UK without renegotiation, which results in the UK leaving the EU
The Policy Direction
The Policy Direction
It is the view of Yes Scotland, and the Scottish Government, that Option 2 is the most likely outcome. However, EU officials have indicated that some EU nations with secessionist movements are likely to try and block Scotland becoming a member of the EU.
Better Together have highlighted that it is in the UK’s best interests to remain a EU member. However, Prime Minister David Cameron has stated that a referendum on EU membership will take place by the end of 2017 if the Conservatives win the next election.
AGCC view of likely end game position
AGCC view of likely end game position
It is still not clear what outcome a ‘Yes’ vote will result in. More clarity is required, but this clarity is unlikely to come in advance of negotiations.
A referendum across the UK is held on EU membership. It is not yet clear what would happen if options 2 to 4 were the outcome of a ‘No’ vote to independence.
Some further thoughts and information The Scottish Government has sought legal advice on which outcome an independent Scotland would assume for EU membership, but to date have refused to make that information public. They have said information on Scotland’s status in the EU will be outlined in the White Paper to be published in October. David Cameron has committed to renegotiate the terms of the UK’s membership of the EU, with a view to holding a referendum on that renegotiated settlement by the end of 2017. It is not yet known what the terms of the renegotiation will be. Information updates 26 November 2013 – The Scottish Government White Paper Scotland’s Future restates their favoured policy that an independent Scotland should remain a member of the EU. They state that the Scottish situation is sui generis and believes the 18 month period in between a Yes vote and independence will be a sufficient timescale for agreeing the terms of Scotland’s membership and to complete the necessary procedures. This is a view supported by Graham Avery, the European Commission's honorary director general 31 January 2014 – The EU Referendum Bill, which would have put into law a 2017 referendum on the UK's membership of the European Union, failed to pass through the House of Lords within the permitted timescale. Following the fall of the Bill, David Cameron stated that the government would use every tactic possible to ensure the referendum takes place in 2017. 17 February 2014 – In an interview, EU Commission President Jose Manuel Barroso said it would be “extremely difficult, if not impossible” for Scotland to gain automatic EU membership. He cited Kosovo as an example of a country which had failed to secure membership as existing members had vetoed their membership. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 3
CORPORATION TAX
AUGUST 2013 VERSION 1.2
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, the corporate tax rate was identified by 84% of the 159 AGCC respondents as an important issue for their business. More than 80% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.
Corporation Tax is important Corporation taxes have the potential to encourage or stifle growth. A stable fiscal regime supports businesses.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Corporation tax in an independent Scotland mirrors the UK rate 2. After independence, corporation tax mirrors the UK for a set period of time before a new rate is set 3. Immediately after independence, Scotland sets a new corporation tax rate
1. Corporation tax falls to 20% in 2015 and remains at that level 2. Further changes to corporation tax after 2015, as set by the UK Government 3. Scottish Parliament gains further devolved powers to amend corporation tax in Scotland
The Policy Direction
The Policy Direction
The Scottish Government and Yes campaign have previously expressed their wish to reduce corporation tax, and First Minister Alex Salmond has pledged to undercut the UK rate by 3%.
Since 2011, each Budget has resulted in a decrease to corporation tax. The Chancellor announced in the 2013 Budget that corporation tax would fall to 20% during 2015
AGCC view of likely end game position
AGCC view of likely end game position
Option 3 – Immediately after independence, Scotland sets a new corporation tax rate.
Option 2 - Based on previous reduction announcements, there will be further changes to corporation tax after 2015.
Some further thoughts and information The 2015 reduction in corporation tax will mean that the UK has a lower corporation tax rate than France, Germany and Luxembourg amongst other European countries. Further changes to the corporation tax rate after 2015, in the event of a No vote, will depend on the outcome of the next General Election. The Scotland Act 2012 retains key taxation levers such as corporation tax and capital gains tax as a reserved issue. Any further proposals for more devolution would have to clarify whether these issues would become devolved. The Scottish Government has stated its support for a reduction in corporation tax should Scotland gain independence, but the Better Together campaign have argued that any attempts to reduce the rate would be blocked by Westminster if Scotland was part of a currency Union with the rest of the UK. Previous modelling by the Scottish Government only explores the economic benefits delivered by reducing corporation tax to 20%. Information updates 19 November 2013 – The Scottish Government paper Economic Policy Choices in an Independent Scotland states that a reduction in corporation tax could be used to “counterbalance the pull of London and the South East. The papers also highligh ts that corporation tax could be reduced further for certain types of firms to encourage innovation. 26 November 2013 – The Scottish Government’s White Paper Scotland’s Future confirms that they wouldreduce corporation tax by up to 3% below the prevailing UK rate. The timetable for introducing this pledge would be published within the first term of an independent Scottish Parliament. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 4
BUSINESS TAXES
AUGUST 2013 VERSION 1.2
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business taxes were identified by 85% of AGCC’s 159 respondents as an important issue for their business. 75% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns. Business Taxes are important Tax paid by businesses pays for public services and benefits. A competitive taxation system encourages enterprise and growth.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland mirrors the taxation system used in the rest of the UK 2. Scotland mirrors some taxes used in the rest of the UK and amends others 3. Scotland establishes a separate taxation system
1. Provisions in Scotland Act 2012 are implemented, with no further changes 2. Further tax raising powers are devolved to Scotland
The Policy Direction
The Policy Direction
The Scottish Government paper “Scotland’s economy – The case for independence” does not detail how business taxes, apart from corporation tax, would change in an independent Scotland.
