Scottish referendum: Implications for the EU

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Published on February 18, 2014

Author: futureukscotland

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Organised by the Economic and Social Research Council and the UK Research Office
Tuesday 11 February 2014, Brussels

The Scottish Government is holding a referendum on 18 September 2014 asking “Should Scotland be an independent country?”

The UK’s Economic and Social Research Council (ESRC) has initiated a Future of the UK and Scotland programme of activities bringing the best of UK social science to the debate about Scotland’s constitutional future and its implications for the rest of the UK and Europe. This work aims to both inform the debate in the run-up to the referendum and assist in planning across a wide range of areas which will be affected by the outcome of the vote – whether for Scottish independence or continued Union.

This meeting offered an overview of the programme of work and focused on the key areas of migration and business, on questions about Scotland and the UK’s future membership of the EU as the Scottish referendum – and potentially a UK referendum on EU membership – approach.

Implications for the EU Tweet: @UKScotland @ESRC @Davidnfbell

Welcome Tweet: @UKScotland @ESRC @Davidnfbell

The ESRC Future of the UK and Scotland Programme Professor Charlie Jeffery

Edinburgh Agreement 15 October 2012

“Should Scotland be an independent country” Yes? No?

“Should Scotland be an independent country” Yes? No?

Future of UK and Scotland: What is it? • Recognition by ESRC of the importance of Scotland’s referendum – For social science – For Scotland and the rest of the UK (and the EU!) • Ca 45 researchers working on key themes: economy, policy, constitution, citizens • Communications activities: events, stakeholder relations, website • One-stop shop at www.futureukandscotland.ac.uk

Impact on Business Professor David Bell University of Stirling

The Independence Referendum: Impact on Business PROFESSOR DAVID BELL ESRC RESEARCH FELLOW DIVISION OF ECONOMICS STIRLING MANAGEMENT SCHOOL UNIVERSITY OF STIRLING

Business Attitudes • Lack of information and trust in politicians – 60 per cent of firms claim that they do not know enough about the implications of the referendum – Businesses are suspicious of information provided by politicians and both campaigns. (23% want more information from politicians, 46% would prefer local Chamber of Commerce) • Unwillingness to show preference for either side – Thus far, business has been cautious about expressing a view. – Some companies considering including independence risk assessments in their trading statements to satisfy shareholders and customers who remain uncertain and cautious about the outcome

What are the key issues for business?

Currency • “We will therefore retain the pound in an independent Scotland.” (White Paper on Independence) • For – Scotland and rUK currently form a strong trading partnership. Retention of pound makes sense on transaction costs grounds. • Against – Scotland will be heavily dependent on North Sea Oil revenues. Changes in oil price will affect Scottish economy, but not rUK. Uniform monetary policy may be harmful in the absence of fiscal transfers. – Both Scotland and rUK heavily indebted. Scotland would have to immediately borrow from international money markets and has no reputation with these markets. Borrowing costs likely to be higher than rUK. To contain these and to establish credibility with the markets, Scotland may have to immediately impose tight fiscal policy. The political costs of this might undermine the credibility of the monetary union.

EU Membership • “ … the Scottish Government will immediately seek discussions with the Westminster Government and with the member states and institutions of the EU to agree the process whereby a smooth transition to full EU membership can take place on the day Scotland becomes an independent country.” (White Paper on Independence) • “While the Scottish Government recognises the political and economic objectives of the Eurozone, an independent Scotland will not seek membership.” (White Paper on Independence) • “If we remain in the UK, the Conservative Party‟s promise of an in/out referendum on EU membership raises the serious possibility that Scotland will be forced to leave the EU against the wishes of the people of Scotland.” (White Paper on Independence)

Corporate Taxes • We plan to set out a timescale for reducing corporation tax by up to three percentage points below the prevailing UK rate. (White Paper on Independence) • “Monetary unions allow for significant differences in fiscal and economic policies. .. Corporation tax in Ireland remains at 12.5 per cent but is higher elsewhere in the Eurozone” (White Paper on Independence) • Even at a UK level, this may prove problematic if Scotland has to agree a tight fiscal pact with rUK in order to remain part of the sterling zone.

North Sea Revenues UK Oil Revenues (£m) Scotland‟s “geographical” share of sea-bed £14,000 £12,000 £10,000 £8,000 £6,000 £4,000 £2,000 £0 UK oil revenues from 1980/81 to 2012/13 = £242bn, but tax take highly volatile

The Financial Sector • Scotland has a relatively large financial services industry which contributed £8.8 billion to the Scottish economy in 2010 – more than eight per cent of Scottish onshore economic activity. It employs more than 85,000 people. • Many of its contracts (e.g. pensions) extend beyond the proposed independence date. • Much of its business comes from outside Scotland. Potential loss of business if currency union not agreed. • “Major financial institutions operating in the Sterling Area will therefore be subject to the same prudential supervision and oversight in both Scotland and the UK. As the Fiscal Commission Working Group made clear, such an approach is in the clear economic and financial interests of Scotland and the UK.” (White Paper on Independence) • Would shared regulation be agreed? Would banking union be part of the agreement?

