Uncertainty principle convincing captains of industry is vital

Vote Yes or No, there are questions that don’t yet have answers and the unknown is what frightens businesses.

Uncertainty is a word which has dominated the referendum debate and something which business leaders always say they hate.

The fact that many of these same business leaders make piles of cash speculating on uncertainty, through the stock market and oil prices, may make this appear a little incongruous, but it all comes down to what Donald Rumsfeld, the former US Secretary of Defence, famously described as “known unknowns”.

The main “known unknown” in the referendum, according to a new paper by Edinburgh University’s Professor Brad Mackay, is what would follow any post-Yes vote negotiations on crunch issues such as currency and EU membership.

The academic, writing for Sir Tom Hunter’s September 18 referendum project, cites the outcome of any breakup talks as the biggest uncertainty facing a largely sceptical Scottish business community.

He concludes: “If negotiations are complicated and the transition to independence is costly, confusing and lengthy, and if the Scottish Government is unable to deliver a deal on currency, uninterrupted membership with the EU . . . up to 10% of businesses indicate they could take business activity out of Scotland.”

The academic warns that this would affect both tax revenues and the number of taxpayers, meaning it could take decades to recover the lost economic output. On the other hand, assuming any post-Yes talks run relatively smoothly and the transition away from the UK is short, Prof Mackay says: “Some of the risk to business might be mitigated,” adding that any fallout from firms moving away “might be recovered quickly, assuming Scotland could achieve a higher rate of growth following independence”.

Scotland starts from a strong base, a skilled workforce though with notable gaps in some critical sectors such as energy and an internationally recognised brand and reputation for innovation.

What it has lacked is a clear industrial policy. In short, we are still fumbling our way from the fallout of the country’s heavy industries failing in the 1980s.

The Yes camp argue that London is the “dark star of the economy”, creating an imbalance and leaving UK Government polices not reflecting what Scotland needs to compete on the international scale.

Speaking in the Borders last week, Finance Secretary John Swinney said that with, “the full powers of independence we would be able to use the full range of economic levers at our disposal to enable Scottish companies to increase their global reach.”

Such levers include cutting corporation tax and Air Passenger Duty. Other Yes voices also point to our long-running poor track record in business start-ups and claim independence could become the mother of invention for Scotland.

But on the No side, the argument usually starts and ends with why are we doing anything to potentially jeopardise our biggest market the rest of the UK.

Better Together points to research on the so-called “border effect” which claims that a new border would reduce Scottish economic output by 5.5% the equivalent to £8bn a year. To mitigate this, independent Scotland would have to diversify its trade links, as Ireland has had to since it left the UK.

Having trudged our way through years of build-up to September’s independence referendum there will be little appetite for another one but that is exactly what will happen if there is a No vote and the Tories win next year’s General Election. The party has promised to put an ‘in/out’ EU referendum in its manifesto, a move which would will present heaps of uncertainty to the business world of Scotland. This is a risk facing business which requires as much consideration as independence, albeit a risk which hinges on a Tory victory in the 2015 General Election.

Prof Mackay makes the point that studies of business leaders’ attitudes towards independence have shown that only half of those surveyed could identify economic opportunities with a Yes vote. Businesses being against independence is not a big surprise, many of the most vocal voices just now such as Standard Life were also against devolution for almost identical reasons.

The views of the big firms only matter because of how many jobs they provide in Scotland. 45% of private sector employment in Scotland comes from just 0.7% of the firms operating here.

As we saw in the period following the 2008 financial crisis, confidence is such a critical factor in the health of any economy. If an independent Scotland looks and acts like a winner then this would be half the battle in winning over a sceptical business community.

Case Studies M8 Group Ltd and Endura

At the same time Standard Life was grabbing the headlines for revealing its contingency plans if Scots back independence, two West Lothian firms were quietly working out what they would do if there was a Yes vote. For the 80 workers at Livingston-based M8 group, which runs garden furniture and pet food websites, it was potentially bad news.

Chief Executive Kevin Hague explained: “I said to the staff ‘I am not going to tell you how to vote in the referendum, it’s nothing to do with me but it is only fair I tell you what I think the consequences of a Yes vote would be for this business’.

“We have carefully researched this, and I was frustrated with the information available on both sides I’d like to point out, but I decided we needed to have a contingency plan in place as I concluded a Yes vote would not be a good thing for the business. Over 90% of our sales are to the rest of the UK, if that becomes an export business we would clearly have to reconsider where our warehouse is located.

“For my firm it is not just currency or the EU, the courier firms will not continue to charge a flat rate and I just do not see how the Royal Mail Universal Service Obligation survives independence.”

Kevin, who is an outspoken critic of the SNP’s independence blueprint and has spoken at Better Together events, added: “Three years ago I had to make 12 staff redundant. Sitting down with them was the worst day of my business life, and I don’t want them to look me in the eye if we had to move the warehouse to England and say ‘you should have warned me’.”

Livingston-based cycling equipment and clothing firm Endura, which has 120 employees, is in a similar situation.

Founder and managing director Jim Mcfarlane, explained: “If there is a Yes vote then everything depends on the negotiations and as a business which does the bulk of its trading within the EU we can’t wait around until month 17 to find out EU membership is not going to happen or it will take longer than promised. We have made contingency plans to relocate our transaction and warehousing base away from Scotland, probably to somewhere like Czech Republic.”

Jim, who has sat on the steering committee of the pro-Union business alliance Working for Scotland, revealed his firm had delayed a £900,000 expansion at its Livingston base until after September’s vote because the domestic market only accounts for 2% of its global sales.

But Michelle Thomson, Managing Director of Yes group Business for Scotland, pointed to a survey by accountancy firm KPMG which showed four-fifths of Scottish businesses had no plans to consider whether they should move or not if there is a Yes vote.

She added: “It’s not sensible for businesses to try to scare their staff to get them to vote one way or another; after independence when the scare stories are shown to be just scare stories the bond of trust between employer and staff members will have to be rebuilt.”