Business and the independence referendum


by John Cooke

How will Scotland’s business sector view the prospect of an independence referendum? It’s a question that matters: businesses don’t vote; but they do provide jobs, pay taxes, and generate economic growth. And it won’t have escaped your notice that in the election campaign, some of our politicians were claiming that such a referendum would discourage investment, and damage the economy.

This was, of course, mere electioneering, and not very successful electioneering at that. However, we have sometimes heard concerns from those who speak for the business community itself about the cost of complying with extra regulation that greater devolution or independence will bring. It’s important that those concerns are addressed, not just dismissed: Scotland’s prosperity depends on continuing to attract investment from firms headquartered outwith Scotland itself. The good news is that while some of their concerns have some basis in reality, they are often overstated, and misplaced, and based on false assumptions. In fact, business shouldn’t fear the transfer of far greater powers to Holyrood, but should be actively supporting it.

The new Scottish Government does need to listen to the business sector’s concerns about the cost of complying with regulation: indeed, reducing the regulatory burden on firms should be one of its a key priorities. However, we need to get a sense of proportion about the alleged extra regulatory costs that might arise with a transfer of far more power to Holyrood.

For one thing, Scots law is already different from English Law. It’s been so for centuries, and nobody complains about that. Firms that operate on both sides of the border cope perfectly well with the two systems, so there is clearly no problem in principle with Scottish regulation differing from English.

Second, firms are demonstrably well able operate across different jurisdictions elsewhere in the world. Take the USA. It has fifty states, each with its own state laws and taxes. When did you last hear a firm saying that it wanted to expand into the US market, but was put off by the differences between states? On this side of the Atlantic, much of the regulatory framework that governs business is EU-wide. There are local or national differences in legal or regulatory systems, but these are usually relatively small.

These issues are insignificant besides more important determinant of the environment for business: that is the overall strength of the economy. This isn’t rocket science. Businesses prosper when an economy prospers, and when potential customers have cash to spend. They do less well when economies are weaker. When we look at the wider economic picture, the positive case for a huge shift in power to Holyrood becomes compelling.

To begin with, the current system is demonstrably not working to grow Scotland’s economy. In the three decades or so before the start of the recent financial crisis, Scotland’s annual average growth in GDP was 1.8 per cent, significantly below the UK average of 2.3 per cent. That’s hardly a good case for maintaining the status quo. Nor is it surprising. Whether you are Chancellor of the Exchequer, or a member of the Bank of England’s Monetary Policy Committee, you’ll be setting UK economic policy on the basis of the whole UK economy. And in the data you’ll use to help make your decisions, Greater London alone will carry more weight than the whole of Scotland. Scotland’s economy has far more chance to prosper if we have Scottish economic policy solutions to address Scottish problems. That would be the case whoever is in government in Scotland.

Some in the business community also worry what a Scottish Government would do with greater powers, particularly since Scots tend to vote for parties that are left of centre or progressive. It’s a fair question, but, again, business shouldn’t worry. Being progressive doesn’t necessarily mean being anti-enterprise. The Imperial College Business School’s Global Entrepreneurship and Development Index ranks countries in terms of how well they foster enterprise. Traditionally free-market countries, like the USA and Canada, are ranked highly. No surprises there. But Denmark comes top, and four of the top ten are Nordic countries. That suggests that places usually regarded as having progressive politics are also capable of being pro-enterprise, and need not be over-regulated economic basket cases.

Sceptics may say that sounds fine in theory, but what about Scotland specifically? Well, it’s true that some parties that are pro-independence, like the Scottish Socialists or the Greens, can’t exactly be called pro-business. However, the SNP certainly has a raft of pro-enterprise policies. They include Scotland controlling Corporation Tax, which would be set at lower rate in order to attract inward investment. Show me a business that’s not in favour of lower Corporation Tax, and I’ll show you a turkey that’s looking forward to Christmas.

It also helps that a fair few of the SNP’s senior people have worked in business, and understand economics. That probably helps explain why so many Scottish business leaders, who have had a chance to view SNP ministers in action over the last four years, declared their support for Alex Salmond as First Minister this time. Indeed, it’s noticeable that while many Scottish businesses have warmed to greater powers for Holyrood, and in some cases to independence, the section of the business sector most cautious has been that populated by firms headquartered south of the border. They aren’t simply being anti-Scottish. Rather, it’s because their senior managers have had less exposure to the likes of Alex Salmond, John Swinney and the now-retired Jim Mather; and because they’ve looked only superficially, as yet, at what greater devolution would mean. Once they do, they’ll begin to realise that more power to Holyrood makes Scotland a more attractive place in which to invest.

Some Scots would put freedom ahead of riches, on principle. But the two aren’t mutually incompatible; and, in this case, they are actually complementary.