Post Scotland Act implementation, Scotland will be responsible for 16% of the tax raising powers. As yet, there has been no mention of further devolution of business taxes.
AGCC view of likely end game position
AGCC view of likely end game position
Option 1 – Provisions in Scotland Act 2012 are implemented, with no further changes to business taxation responsibilities.
Not enough information is known at this time to come to a view.
Some further thoughts and information While neither the Scottish Government or Yes Scotland campaign have stated their intentions for business taxes in an independent Scotland, statements in the media indicates that they will not be keen to raise or change business taxation significantly. Better Together argue that a low tax system and high public spending is unsustainable. To date, there has been no indication from the Better Together about the future direction of Scotland should it vote against independence. There has been media speculation that proposals for further devolution will be brought forward, which could have an impact on future business taxation. However, neither the UK Government or Better Together campaign have brought forward formal proposals. Information updates 4 November 2013 – The Scottish Government’s Fiscal Working Group published its Principles for a Modern and Efficient Tax System in an Independent Scotland. While it makes no recommendations about the levels of business taxation, the report states that the tax system should be used to encourage economic growth through in the following areas: trade and investment, entrepreneurship, the development of growth sectors and innovation. 26 November 2013 – The Scottish Government White Paper Scotland’s Future indicates that they would prioritise tax powers to develop growth sectors and companies. The paper states that following independence the Scottish Government would examine how best to target tax reliefs to encourage innovative industries. They also plan to simplify the tax system, although no specific details have been provided.
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 5
August 2013
BUSINESS REGULATION
VERSION 1.1
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business regulation was identified by 58% of AGCC’s 159 respondents as an important issue for their business. Almost 90% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns. Business regulation is important Businesses want a stable regulatory environment to do business safely and fairly, and without excessive cost burdens.
The options available with a ‘yes’ vote 1. 2.
3.
The options available with a ‘no’ vote
Current UK-wide regulatory organisations continue to monitor the activities of Scottish businesses Some UK-wide regulatory organisations continue to monitor Scottish businesses, with some new Scottish organisations also created Rather than replicating the UK model, a new Scottish model is created where economic and competition bodies are combined
1. 2.
Status quo Further reform to the regulatory environment takes place
The Policy Direction
The Policy Direction
The Scottish Government have proposed a combined economic and competition regulator in their paper Economic and Competition Regulation in an Independent Scotland.
Over recent years there has been gradual merging of economic and regulatory organisations. The latest to do this is the Office of Fair Trading and Competition Commission
AGCC view of likely end game position
AGCC view of likely end game position
Option 3 – Rather than replicating the UK model, combined economic and competition regulatory bodies is created
Option 2 – Further reform to the regulatory environment
Some further thoughts and information The Scottish Government have proposed a combined economic and competition regulator. The use of such a model has been increasing across Europe, with the Netherlands recently establishing the Authority for Consumer and Markets. The Scotland Analysis paper Business and Macroeconomic Framework highlights that the regulatory organisations would require institutional infrastructure, such as public bodies, in order to operate effectively. While the paper recognises that current UK-wide bodies could support the new regulatory regime in an independent Scotland, this would be subject to negotiation. Information updates 26 November 2013 – The Scottish Government’s White Paper Scotland’s Future suggests that they will take forward the plans laid out in their earlier published paper Consumer Protection and Representation in an Independent Scotland. In this paper they propose creating an integrated economic, competition and consumer body.
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 6
AUGUST 2013 VERSION 1.2
INCOME TAX In a survey conducted between 4 June and 19 June 2013, income tax was identified by 82% of respondents as an important issue for their business. Almost three quarters of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns. Income Tax is important The majority of people employed will pay income tax on their earnings. The revenue from income tax pays for public services.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Income tax continues to mirror the rest of the UK 2. An independent Scotland establishes its own rate of income tax
1. The setting and collection of income tax continues to be a reserved issue 2. Further devolution results in the Scottish Government having responsibility for the setting and collection of income tax in Scotland
The Policy Direction The Yes Scotland campaign Government have all stated that will mean Scotland can establish taxation regime which addresses Scotland.
The Policy Direction
and Scottish independence a progressive inequalities in
The Better Together campaign has not made its views known on the future of income tax in the event of a No vote. The Scottish Labour party and Conservatives are currently examining how devolution could be strengthened in the future.
