Scottish Affairs CommitteeWritten evidence submitted by CBI Scotland

CBI Scotland is Scotland’s leading business organisation, representing and promoting the interests of over 26,000 businesses in Scotland from every sector of industrial and commercial activity.

CBI Scotland welcomes the Scottish Affairs Committee’s two inquiries relating to a potential referendum on Separation for Scotland. CBI Scotland agrees with the view expressed by the Committee that Separation would be a major step for Scotland. In our response, we address the questions and issues from a business perspective.

First Inquiry on the Processes and Mechanics by which a Referendum would be Organised and Conducted

In this section, we respond to the questions as set out by the Committee.

Question 1. Which jurisdiction should conduct such a referendum and what is the legal and/or moral basis for such a determination?

Response 1. The Constitution of the United Kingdom, including the Union of the Kingdoms of Scotland and England, is a reserved matter under Schedule 5, Part 1 of the Scotland Act 1998. This calls into question the Scottish Parliament’s competence to legislate for a referendum on Scotland seceding from the United Kingdom and the Scottish Government’s competence to hold such a referendum. The Scottish Government and UK Government should work together to provide a sound legal basis for any such referendum.

Question 2. How should such a referendum be initiated eg should it be via provision in the Scotland Bill?

Response 2. In order to provide for a sound legal basis, provision for such a referendum in the Scotland Bill is one option. Another option would be to introduce a later Bill at

Westminster, similar to the 1997 Bill that provided for a referendum on Scottish devolution. However, as the Scotland Bill is currently before the UK Parliament and can be subject to further amendment, this presents an opportunity to include provision for a referendum without the need for taking up additional parliamentary time to enact the necessary primary legislation at a later time.

Question 3. What should be the process for determining the timing of a referendum?

Response 3. The timing of a referendum should be determined in the best interests of the people of Scotland and the rest of the United Kingdom. The prospect of a referendum is causing concern in CBI Scotland’s membership about the possible damage that could be done to Scotland by the uncertainties arising from this commitment and its timing. This is not helpful.

Question 4. How should the eligibility criteria for voting in such a referendum be determined?

Response 4. We have no strong view as to how the eligibility of the voting criteria should be determined but would expect that the eligibility criteria would be the same as for UK general elections.

Question 5. What is the role of the UK Government, the Scottish Government/Executive and the Electoral Commission in the process?

Response 5. The UK Government and Scottish Government should work together to provide for a sound legal basis for any referendum and its processes. The Electoral Commission is an independent, trusted and respected body that could oversee a referendum and put to rest any doubts about the referendum process and the clarity and impartiality of the question to be asked.

Question 6. What lessons can be learned for the process of conducting a referendum from the experience of other referenda in the UK, including the March 2011 referendum for the devolution of further law making powers to the Welsh Assembly Government?

Response 6. We have no position on this precise question but would offer the view that any referendum should be about independence only and should not involve other additional questions that could deliver a confused or unclear result.

Second Inquiry on Identifying those Issues which will need to be Resolved before a Referendum is held in Order to Allow Voters to make an Informed Choice

We agree with the Committee that the second inquiry should seek to identify those issues which will need to be resolved before a referendum is held in order to allow voters to make an informed choice. We trust too that the findings of the Committee’s inquiry will also be of considerable interest to Scotland’s business leaders.

We note that the Secretary of State has helpfully identified six areas where clarification is required. In February 2007, when the prospect of a devolved government formed by the Scottish National Party appeared to be more likely following that year’s May election, the Council of CBI Scotland invited the SNP to answer a number of questions about their plans for independence. Some questions were responded to and some were not. Our Council considered the responses and regarded them as unconvincing in making the business and economic case for independence.

The questions are as valid today as they were in 2007 and largely relate to the broad themes that the Committee intends to explore. In our view, and in the spirit of the respect agenda, we hope that Scottish Government Ministers will meet with the Committee to answer these questions and any other questions of interested parties. The questions that we invited the SNP to answer are as follows and have been revised to bring them up-to-date and into today’s context. A number of additional questions are likely to arise as the debate moves forward:

Question 1. An independent Scotland would require its own full panoply of government departments, for example:—a treasury, a central bank and revenue authority; a foreign office with embassies and consulates; armed forces; a ministry of the interior; and various commissioners and regulators. What is the Scottish Government’s estimate of the set up costs of this sovereign government infrastructure including, for example, an independent Financial Services Authority for Scotland or, as in England, Wales and Northern Ireland, its successor organisations?

Question 2. What is the Scottish Government’s estimate of the on-going costs to the public purse and to business of these departments of state and regulators (eg the financial services sector being regulated by FSAs and/or their successors on both sides of the border)?

Question 3. The Government Expenditure and Revenue in Scotland 2009–10 (GERS) data shows a non-oil Scottish public sector deficit of £19.9 billion, 17.8% of Scottish GDP, including a population share to Scotland of the total UK expenditure on financial sector interventions. The Scottish Government adjust the data, principally by adding back 91.4% of oil and gas tax revenues to show a deficit of £14.0 billion, 10.6% of Scottish GDP. How much oil and gas would be allocated to Scotland as a result of independence negotiations? How would the Scottish Government fund an independent Scotland’s current levels of public spending in the current era of declining oil and gas production (down from a peak of 4.5m barrels a day in 1999 to 2.2m barrels a day in 2010 and declining further over time)?

Question 4. An independent Scotland would need to charge taxes on individuals and businesses principally on the basis of taxable incomes and profits earned in Scotland. This would mean segregating those incomes and profits earned in Scotland from the remaining parts of the United Kingdom. What are the Scottish Government’s estimates of the initial and on-going direct and indirect costs to the public and private sectors of separate PAYE and personal and business tax assessment and collection systems in an independent Scotland?

Question 5. Given that Scotland could not automatically join the euro, or may not wish to join the euro immediately following secession, what would be the currency of an independent Scotland?

Question 6. How would Scotland’s inflation target be set?

Question 7. How would Scotland’s inflation target be met?

Question 8. What level of interest rates would the Scottish Government set to control inflation and offset the risks of the international financial markets holding our currency?

Question 9. What are the Scottish Government’s estimates of the costs to businesses in Scotland of exchange rate risk and currency conversions between Scotland and England?

Question 10. Has the Scottish Government thoroughly assessed and quantified the risk of a number of Scotland’s firms (including our financial services companies employing 100,000 people, and another 100,000 jobs dependent on them, and exporting 93% of their services to the rest of the UK) not remaining headquartered in an independent Scotland due to the vast majority of their customers, shareholders and other stakeholders residing in England—a foreign country? Moreover, has the Scottish Government carried out a risk assessment of potential losses of business to Scottish firms operating in the remaining parts of the United Kingdom after secession?

Question 11. How would an independent Scotland sustain the immediately lost jobs such as 6,500 jobs at the Faslane naval base (increasing to 7,700 as the UK submarine fleet is moved there) and the 5,000 jobs in our naval shipbuilding and ship repair industry, which are largely dependent on UK military orders?

CBI Scotland trusts that this paper is of assistance to the Scottish Affairs Committee. We would be happy to expand on our questions and answer any further questions that the Committee may wish to put to us.

November 2011

Prepared 4th May 2012