Independence Day

But past polls have been worryingly volatile and the Better Together campaign - led by former chancellor Alistair Darling for a no vote - has been dogged by criticisms that its message is overly negative. The yes campaign’s strategy, in contrast, is widely perceived to be more upbeat. In short, a no vote is in no way a certainty and it is perfectly feasible that Scotland could yet vote in favour of terminating its 307-year long union with the rest of the UK.

If it does, the UK’s corporate world will be faced with a long list of issues. They range from uncertainties over regulatory and tax regimes to currency implications and a lack of clarity over continued Scottish EU membership. There’s also, of course, the issue of Scotland’s economic viability as a separate state. Indeed, only the lawyers look certain to emerge as big winners from independence and Alasdair Douglas, chairman of the City of London Law Society, is reported to have said that it will keep lawyers in the City and in Scotland “enormously busy for at least a decade.”

A sterling problem

Perhaps the most emotive issue - and one which is causing a great deal of angst in the corporate world - is the future of the sterling currency union. Scotland’s First Minister and Scottish National Party (SNP) leader Alex Salmond insists that an independent Scotland would remain part of a continued sterling zone. Yet the UK’s three main political parties have all categorically ruled out any such arrangement. The problem with continued currency union after independence is that it could mirror the issues that have dogged the eurozone during the financial crisis. Essentially, a monetary union will struggle when there’s an insufficient degree of fiscal union and Mr Salmond’s party - with its focus on public services - is thought likely to ramp-up borrowing and personal taxation. “A sterling union would lack many of the conditions that are required for a stable currency to function,” says CBI president Sir Mike Rake.

But with even continued EU membership looking uncertain (see below) in the event of independence then joining the Euro isn’t thought likely. That means Scotland may have to either adopt sterling unofficially - leaving it without a say over the monetary policy that comes with sterling or the support of its associated institutions - or it will need to establish its own currency. But a Scottish currency will mean transaction costs for businesses working cross-border. Based on Latvia’s experience of adopting the Euro, for example, a report from Oxford Economics sponsored by Scottish engineer Weir (WEIR) estimates these costs at between 0.4 per cent and 0.8 per cent of GDP – or perhaps as much as £800m. Some commentators think that a new Scottish currency would slide pretty quickly (see the economic challenges listed below), too. Analysts at Barclays, for instance, have estimated that a trade-weighted Scottish currency could fall by as much as 16 per cent in its first year. Of course, it’s conceivable that the government is simply bluffing over its determination to deny Scotland the pound - to scare Scottish voters into sticking with the UK. But if it’s not, it will leave a new-born Scotland and its companies with many complex issues to tackle.

What’s more, a yes vote has implications for the value of sterling - regardless of whether Scotland retains the pound. Kathleen Brooks, research director at foreign exchange trading platform Forex.com, has said that the pound could plunge from around $1.7 now to $1.6 within a few hours of a yes result being announced - so forex traders be ready! In contrast, a no vote could drive a modest and short-lived relief rally for sterling.

EU uncertainties

Another political bluff could be the uncertainty that has arisen over Scotland’s continued membership of the EU. With independence movements around Europe - such as Spain’s Catalan and Basque separatists - watching events in Scotland closely, the European establishment has good reason to influence Scotland into voting against independence. But if it’s not a bluff - and Scotland does indeed find itself outside of the EU - then it’s a very big issue indeed for Scotland’s companies. After all, and despite all the muck that’s thrown at the EU, it does have one big plus point: it provides companies within its member states with tariff-free access to a huge market comprising over 400m people. For Mr Salmond’s followers, continued membership of the EU - and access to that market – is taken as a given. Others, however, aren’t so sure.

One such doubter is none other than José Manuel Barroso, the outgoing president of the European Commission. He reckons it’s “going to be extremely difficult, if not impossible” to get agreement from existing members for Scotland to exit the UK and remain in the EU. If he’s right, Scotland may have to apply for EU membership as an independent state, which could take years, and - if even successful - would come without any of the opt-out benefits already negotiated by the UK. For firms operating cross-border in Scotland, there would be the risk that they may find themselves operating outside of the EU’s free market for a considerable period – a prospect that many would view with horror.