AGCC view of likely end game position
AGCC view of likely end game position
Option 2 – an independent Scotland establishes its own rate of income tax.
It is likely income tax will be devolved, although this depends on the support of the wider Conservative and Labour parties.
Some further thoughts and information The Scottish Labour party devolution commission published a report in April 2013 calling for income tax to be devolved to Scotland. This position has the support of Alistair Darling, Director of the Better Together campaign. The issue has caused friction within the party as some MPs believe that this extension of powers goes too far. Likewise, the Scottish Conservatives have also set up a working group to examine possible areas for further devolution. In February 2013, Scottish Finance Minister John Swinney stated in the media that personal taxation would not increase in an independent Scotland. However Better Together have argued that the Scottish Government policy on income tax is unsustainable for the level of public services they have indicated they want to provide. Information updates 4 November 2013 - The Scottish Government’s Fiscal Working Group published its Principles for a Modern and Efficient Tax System in an Independent Scotland. While it makes no recommendations about the levels of personal taxation, including income tax, it acknowledged that the personal tax system can be used to influence the location decisions of potential workers and their decisions on training and promotion. 26 November 2013 – The Scottish Government’s White Paper Scotland’s Future does not indicate levels of income tax people are likely to pay. It does, however, suggest that they will seek to simplify the entire tax system. It is not clear how they intend to do this.
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 7
November 2013 VERSION 1.3
OIL AND GAS REGULATION
Updated May 2014
A survey run in October 2013 of oil and gas businesses, conducted by EY in association with the Chamber, found that only 10% of the respondents had enough information to form a view on how independence would affect their sector. One of the key issues where both a Yes or No vote may have implications for the industry is in regulation. Oil and Gas Regulation is important A strong regulator should encourage maximisation of exploration, extraction and production.
The options available with a ‘no’ vote
The options available with a ‘yes’ vote
Scotland creates its own regulatory body, within government, with the same functions as the Department for Energy and Climate Change (DECC). Scotland mirrors the proposed new regulatory body, if it is created, proposed for England. Scotland sets up its own regulatory system for oil and gas, separate from government, which operates in a different way to the one in the UK.
Regulatory functions continue to be the responsibility of the Department for Energy and Climate Change (DECC). Regulatory functions, currently the responsibility of DECC, is moved to an armslength body with no additional functions. Regulatory functions, currently the responsibility of DECC is moved to an armslength body and is given additional functions.
The Policy Direction
The Policy Direction
In its paper Maximising the Return from Oil and Gas, the Scottish Government indicates that it will adopt the current operations of oil and gas regulation should Scotland become independent.
Sir Ian Wood has recommended in his review that an arms-length regulator should be established with additional functions.
AGCC view of likely end game position
AGCC view of likely end game position
As the Scottish Government has endorsed the recommendations of the Wood Review, it is likely they will mirror the changes the UK Government has confirmed they will implement.
The recommendations contained in the Wood Review are implemented. At this stage, it is unknown how long this will take.
Some further thoughts and information EY and AGCC research indicated that in the event of a Yes vote, 62% of respondents expect the oil and gas industry to become more heavily regulated. Meanwhile, 90% thought that there would be no change in the regulatory environment if the result of the referendum was No. The Scottish Government has commissioned an industry led Oil and Expert Commission to consider options for the implementation of the key principles set out in the Scottish Government paper. It has also indicated that Ministers are investigating the transfer of legal and regulatory oversight of the North Sea to Scotland. This would include setting up an office in Aberdeen. Information updates 18 November 2013 – The Scottish Government’s White Paper Scotland’s Future outlines that an Expert Commission has been established to consider the appropriate regulatory regime in an independent Scotland. It will publish its recommendations in the spring of 2014. 24 February 2014 – Sir Ian Wood published his final recommendations as to how the maximum economic return could be secured with the remaining reserves in the UKCS. Both the UK Government and Scottish Government endorsed the findings. The UK Government confirmed it would begin implementing the recommendations immediately. 16 May 2014 – The UK Government’s Scotland Analysis paper on energy confirms that the new arms-length body will be operational by October 2014. In addition the Maximising Economic Recovery principles will be enshrined in legislation, and subject to parliamentary business could be in force by spring 2015. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 8
Pensions #1 STATE PENSION
October 2013 VERSION1.4 Updated May 2014
By far the largest proportion of the circa £40billion expenditure by the UK Government in Scotland is related to welfare and pension costs (a reserved power). With an ageing population, the provision of adequate state pensions will be under pressure, no matter the result. The State Pension is important Workers contribute to the state pension through their earnings, with many workers making inadequate provision for retirement.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. The state pension, and the administration of it, mirrors the rest of the UK. 2. The state pension, and the administration of it, mirrors the rest of the UK for a transitional period and changes to the system are made after that period. 3. Scotland establishes a completely different system for the administration and payment of the state pension from the outset of independence.
1. Changes to the administration and payments of the state pension already announced by the UK Government, are introduced as planned. 2. Changes to the pension system are introduced, with more changes announced in the coming years.
