Scotland's Decision: Business and Competition

This week, we are highlighting the contributions of our fellows to Scotland's Decision: 16 Questions to think about for the referendum on 18 September.  Today’s topic is prospects for business and competition.

The book is available as a free download.

Our experts look at two questions under this heading:

  • Brad MacKay - Would a Yes vote be good for business? Would a No vote?
  • Grant Allan, Patrizio Lecca, Peter McGregor, Kim Swales - What would independence mean for energy markets?

Brad MacKay starts by setting out the stakes of the debate about business and the referendum:

“How the vote impacts on business decisions to invest, re-invest, expand, withdraw, locate or relocate business activity within or outside Scotland is critical for Scotland’s economic prospects following the referendum.”

Unsurprisingly, views on this differ:

“The Yes side argues that having more powers to tailor economic policy to the needs of Scottish business will help to enhance productivity and growth. The No side argues that the success of Scottish business is underpinned by the scale of the UK single market.”

MacKay reviews the available evidence and finds that businesses generally see significant risk in the prospect of independence:

“The most problematic issues for businesses are the currency (with a strong preference for the pound Sterling), regulation, corporate and personal taxes, EU membership (with a strong preference for remaining in the EU), the business environment and the costs of a transition period. The vast majority of businesses indicate that independence poses significant risks to their business operations and strategies.”

Indeed: “A large majority of business leaders indicate that the costs and risks of independence to business outweigh the perceived benefits and opportunities that might occur.”

MacKay concludes:

“While some, primarily smaller businesses might benefit from more tailored policy by an independent Scottish government, for the majority of successful companies in Scotland today, their success has been achieved within the policy and regulatory context of a highly integrated UK single market. If this changes, so does the foundations on which their success has been built.”

Grant Allan, Patrizio Lecca, Peter McGregor, Kim Swales explore a range of issues concerning energy markets in Scotland and the rest of the UK in the event of a Yes vote. The Yes side claims that:

  • “The integrated British market in electricity and gas will be maintained and operate pretty much as it does now
  • The UK Government will continue to import electricity generated in Scotland on similar terms to those that currently prevail because it will be in its own interest to do so, since it would otherwise experience a problem of security of supply and be unable to meet its legally binding EU emissions targets for 2020.”

The No side claims that:

  • “There will continue to be an integrated network, but transactions will be subject to new, and purely commercial, contracts. Scotland may still export electricity to the rest of the UK, but these exports will not be privileged and will be dependent on competitiveness.
  • The rest of the UK is not dependent on Scottish imports for security of supply, they constitute less than 5% of total consumption.
  • The rest of the UK will be able to meet its EU targets without importing electricity from Scotland.”

Allan and colleagues argue that “the truth lies somewhere between these two positions”. For example, on security of supply:

“… given the timescales required to alter generation and interconnector capacities … imports from Scotland are likely to form part of the rest of the UK’s solution in the short and medium runs. Longer-term the rest of the UK could no doubt make arrangements that would ensure its standalone security of supply.”

Similarly:

“The Scottish Government’s claim of the rest of the UK’s dependence on Scotland to meet its binding emissions targets may be exaggerated, although other options prior to 2020 may be fairly limited.”

Their overall conclusion is:

“It is fairly clear that: cooperation between Scottish and the rest of the UK Governments is likely to be beneficial to both sides for most, if not all, of their energy policy goals; affordability is going to be a major issue for both Governments; both yes and no camps are prone to exaggeration.”

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Charlie Jeffery's picture
post by Charlie Jeffery
University of Edinburgh
12th August 2014
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