Economic viability

Companies never relish the prospect of economic uncertainty, either, and the question of Scotland’s economic viability has prompted fierce debate. To a significant degree, Scotland’s economic prospects will reflect the way that North Sea oil & gas assets are divided up. The Scottish Nationalists think they’re largely Scottish by virtue of their geography and are planning on the basis that Scotland would be entitled to receive around 90 per cent of the associated revenues. But it may not be that simple. Sir Paul Collier, for example - an economist at Oxford University - reckons that international energy law means Scotland’s share will calculated on the basis of its population, suggesting it would be entitled to just 8 per cent. Even if Scotland gets the lion’s share, it’s no economic panacea. After all, such revenue has been volatile in recent years - UK oil and gas revenues were £10.9bn in 2011-12, but only £4.7bn in 2013-14 - and these North Sea assets won’t produce forever.

UK oil and gas revenue

Government borrowing in an independent Scotland won’t come cheap, either. According to estimates from Citi Research earlier this year, should an independent Scotland find itself outside of a formal currency union then credit rating agencies are likely to give Scotland a high single ‘A’ rating. This would suggest Scotland would pay 1.25 percentage points more compared to the UK’s current rate to borrow for 10 years: so around 4 per cent compared to the UK’s 2.75 per cent.

Indeed, and even without further borrowing, Scotland’s share of existing UK debt could be high and, based on a population split, Scotland could be born with a debt burden equal to a chunky 92 per cent of GDP according to Kleinwort Benson. Scotland is also facing a hefty fiscal deficit - estimated by Schroders at between 14 per cent and 8.3 of GDP (depending on how oil and gas assets are divided up). Given that backdrop, it’s hard to see how an SNP-led government will be able to invest Scotland’s oil wealth in the Norwegian-style sovereign wealth fund that it’s planning to establish. Indeed, it’s likely that “a combination of major public spending cut backs and severe tax increases will be required to balance the books, which is likely to drive many companies and individuals south of the border,” reckons Schroders’ European economist Azad Zangana.

Tax and regulation

In a move designed to discourage such a flight south, the SNP plans to cut corporation tax by up to three percentage points below the prevailing UK rate. But given that individuals’ taxes are thought likely to rise to support public spending plans – as one fund manager pointed out, the Scottish government “likes to offer people a lot of free stuff” - it could prove to be a fairly modest move. It may not even benefit companies much. Scottish engineer Weir, for example, points out that while such a move would have saved it around £400,000 in 2013, the flexibility offered by UK group tax relief is worth almost nine times that figure to the company. Some companies operating cross-border have flagged the costs and uncertainties of dealing with a further yet-to-be decided tax regime, too. For sophisticated companies, however, used to operating in countries outside of the UK, that’s more of an inconvenience. Of more tangible concern, though, is Mr Salmond’s promise to bolster the minimum wage by at least the rate of inflation - that could add to companies’ costs in sectors ranging from retailing to restaurants to pubs and potentially increase unemployment.

There are similar uncertainties about regulation - even though, at this stage, that has more to do with fear of the unknown rather than anything tangible. One fund manager told the Investors Chronicle, for instance, that “there’s an issue around the absence of a lobbying structure in Edinburgh and a fear that decisions could be take without appropriate input from an industry.” Structural uncertainties are also worrying some. In financial regulation, for instance, there would be Scottish as well as English regulators for banks and other financial service players operating cross-border and a host of unanswered questions as to how regulation would work in practice. While regulation - and the allocation of subsidies – in such sectors as utilities or transport is another potential headache. Such issues can only “add to the uncertainty surrounding company domicile and listing venue,” note economists Paul Marsh and Scott Evans in a recent report on independence and Scottish stock performance.