The Policy Direction
The Policy Direction
The Scottish Government published its “Pensions in an Independent Scotland” paper during September 2013. In the paper, the Scottish Government should have the ability to have a state pension which is appropriate for the Scottish population.
The UK Government announced in the 2013 Budget that reform of the pensions system would take place. The Pensions Bill 2013 is currently going through the legislative process. The Bill contains a requirement to review pension rules every five years.
AGCC view of likely end game position
AGCC view of likely end game position
For a transitional period, the administration and payment of the state pension will mirror the rest of the UK, before changes are introduced in future years.
The changes already confirmed by the UK Government are introduced, with further changes to the system announced in future years.
Some further thoughts and information In the paper “Pensions in an Independent Scotland,” the Scottish Government states that the single-tier state pension would initially be set at £160 per week, or £8,320 per annum. This is higher than the new single-tier pension which is due to be implemented by the UK Government in 2016. Nicola Sturgeon has also indicated that the new Scottish state pension also be uprated by the Triple Lock guarantee, at least for the first term of the independent Scottish Parliament. The Scottish Government also go on to state that there would be no changes to the delivery of pensions in the event of independence, as the two existing Pension Centres based in Scotland, which already administers the pensions of people living in Scotland, would transfer to the responsibility of the Scottish Government. The UK Government have highlighted that the Scottish Government’s proposals for the state pension have not been costed and the Better Together campaign has stated that Scotland’s ageing population would make funding a generous state pension very difficult in future years. Information updates 26 November 2013 – In the Scottish Government White Paper Scotland’s Future it states that accrued rights will be honoured and protected. They intend to set the basic rate at £160 per week by 2016, which would be higher than the rate in the rest of the UK by the same date. In addition, the Scottish Government proposes to set up an independent pension commission to advise on any future rises or changes in eligibility. 4 February 2014 – The ICAS paper, Scotland’s Pensions Future highlights that the Scottish Government’s proposal to have a qualifying period of 7-10 years for the state pension could impose constraints on employee mobility between Scotland and the rest of the UK. In addition, affordability of Scottish Government proposals is also highlighted as a particular challenge given the projected demographics for Scotland. 22 April 2014 – Unpublished papers from the Department for Work and Pensions highlights that the number of Scottish pensioners is expected to rise from 1 million to 1.3 million over the next 20 years. If Scotland remains part of the UK, Scottish taxpayers would contribute 8% of the total National Insurance revenue, but get back 8.8% in return. 16 May 2014 – The UK Government’s Scotland Analysis paper on work and pensions suggests that if an independent Scotland does not implement the proposed increase in the pension age it would cost the Scottish state £6billion between 2026/27 and 2035/36. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 9
October 2013 VERSION1.4
Pensions #2 OCCUPATIONAL/PRIVATE PENSIONS
Updated April 2014
The future of private and occupation pension schemes is a major concern of Chamber members in this region. If Scotland were to become independent the EU would deem UK pension schemes which Scottish people currently contribute to as a Cross Border Scheme. This would put new requirements on pension funds, which could have an impact on Scottish pension savers. Pensions are important Too few workers contribute a sufficient proportion of their salary into a private pension in order to maintain an income when in retirement.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Workers continue to contribute into the existing schemes they are members of, with no changes. 2. Workers continue to contribute into the existing schemes they are members of, but schemes are subject to changes. 3. Workers have to make new arrangements for their private pensions.
1. Workers continue to contribute into the existing schemes they are members of, with no changes for the foreseeable future. 2. The UK Government introduces further changes to the requirements for private pensions.
The Policy Direction
The Policy Direction
The Scottish Government has published its proposals for the future of pensions in an independent Scotland. However, the paper makes assumptions which are based on the outcome of future negotiations.
The UK Government are currently rolling out the requirement for all employers to automatically enrol employees in a workplace pension scheme. Better Together have made no comment on the future of private pensions in the UK.
AGCC view of likely end game position
AGCC view of likely end game position
Until negotiations take place with the UK Government and EU about the requirements for cross-border schemes, the likely end game position is unknown.
Workers continue to contribute into existing schemes they are members of, with no changes for the foreseeable future.