Income Tax • The White Paper has no specific proposals in relation to income tax, though it is the largest source of revenue to the Scottish Government. • Income tax contributed £10.8bn of total revenues of £56.9bn in 2011/12. Corporation tax contributed £3bn and North Sea Oil £10.6bn. • Incomes in Scotland are unequally distributed. The same is true of the UK as a whole. The top 10 per cent of earners contribute 47 per cent of income tax revenues. The top 1 per cent contribute 20 per cent of revenues. • The Scottish and rUK labour (and capital) markets are highly integrated.

Conclusions • Business cautious about expressing a view, but aware of risks • Low risk outcomes for business: – Membership of EU agreed, without any change in current arrangements (in relation to e.g. Schengen/Fiscal Stability Pact) – Sterling zone arranged, including fiscal pact with rUK – Business regulation continues to be the same throughout UK • “No” camp refuse to pre-negotiate on these issues • “Yes” camp refuse to discuss more risky alternatives

Impact on Business Professor Brad MacKay University of Edinburgh

The independence referendum: Impact on business Professor Brad MacKay ESRC Research Fellow Head, Strategy and International Business Group University of Edinburgh Business School

The sample Based on a sample of 52 companies By Sector No. % Financial Service (life insurance, retail, wealth man.) 16 31 Energy (incl. Oil and Gas) 8 15 Electronics/Technology 7 13 Life Science 6 12 Engineering/Ind. Manufacturing 11 21 Other 4 8 Total 52 100

Indicative Profiles By Size No. % UK HQ No. % Large 34 65 Scotland 35 67 Medium (2XS/M) 18 35 rUK 17 33 Total 52 100 Total 52 100 Customer Base (Est) No. % Origin No. % Scotland 4 8 Scotland 29 55 rUK 16 30 rUK 5 10 rUK/EU/Global 32 62 Overseas 18 35 Total 52 100 Total 52 100 24

Risks Industry Financial Services Life Sciences Electronics/ Technology Engineering/ Energy (incl. Ind. Manuf. oil and gas) Yes Double Regulation Yes Yes Yes Yes Yes Yes Yes Yes – Decommisioning Yes Yes Yes Yes Yes Yes Yes Yes – Corp. tax translation Yes Yes Corporate Tax Yes Yes Yes Yes Universitie s Yes Yes Key uncertainty Change in currency Regulatory Changes Skilled labour (Recruitment/Retent.) Changes in income and personal taxation Reputational risk Relocation of competitors Investment Yes Access to financing Yes Collaboration (Border) Yes Yes EU Yes Yes Yes 25

Opportunities Financial Services Potential opportunities YES NO Electronics/ Technology Potential opportunities YES NO Frequency (N=14) % 6 8 42% 58% Frequency (N=6) 5 2 Potential opportunities YES NO % 71% 29% Engineering/ Ind. Manufact. Potential opportunities YES NO Energy (inc. oil and gas) Potential opportunities YES NO Frequency (N=4) 6 0 Frequency (N=5) 4 1 Frequency (N=5) 2 4 % 80% 20% % 33% 67% % 100% 0% 26

Opportunities Industry Financial Services Life Sciences Electronics/ Technology Engineering/ Energy (incl. Ind. Manuf. oil and gas) Key Opportunities Income tax decreases Yes Liberal Immigration Yes Revitalise Scot politics Yes Lower tax Yes Yes Yes R&D Rebates Yes Access to government Yes Yes Scot Diaspora Pride Scottish Brand Tourism Redesign regulations Yes Government funding Yes Flights Connections Advisory services Lobby EU Yes Law Firms Yes 27

Contingency Planning Financial Services Contingency planning YES NO Electronics/ Technology Contingency planning YES NO % 50% 50% Frequency % 2 29% 5 71% Life Sciences Contingency planning YES NO Frequency (N=5) 4 7 % 36% 64% Energy Contingency planning Frequency 7 7 Engineering/ Ind. Manufact. Contingency planning YES NO Frequency (N=5) % YES 1 17% NO 5 83% Frequency 0 6 % 0% 100% 28

Contingency Planning Industry Financial Services Life Sciences Electronics/ Technology Engineering/ Energy (incl. Ind. Manuf. oil and gas) Contingency Planning Risk register Yes Yes Yes Monitoring Yes Yes Yes Informal conversations Yes Yes Yes Analysis/tactical plans Yes Yes Yes Too uncertain Yes Reduce exposure Yes Yes Yes Yes Yes Invest in opportunities 29