In fact, it’s the sheer uncertainty of not knowing how things will turn out - given that so many of the fundamentals have yet to be decided in the event of a yes vote – that’s the biggest worry. In property, for instance, it’s conceivable that this could mean deals get delayed until there’s more clarity about the future and that could depress asset prices. Construction projects could be delayed, too, and a report from Jones Lang LaSalle last year revealed that almost all housebuilders in Scotland expect less housing development if there’s a yes vote. Moreover, online estate agency eMoov has warned that Scottish house prices could tumble by 20 per cent, reflecting “general economic uncertainty as a consequence of Scotland going it alone”, according to the company’s chief executive Russell Quirk. He also flags up that economic weakness could bolster unemployment, which in turn could drive up home repossessions: bad for banks. There’s also the possibility that commuters into Scotland from northern England may face a road toll at the border: bad for property prices immediately south of the border, too.

Clearly, these big overarching issues have implications for virtually all businesses operating in Scotland. But some sectors are more exposed than others and, below, we’ve identified the sectors that look set to be the most affected by a yes vote. We believe that shareholders in companies within these sectors need to be on alert to potential downside risk should there be a yes vote. Unfortunately, in contrast, clear winners - where there might be share price upside from a yes vote - look very thin on the ground indeed.

Oil & gas

Depending on one’s perspective, the oil and gas industry is perhaps the most significant sector for Scotland - indeed, the economic viability of an independent Scotland appears to depend on it. The problem is that it’s far from clear that Mr Salmond is right to assume that Scotland will be able to claim 90 per cent or more of the UK’s North Sea assets.

To begin with, it’s uncertain in terms of international treaty and maritime law just which country can lay claim to what assets located on the UK Continental Shelf (UKCS). Indeed, there are numerous legitimate ways to decide such matters. For example, the offshore treaty signed between the UK and Norway in 1965 used a median line approach - a dividing line on which all points are the same distance from a given coastline. This approach was also used to determine the boundary between Scotland and the rest of the UK for fisheries purposes following devolution in 1999. Crucially, that method removed a significant amount of Scottish territory and it’s entirely feasible, therefore, that Scotland could end up with far less of the revenue take from the industry than its government currently expects.

Even if Scotland does grab most of the assets, that won’t change the realities of operating in the North Sea these days. Sure, there’s still plenty of oil there; it has been estimated that upwards of 20bn barrels remain. But the UK’s existing assets are relatively mature - unlike those of Norway - and what’s left is often hard to access, disparately located and consisting of small individual deposits. That makes oil costly to extract and has left the oil majors such as Royal Dutch Shell (RDSB) and BP (BP.) inclined to leave the exploration cost burden to smaller specialists. So players such as Premier Oil (PMO), Parkmead (PMG) or Aim-traded Trap Oil (TRAP) now lead the way. Yet even such nimbler companies aren’t finding it easy to locate viable commercial deposits.

Given the high exploration costs - and the big risks that small explorers therefore run - companies are keen to hear what kind of support the industry may receive from the government of an independent Scotland. So far, however, the Scottish government has merely said that it plans a “stable and predicable fiscal and regulatory regime” for the industry. To be of real benefit for this plethora of cost-conscious small explorers, that regime will to need to provide clarity on such issues as tax relief on exploration wells - a regime that’s especially generous for Norway’s Statoil - and decommissioning costs. EnQuest (ENQ), which has successfully exploited mature assets in the region by applying the latest drilling and sub-sea technologies, is the largest UK North Sea independent and has been in regular contact with Scottish officials to try and clarify these issues.

But whether an independent Scotland will be able to afford such support for the sector is unclear. For example, as well as spending more to extract oil, companies also face hefty costs to seal wells and return idle rigs to shore. It’s estimated that such decommissioning will cost the UK’s economy £20bn in tax relief over coming decades, and whether Scottish taxpayers will able to shoulder such a burden virtually alone remains to be seen. Indeed, both BP’s chief executive Bob Dudley and his counterpart at Shell, Ben van Beurden, have said publicly that the interests of the UK oil & gas industry would be best served if the union was preserved. MR

UK North Sea - diminishing returns

Financial services

Banks

While oil and gas might be the most important sector for Scotland overall, the financial services sector certainly comes a very close second. Indeed, the sector accounts for 13 per cent of Scotland’s non-oil economy and the two big Scottish-registered banks – RBS (RBS) and Lloyds Banking (LLOY) – will face plenty of challenges. Other banks are Scottish to varying degrees, too: Virgin Money, for example, is headquartered in Edinburgh, while Scotland is also home to Tesco Bank. To a significant degree, the dilemma facing the banks reflects the scale of the sector compared to the size of the Scottish economy and the realities unleashed by the financial crisis.