Some further thoughts and information The Yes Scotland website and the Scottish Government paper “Pensions in an Independent Scotland” states that pensions will continue to be paid in the same way after independence and that any accrued benefits will not be affected by Scotland becoming independent. However, the Institute of Chartered Accountants in Scotland (ICAS) have highlighted that the Scottish Government plans for personal pensions would be subject to EU rules which require cross-border pension schemes to be fully funded at all times. They have urged the UK and Scottish Government to enter into discussions with the EU Commission about any transitional arrangements. Better Together are also critical about the assumptions made in the Scottish Government paper, arguing that there is no evidence yet that the promises made can be delivered. Information updates 26 November 2013 – The Scottish Government White Paper Scotland’s Future asserts that accrued rights will not be affected by Scotland becoming independent. The Scottish Government also signals its intention to negotiate with the UK Government on transitional arrangements to address EU funding rules. 4 February 2014 – The ICAS paper, Scotland’s Pensions Future, states that the proposal to have transitional arrangements over a three year period is “wholly insufficient for many schemes which are currently funding their deficits over much longer periods.” They ask for the Scottish Government to clarify what they will do if negotiations are unsuccessful. 28 March 2014 – The European Commission confirmed that it would not change the rules associated with the Directive which requires all crossborder pension schemes to be fully funded. 24 April 2014 – The Scotland Analysis paper from the UK Government on work and pensions stresses that a significant number of administrative functionS would need to be created in an independent Scotland to regulate and protect pensions. A new pensions regulator would be required, along with a Scottish versions of the Pension Protection Fund. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 10
IMMIGRATION
October 2013 VERSION 1.3 Updated May 2014
In a Scottish Chambers survey conducted between 4 June and 19 June, visas and immigration law was identified by 60% of the 159 respondents in Aberdeen and Grampian as an important issue for their business. 48% of respondents also stated that they needed more information on this issue to help them understand the policy direction currently being promoted by the respective campaigns.
Immigration is important Businesses in the North-east rely on a reliable source of labour. In order to fill the ongoing skills gap, businesses rely, to an extent, the free movement of labour and recruitment of export staff.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland mirrors the immigration laws and rules of the rest of the UK. 2. Scotland mirrors the immigration laws and rules of the UK for a transitional period, after which it establishes its own policies in relation to immigration. 3. Scotland establishes its own immigration policies and laws from the outset of independence.
1. No further changes are made to immigration rules and legislation. 2. Immigration legislation and rules change, making it more difficult for immigrants to settle in the UK 3. Immigration legislation and rules change, making it easier for immigrants to settle in the UK.
The Policy Direction
The Policy Direction
The SNP has, in the past, called for Scotland to have specific immigration rules to address Scotland’s labour needs and requirements.
Immigration is a highly politicised issue at Westminster, and it is likely there will be further tightening of immigration rules and legislation.
AGCC view of likely end game position
AGCC view of likely end game position
Scotland will likely pursue different immigration policies than the rest of the UK, and make it easier for certain types of immigrants to enter Scotland.
Specific policies could be different, depending on which party wins the next general election. As such, the likely end game result for immigration policy is unknown.
Some further thoughts and information While the SNP have been clear that in the event of a Yes vote they anticipate changes in immigration policy to make it easier for immigrants to come to Scotland, as yet, neither the Yes campaign or Scottish Government have outlined what their policy positions would be in relation to issues including citizenship and the criteria to secure permissions for leave to remain. In addition, they have not outlined what agency would have responsibility for monitoring immigration and border control. It should also be pointed out that much of Scotland’s new immigration policies will depend on whether it is a member of the EU come independence. Information updates 28 November 2013 – The Scottish Government’s White Paper Scotland’s Future outlines some of the policy positions they will take should Scotland become independent. They indicate they will introduce a points-based system targeted at addressing the needs of Scottish society. They also state they will lower current financial thresholds and salary requirements for entry and re-introduce the post-study work visa. 16 May 2014 – The UK Government’s Scotland Analysis paper on immigration states that an independent Scotland would have the option of joining the Schengen area if it joined the EU, or the Common Travel Area which operates between the UK and the Republic of Ireland, but not both. Membership of the Common Travel Area would require cooperation from the Scottish Government on certain aspects of visa and immigration policies.
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 11
October 2013 VERSION 1.2
DEFENCE Defence is a policy area which has been subject to significant reform over the last 3 years. By 2015, the UK will spend £23.9billion on defence. A significant proportion of defence employees and resources are based in Scotland. This includes the nuclear Trident programme, which the SNP have stated they would remove from Scotland should it become independent.
Defence is important One of the main responsibilities of any government is the security of their country and the protection of its people, territory, economy and interests.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland establishes its own armed forces, using facilities and people previously controlled by UK forces 2. Scotland establishes its own armed forces, but is required to establish new facilities and recruit new staff. 3. Scotland enters into an agreement with the UK to share armed forces and their resources. 4. Scotland enters into an agreement to contribute forces to a wider defence organisation.
1. Changes currently being implemented by UK Government will continue, with no further changes beyond 2020. 2. Changes currently being implemented by UK Government will continue, with further reforms initiated beyond 2020. 3. UK forces eventually join a coordinated EU defence force.
The Policy Direction
The Policy Direction
Aside from stating that an independent would have a defence budget of £2.5billion and would remove Trident, there has been no comment on what a Scottish defence force would look like.
The UK Government of the time are required to review defence forces every 5 years in order to ensure the defence force is fit for purpose. Defence spending has been reduced yearly since 2010.
AGCC view of likely end game position
AGCC view of likely end game position
Not enough is known at the point to come to a view on the likely end game position.
It is likely further reform will take place beyond 2020.