EU Implications  Significant issue for 5/52 companies interviewed;  20% to 30% of exports outside the rUK;  Possible implication for FDI;  Between 70% and 80% of Scottish exports go to rUK;  Currency and uncertainty are primary risks;  EU negotiations have indirect implications for business. 30

Conclusions: Triggers and tripwires for firm behaviour  Customers  Ability to sell products/services (location, regulations, reputation);  Ability to access markets (ie. MoD, EU, rUK).  Employees  Ability to attract high value, skilled labour (ie. quality of life);  Ability to maintain high value, skilled labour (ie. personal taxes).  Shareholders  Ability to create value (ie. perception, profitability);  Value destruction (ie. through increasing costs/complexity). 31

Impact on business Professor David Bell Professor Brad MacKay Tweet: @UKScotland @davidnfbell

Migration, mobility and higher education Dr Scott Blinder University of Oxford

Migration in the Scotland Independence Debate Dr Scott Blinder Migration Observatory COMPAS, University of Oxford The Scottish Referendum: Implications for the EU Brussels, 11 Feb 2014

Immigration policy in an independent Scotland: Context • Immigration in Scotland – 7.2% of Scotland’s population is non-UK born – Increased from 4.1% in 2004 – Similar % to Portugal, Malta, Lithuania • Significant share from EU – 37% of non-UK born in Scotland are from EU – 15% from Poland • Sources: 2012 Labour Force Survey (UK), 2011 Scotland Census

Policy Context • Immigration is a “reserved power” (Westminster) • Scotland’s different interests and needs? – Skills shortages – Population needs (target for growth!) • Employer concern – some sectors concerned visa and immigration law – all sectors concerned with EU status – (research by Centre for Population Change, another ESRC project)

Immigration policy in an independent Scotland: Proposals • Scottish Government White Paper: more open immigration policy – non-EU high-skilled labour migration – restore ‘human capital’ element of points-based system – Non-EU students – restore Post-Study Work visa – More “humane” asylum system – EU migration – “will remain open to EU nationals exercising their treaty rights” – Low-skilled (non-EU) migration – not mentioned, but implied barriers or limits

Immigration policy in an independent Scotland: Political support? • Effects of independence on political support for migration? Is a more open policy sustainable? – Scottish Government view – Political science view • (C Boswell, U of Edinburgh)

What does Scotland’s public say? • Migration Observatory/YouGov survey – 2000+ in Scotland, 2000+ in England/Wales – Representative on-line panels • 58% in Scotland want less immigration (75% in England/Wales) • However…

Public support? • Less salient issue in Scotland • Little public opposition to some immigrant categories – Reduce students: 22% – Reduce high-skilled migrants: 23% – Reduce citizens’ spouses/children: 22% • These overlap with Scottish Government proposals

Public support for Scottish control • 60% prefer Scottish Government as immigration policy-maker (over UK Government, EU, and local governments)… • …though many do not agree with the policy they expect from an independent Scotland • Will this lead to sustained anti-immigration opposition?

Proposal: Common Travel Area • Scottish membership in a Common Travel Area (with the rest of the UK and Ireland), outside of Schengen – Acceptable for EU member state? – Pressure from UK toward immigration policy convergence? Border controls? • Majority in Scotland (64%) believe border controls between England and Scotland unlikely to happen

Proposal: Citizenship Policy • Inclusive citizenship policy – British citizens (automatic) • “habitually resident” in Scotland • born in Scotland, even living outside of Scotland – Ancestry / residency (eligible to apply) • Scottish descent (a parent or grandparent who qualifies for Scottish citizenship) • lived in Scotland for at least 10 years and with a “demonstrable connection” to Scotland • migrants residing legally in Scotland on “qualifying visas”

And if ‘No’ wins… • Status quo  continued tension? – b/w Holyrood & Westminster – b/w UK & EU (re free movement) • Room for sub-national policy-making? – Canadian example – PBS with regional ‘bonus points’ • Add to public support for devolution? – Immigration policy as part of ‘devo-max’?

Migration, mobility and higher education Professor Sheila Riddell University of Edinburgh

The Future of Higher Education in Scotland Presentation to The Future of the UK and Scotland Seminar, Brussels, 11th February 2014 Sheila Riddell Centre for Research in Education Inclusion and Diversity, University of Edinburgh

Scottish Higher Education, the Devolution Settlement and the Referendum on Independence Much of the referendum debate has focussed on the economy – but HE has also featured prominently Central to economic, social and cultural welfare of the nation Seen as key to social mobility and of great concern to general public HE policy mainly devolved – but some aspects reserved e.g. research funding via Research Councils HE policy illustrates policy divergence post-devolution, but also inter-connectedness of UK systems.