The arithmetic makes the position clear. Prior to the financial crisis, the aggregate market value of Scotland’s banks represented a huge 85 per cent of Scotland’s GDP – only Cyprus and Iceland could claim a higher figure. That Scotland avoided the woe inflicted upon those two countries from the collapse of their respective banking sectors amid the financial crisis reflected its membership of the UK. As Paul Marsh and Scott Evans point out, the UK “was able to provide co-insurance to Scotland, with the burden spread across the UK as a whole rather than falling entirely on the people of Scotland.” It’s thought highly unlikely that Scotland would be able to support its banks on such a scale and that’s likely to leave them looking to move south should independence become a reality.

The scale of the banks prior to the financial crisis

RBS - while neutral on the concept of independence - has been especially clear about the challenges, saying with its recent half-year figures that “uncertainties arising from an affirmative vote in favour of independence would be likely to significantly impact the group’s credit rating and could also impact the fiscal, monetary, legal and regulatory landscape to which the group is subject.” The bank added that this “could significantly impact the group’s costs and would have a material adverse effect on the group’s business, financial condition, results of operations and prospects.” Given the government’s 81 per cent stake in the bank, and Scotland’s likely inability to act as lender of last resort – that will probably hit most banks’ credit ratings - it’s hard to see how RBS could avoid a redomicile to England. EU rules requiring banks to be headquartered where they have most of their activities is another factor. And while the government has been making good progress with selling its shares in Lloyds, it still faces broadly similar issues to those of RBS and is also thought likely to shift its registration south. That backdrop certainly won’t help sentiment towards the bank shares.

Banking operations in a post-independent Scotland face some fairly basic trading challenges, too. The issue of currency becomes crucial: the risk of default may rise on loans issued in sterling, but then repaid in a potentially depreciating Scottish currency. And should economic fears prove real, credit demand could suffer while potentially rising unemployment could boost arrears – a toxic mix for banks generally.

Asset managers

Scotland is also top-heavy when it comes to life assurance and asset management - some £750bn of assets are under management in Scotland - and here, too, there’s plenty of scepticism about independence. Most significantly, Edinburgh-based Standard Life (SL.) - Scotland’s second largest company - has been highly vocal. In February the company said it was already working on establishing registered companies outside of Scotland into which it could transfer parts of its business “to ensure continuity and to protect the interests of our stakeholders.” While, earlier this month, the group noted that no “further clarity” has been provided on the core uncertainties: currency, tax, EU membership, regulation. Asset management companies more generally will be worried about the likelihood of higher taxes. That could make it tough going when attracting high quality fund managers and many existing ones could move south.

Perhaps the biggest uncertainty is uncertainty itself and institutional and retail investors in Scottish-based asset managers may well decide that - in view of the lack of transparency – it’s just best to place their funds elsewhere. Crucially, nine out of ten customers of asset managers based north of the border live south of it and, in time, they may grow cautious about placing their funds with what would have effectively become foreign companies. And prior to a yes vote, the Financial Conduct Authority maintains that there is no mandate to prepare for change. Furthermore, it’s not clear whether Scotland could afford the various compensation schemes to protect investors – including the bank deposit protection scheme – should Scotland leave the UK.

That said, not all companies in the sector are issuing dire warnings. Aberdeen Asset Management’s (ADN) chief executive Martin Gilbert remains generally tight-lipped about how a yes vote will affect the group, but has pointed out that the company already operates in 30 countries and that one more won’t make much difference. JC

Investment trusts

With 41 investment trusts registered in Scotland (see table) this sector carries a particular significance for the country’s financial sector. But independence could bring an uncertain regime. True, investment trusts listed in London, but incorporated in Scotland, would still be subject to UK listing rules. But regulation, contract law, tax treatment, overarching legislation and currency uncertainty are just some of the key issues that remain to be clarified.