Some further thoughts and information The UK Government in its Scotland Analysis paper on defence acknowledges that negotiations would have to take place over the defence resources currently based in Scotland, and over defence staff who are Scottish. However, it highlights that these would be very difficult issues to resolve and that an independent Scotland could not simply co-opt existing armed force units based in Scotland or move Scottish staff into a new Scottish force. The paper also highlights that European states with similar sized populations to Scotland do not have their own armed forces and instead make contributions to EU and/or NATO defence arrangements. Information updates 13 November 2013 – The Scottish Global Forum, a think-tank closely aligned with the Yes campaign, published a breakdown of what the £2.5 billion budget would fund in a Scottish defence force. According to their research, the budget would fund four frigates, 15 fast jets and 9000 soldiers. This would make the force of similar size to Denmark. 26 November 2013 – The white paper ‘Scotland’s Future’, published by the Scottish Government anticipates that Scotland will inherit a share of the UK’s defence assets. The paper also indicates that the Scottish Government intends to progressively build up a force of 15,000 regular personnel over the 10 years following independence. In addition, the Scottish Government restates its commitment to remove Trident from the Faslane base and instead use Faslane as the headquarters of the Scottish defence force This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 12
MEMBERSHIP OF NATO
October 2013 VERSION 1.1
NATO (North Atlantic Treaty Organisation) is a defence alliance made up of 28 countries, which has the central purpose of safeguarding the freedom and security of members through diplomatic and military action. It is open to any North Atlantic state to join, as long as they fulfil the entry criteria. Membership of NATO is a proposed cornerstone of an independent Scottish state but this is not clear cut given the importance placed on nuclear deterrent by NATO.
NATO is important NATO regards the UK Trident programme as a strategic element of its nuclear defence policy. The Trident programme is currently based in Scotland on the Clyde.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland assumes NATO membership automatically upon independence. 2. Scotland has to apply for NATO membership, and after negotiation is accepted as a member. 3. Scotland has to apply for NATO membership and after negotiation is refused membership. 4. Scotland does not join NATO.
1. The UK continues with NATO membership. 2. The UK leaves NATO.
The Policy Direction
The Policy Direction At its 2012 conference, the SNP approved a motion supporting continued membership of NATO, albeit on the condition that membership would not require the retention of nuclear weapons in Scotland.
There has been no indication from UK political parties of any intention to remove the UK from NATO.
AGCC view of likely end game position
AGCC view of likely end game position
Scotland will have to apply to become a member of NATO. Admittance is not guaranteed given its stance on nuclear deterrents.
The UK continues as a NATO member.
Some further thoughts and information NATO is believed to have confirmed to Scottish Government officials that an independent Scotland would be required to apply for NATO membership. It is also NATO policy that countries wishing to join the alliance are not permitted to do so whilst in an existing military or territorial dispute with an existing member state. The negotiation process would take around three years and involve negotiations around the retention of nuclear weapons in Scotland, which the SNP have pledged to remove from Scotland. Information updates 18 November 2013 – The Scottish Government’s white paper ‘Scotland’s Future’ states that it is in Scotland’s interests to remain a member of NATO. It recognises that while membership will be subject to discussion and agreement by other members, it is in the interests of Scotland and other countries to secure an interim membership through negotiations taking place in the period between a Yes vote and independence. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 13
OIL & GAS TAXATION
November 2013 VERSION 1.2 Updated May 2014
Research conducted as part of AGCC’s Oil and Gas Survey has shown that an increasing number of oil and gas companies are taking the independence referendum into consideration in the future plans and investment proposals. The research has also shown that stability (or instability) in the UK fiscal regime has a knock on effect on confidence and activity levels in the UKCS. Rising confidence, activity and investment in the industry over the last two years has been attributed, in part, to progressive changes to tax allowances.
Oil and gas taxation is important Revenues from oil and gas companies contribute 15% to the UK’s total corporation tax take. The industry relies on a stable fiscal regime to plan for future activity.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland mirrors the fiscal system used for the oil and gas in the rest of the UK. 2. Scotland mirrors part of the taxation system used in the rest of the UK for the oil and gas industry, and amends other taxes. 3. Scotland establishes a different fiscal regime for the oil and gas sector.
1. UK Government makes further changes to the fiscal regime for oil and gas beyond 2015. 2. UK Government makes no changes to the fiscal regime for oil and gas beyond 2015. 3. Oil and gas taxation becomes a devolved power.
The Policy Direction
The Policy Direction
The Scottish Government published its paper Maximising the Return from Oil and Gas in the July 2013. In the paper it committed to implement existing aspects of the fiscal regime to support stability.
The UK Government has established a fiscal forum and in its recent Oil and Gas Strategy committed to undertaking collaborative work with the forum in the future when making decisions on the fiscal regime.
AGCC view of likely end game position
AGCC view of likely end game position
Scotland mirrors the majority of oil and gas taxes in the UK.
The UK will make further changes to the fiscal regime for oil and gas, in consultation with the fiscal forum.