Free higher education seen as flagship SNP policy – SG White Paper contrasts Scottish approach with „marketised‟ system in England „…free education for those able to benefit is a core part of Scotland‟s educational tradition and the values that underpin our education system. One of the major achievements of devolved government in Scotland has been to restore this right to Scottish domiciled undergraduate students‟ By way of contrast: „The Westminster Government has pursued an increasingly market-drive approach to higher education, increasing tuition fees for undergraduate students to up to £9,000 per year‟ (Scottish Government, 2013, p.198 )

But differences between English & Scottish systems may be exaggerated – both highly socially segregated English students incur much higher levels of debt – long-term impact unclear. But abolition of fees in Scotland has not produced greater social equality in participation – and increased student fees in England has not led to greater social inequality. Scottish policy of free undergraduate tuition not economically progressive - of greatest benefit to the middle classes because: (1) Far more middle class young people go to university – higher levels of prior attainment (2) Shift from non-repayable grants to repayable loans. Scottish students dependent on the state leave university with loans of c. £28,000 c.f. middle class counterparts (3) Free HE has impact on rest of education system. Reduction in college funding & failure to reduce class sizes.

Participation in HE sectors by deprivation quintiles (percentages) People from most deprived neighbourhoods make up only 7% of student population in ancient universities; those from most advantaged backgrounds make up 38%. No change over past decade. Post „92s Ancients 1960s Colleges Deprivation quintile 2000 - 2010 2001 2011 2000 2001 2010 2011 2000 2001 2010 – 11 2000 2001 2010 2011 1 (least) 38 38 30 30 28 26 19 17 2 3 4 5 (most) 23 17 12 8 25 17 12 7 23 20 15 11 24 19 15 11 21 18 17 15 22 19 18 16 21 21 20 18 18 20 22 23

Undergraduate fees policy - new challenges for an independent Scotland rUK-domiciled students currently pay fees of up to £9,000 if studying in Scottish universities White Paper states SG‟s belief that it would be possible to continue to charge rUK students post-independence whilst EU and Scottish students continue to study for free – otherwise free tuition in Scotland might produce influx of rUK students. However, experts in EU law cast doubt: „The Scottish Government would face an extremely steep uphill battle to convince the EU institutions that it should be entitled to retain a practice involving systemic direct discrimination against one particular cohort of EU citizens‟ (Professor Niamh nic Shuibne, Professor of EU Law, University of Edinburgh)

Fees policy has impact on cross-border student flows. Scottish students more likely to stay at home. Welsh students more likely to leave - portable support. Young applications by country of residence and country of institution applied to 2010 - 2013. Country of residenc e Applying 2010 to 2011 2012 2013 England England 81% only 82.4% 82.4% 80.9% Norther n Ireland NI only 33.4% 29.5% 36.3% 34.1% Scotlan d Scotlan d only 87.5% 87.4% 89.8% 89.4% Wales Wales only 25.7% 23.3% 20.3% 19.7%

Implications for research policy – Scottish & UK governments express different views White Paper states that post-independence Scotland would remain part of UK research area. BIS Paper on Science and Research states that there can be no guarantee that common UK research area would be sustained: „National governments fund national research programmes‟. Paper argues that: (1) Scotland would develop its own research priorities (2) Few examples of cross-border research funding – Nordic Research Council disburses £13 million per year c.f. seven UK Research Councils - £3 billion per year. (3) Scotland can already compete for EU funding – not clear that it would be more successful post-independence (4) Regulatory differences would make collaborations difficult (5) UK charities might not wish to fund Scottish research

Conclusion: Would independence be good for Scottish universities? Scottish Government – universities would prosper because government would control essential economic and social levers. Existing beneficial arrangements would remain – e.g. UK research area would continue, SG would continue to charge rUK undergraduates. Additional benefits – SG would be able to implement its own immigration policy to allow international students to stay in Scotland post-graduation. UK Government expresses different view – UK research area unlikely to remain; Scotland unlikely to be able to treat rUK students differently from home and other EU students; different immigration policy incompatible with open border. These differences would have to be resolved in post-independence discussions.

Migration, mobility and higher education Dr Scott Blinder Professor Sheila Riddell Twitter:@UKScotland

A Scottish Yes to independence? A UK No to Europe? Scenarios and challenges Professor Michael Keating (Director of the Scottish Centre on Constitutional Change) Dr Fabian Zuleeg (Chief Executive European Policy Centre, Brussels Twitter: @UKScotland

Thank you For more information visit: http://www.futureukandscotland.ac.uk/ www.esrc.ac.uk/scotland Follow us on Twitter: @UKScotland @ESRC (Please complete the evaluation forms)

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