Some further thoughts and information In its recent paper Maximising the Return from Oil and Gas the Scottish Government states that it will adopt a presumption in favour of existing aspects of the North Sea fiscal regime, as it is currently administered, to support stability in the industry. The paper also commits to undertake consultation with the industry before it implements any changes to the fiscal regime in the future. In October 2013 the UK Government introduced the first decommissioning relief deeds which guarantees the decommissioning tax relief a company will receive. Information updates 18 November 2013 – The Scottish Government’s White Paper Scotland’s Future indicates that they will simplify the business tax regime, but do not state how they will do this. However, the papers also states that they have no intention to increase the tax burden on the oil and gas industry, and any changes to the fiscal regime will be subject to consultation. 16 May 2014 – In the UK Government’s Scotland Analysis paper on energy the UK Government confirms that it will review the UK fiscal regime for oil and gas, in line with the recommendations in the Wood Review. The reviews findings will be reported at the 2015 Budget statement. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 14
November 2013
SOVEREIGN WEALTH FUND
VERSION 1.4 Updated May 2014
Sovereign Wealth Funds are pools of money derived from a country's reserves, which are then set aside for investment purposes that will benefit the country's economy and citizens. Of the 20 major oil producers in the world, the majority operate some form of national sovereign wealth fund. A recent survey conducted by EY, in association with the Chamber, showed that 60% of respondents supported the creation of some form of fund. A Sovereign Wealth Fund is important The SNP want to use the revenues from oil and gas to maintain levels of public spending in the future.
The options available with a ‘yes’ vote 1. A short term stabilisation fund and long term savings fund is established upon independence. 2. A short term stabilisation fund is established upon independence. 3. A long term savings fund is established upon independence. 4. No wealth fund is created.
The options available with a ‘no’ vote 1. Status quo 2. The UK sets up some form of wealth fund.
The Policy Direction
The Policy Direction
The creation of some form of wealth fund, using oil and gas revenues, has always been a key policy objective of the SNP.
There has been no indication that a future UK Government would seek to create a wealth fund using oil and gas revenues.
AGCC view of likely end game position
AGCC view of likely end game position
Some form of wealth fund is created using oil and gas revenues. However, it is not known what institution would take control of such a fund if Scotland were in a currency union with the rest of the UK.
It is unlikely that the UK will introduce a wealth fund.
Some further thoughts and information The Fiscal Commission Working Group, which was tasked by the Scottish Government to come up with a proposed wealth fund model, published their paper Stabilisation and Savings Fund for Scotland in October 2013. In the paper they propose setting up a stabilisation fund where excess oil revenues can be placed, and an investment fund where money could be placed provided Scotland was running a manageable deficit. This view was supported by the Centre for Public Policy for the Regions. However, confidential papers written by Scottish Government advisors obtained by the Better Together campaign through Freedom of Information requests stated that “it would have had to reduce public spending, increase taxation of increase public sector borrowing” if a wealth fund had been established in the past 20 years. The advice goes on to state “there would be comparatively few opportunities to invest in an oil fund in future years.” Information updates 26 November 2013 – The Scottish Government’s White Paper Scotland’s Future restates their commitment to establish both a stabilisation fund to manage year on year changes in oil and gas revenue, and a long-term savings fund to invest a proportion of wealth generated from oil and gas production in financial assets. 24 February 2014 – UK Energy Minister, Ed Davey, appeared to rule out the possibility of the UK Government setting up a fund in the future. 16 May 2014 – The UK Government’s Scotland Analysis paper on energy suggests that; “In the event of independence Scotland would be exposed to a narrower tax revenue base and more volatile fiscal position.” Thus making it more difficult to sustain a fund without public spending cuts. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 15
January 2014
FINANCIAL REGULATION
VERSION 1.1
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, financial regulation was identified by 79% of AGCC’s 159 respondents as an important issue for their business. 53% of respondents also stated that they wanted more information on this issue to help them understand the policy directions of the respective campaigns. Financial Regulation is important Businesses rely on rigorous but fair financial regulation to encourage stability in financial markets. It has an impact on lending, exchange rates and business confidence.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland takes full control of financial regulation, and sets up its own regulatory body/bodies, with responsibility for every aspect of financial regulation, including macroeconomic policy. 2. Scotland sets up its own regulatory body with the responsibility of monitoring financial conduct, but macroeconomic policy is determined by the Bank of England.
1. The current system for financial regulation continues, with no changes in the future. 2. Elements of the financial regulatory environment are reformed. 3. The financial regulatory environment undergoes total reform in the future.
The Policy Direction
The Policy Direction
In February 2013 2013, the Scottish Government appointed Fiscal Commission recommended that the Scottish Government take responsibility for financial regulation, which would include setting up a financial conduct regulator, and that the Bank of England retain responsibility for monetary policy.
The Banking Reform Bill is currently going through the legislative process at Westminster. This includes further reform which will force banks to separate their retail and investment activities.
AGCC view of likely end game position
AGCC view of likely end game position
If, as we expect, Scotland retains Sterling then it is likely the Scottish Government will take responsibility for financial regulation, with the Bank of England retaining control of monetary policy.
It appears likely there will be further reform of the financial regulatory environment in further years.
Some further thoughts and information The regulatory environment for the UK currently has two organisations responsible for financial conduct; the Financial Conduct Authority and the Prudential Regulation Authority (which is part of the Bank of England). The Bank of England sets monetary policy. The Scottish Government’s White Paper Scotland’s Future sets out the Scottish Government’s preferred policy option upon independence. They restate their position that it is in Scotland’s best interests to retain Sterling and therefore monetary policy should be set according to economic conditions across the Sterling area with ownership and governance from the Bank of England, undertaken on a shareholder basis. In relation to the conduct of financial institutions, the Scottish Government states it will establish its own regulator. Information updates 27 February 2014 – Standard Life in its annual report indicated that it was developing contingency plans in the event Scotland becomes independent. Amongst the material issues which led to the decision to develop contingency plans was the uncertainty about the future arrangements for financial regulation in an independent Scotland. This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 16
BUSINESS RATES
January 2014 VERSION 1.0
In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business taxes were identified by 85% of AGCC’s 159 respondents as an important issue for their business. Business rates is a commercial property tax levied on businesses and was noted as the most burdensome cost on retail businesses in a North-east Retail Survey conducted by the Chamber in 2013. Business rates are important Business rates are a propertybased tax levied on businesses before they even make a profit. The Chamber has campaigned for reform of business rates.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. Scotland continues with the current rates system, mirroring rate changes in the rest of the UK. 2. Scotland continues with the current rates system, but no longer mirrors rate changes with the rest of the UK. 3. Scotland reforms the business rates system, removing its linkage to commercial property values.
1. The business rates system continues in its current form, with Scotland mirroring rate changes in the rest of the UK. 2. The business rates system in the rest of the UK is reformed, and Scotland continues with the current system. 3. Both business rates systems in the UK and Scotland, are reformed.
The Policy Direction
The Policy Direction
The Scottish Government has committed to undertake a thorough and comprehensive review of the business rates system between 2013 and 2017. The initial consultation ruled out the prospect removing its link to commercial property values.
To date there has been no indication for any of the political parties that they wish to fully reform business rates. However, there is an increasing lobby on this issue from business organisations.
AGCC view of likely end game position
AGCC view of likely end game position
Scotland continues with the current rates system, mirroring rate changes in the rest of the UK.
The business rates system continues in its current form, with Scotland mirroring rate changes in the rest of the UK.
Some further thoughts and information In the Scottish Government’s White Paper Scotland’s Future they commit to maintaining the Small Business Bonus and maintaining business rates parity with the rest of the UK. Following on from an initial consultation on business rates at the beginning of 2013, the Scottish Government has also brought forward proposals to consult on the reintroduction of transitional relief in 2017, introduce powers for local authorities to create their own relief schemes and The Chancellor announced a 2% cap on business rate increases for 2014/15 at the 2013 Autumn Statement, which was matched by the Scottish Government.
Information updates
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future
Scotland’s Future – Briefing Paper 17
January 2014 VERSION 1.0
TERRITORIAL WATERS A survey published by EY, conducted in partnership with the Chamber showed that 90% of the oil and gas companies who responded wanted more information on how independence might affect their business. As the debate has progressed, one of the most contentious issues has been over the oil and gas industry and the potential revenues that could be generated if Scotland become independent. However, revenue predictions have been based on the territorial waters boundary being in a certain location. Territorial Waters are important The location of territorial waters will have an impact on the jurisdiction of oil and gas operations and other marine activity such as fishing.
The options available with a ‘yes’ vote
The options available with a ‘no’ vote
1. The Scottish territorial waters boundary is not changes. 2. The Scottish territorial waters boundary is amended.
1. The boundary of UK territorial waters remains the same.
The Policy Direction
The Policy Direction
It appears that Yes Scotland and the SNP do not expect Scottish territorial waters to be amended.
Territorial waters are determined under UN law, therefore is it unlikely that the current boundaries will be amended.
AGCC view of likely end game position
AGCC view of likely end game position
To date, the UK Government has not indicated whether it will seek a review of territorial waters if Scotland becomes independent. As such, we assume that current territorial waters will remain the same.
The boundary of UK territorial waters remains the same.
Some further thoughts and information The SNP have claimed that following independence, 90% of North Sea oil and gas would be in Scottish waters. Under current UK legislation, Scotland and England’s territorial waters are divided in a way which supports that statement. However, territorial waters between different countries are set under the United Nations Convention on the Law of the Sea III. Under the convention, it could be debated that because the Scottish border extends on a North-eastern trajectory at Berwick, Scotland’s territorial waters could be amended to reflect the land border. To date, the UK Government has not indicated whether they would look to amend the territorial waters.
Information updates
This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future