As with other financial companies, investment trust are likely to face the extra cost and uncertainty associated with being regulated by additional Scottish regulator. Moreover, the regulation of investment trusts and their managers currently falls under the EU’s Alternative Investment Fund Managers Directive. But should an independent Scotland be denied continued membership of the EU, that regime could change dramatically. Investment trusts are also subject to the UK Companies Act and this may need to be replaced in an independent Scotland. “For those companies currently registered as investment trusts the obvious question is whether there would be an equivalent to investment trust status under Scottish law in a companies act,” says Innes Urquhart, analyst at Winterflood. “This may also have implications for a fund’s ability to pay dividends out of capital [if it has sought those powers], buy back shares and other scopes that companies have.”

Moreover, existing contracts under Scottish law entered into by investment trusts, including their investment management contracts, might need to be reconsidered if independence resulted in a disadvantageous regime for contractual relationships. A separate Scottish currency is another uncertainty. Anthony Townsend, chairman of Finsbury Growth & Income Trust (FGT), reckons investment trusts may need to produce their accounts in this new currency, for instance.

Tax, too, is a worry. Investment trusts typically are taxed on their investment income but do not pay capital gains tax - this could change in the event of independence. But it’s far from certain that a post-independence regime would be all bad for investment trusts. “There is the possibility that an independent Scotland could provide a more welcoming regime for investment trusts, particularly in terms of tax treatment,” notes Mr Urquhart.

Indeed, to tackle such uncertainties one of the best known companies - Alliance Trust (ATST) - has established additional companies registered in England for its subsidiaries, Alliance Trust Savings and Alliance Trust Investments, which run a number of open-ended funds. Work is progressing on making them operational. The company has said that it’s especially concerned about such matters as jurisdiction and the taxation of individual savings and pension plans, as well as consumer protection. LW

Investment trusts incorporated in Scotland

Moving south - investment trust obstacles

Should the post-independence investment trust regime prove too hostile, they could relocate to England and a number are believed to be considering precisely this option. Alliance Trust, for example, has a project group monitoring the situation, while this “would be the most likely outcome” for Finsbury Growth & Income says its chairman, Anthony Townsend.

But relocating to England is likely to cost several hundred thousand pounds because the Scottish company would have to be wound up and shareholders would have to subscribe for shares in a new English incorporated company. “This is not a straight forward process and is not simply a matter of re-registering the company elsewhere,” says Mr Urquhart. “It would have implications for the fund’s revenue reserves and possibly the tax treatment.” Still such a relocation-related cost isn’t necessarily so great in the context of trusts with assets of £100m or more - and many Scottish trusts are far larger. Moreover, costs could be spread over time: there will be a transitional period between the vote and ‘independence day’ (currently set at 24 March 2016).

It’s also not clear if shareholders could choose not to roll over into the new company and instead realise their share of the trust’s assets post wind up. The tax treatment of shareholders rolling into the new company and, whether this would trigger a disposal for tax purposes, is also unclear. However, winding up an investment trust and re-launching it in England means the trust’s board would have to seek shareholders’ approval.

Despite these issues Iain Scouller, head of the investment funds team at Oriel Securities, advises that “people shouldn’t sell their Scottish incorporated trusts over this or other implications”. He adds that “the boards and managers of these trusts will make sure it works out; many boards of Scottish incorporated trusts have contingency plans in place.” LW

Energy

Energy companies, too, have plenty to worry about. Indeed, the UK energy market is already facing a period of great political uncertainty. A competition investigation and Labour Party plans for an energy price freeze have cast a long shadow over investment plans. A Scottish yes vote will further complicate the situation.

Significantly, big questions remain over how energy supply and demand would be balanced in Scotland, as well as how to split costs for managing energy networks and investment. At present, a single UK energy market is in operation. But in April the UK government published a paper indicating that this would no longer be the case if Scotland breaks away. The paper bluntly stated that “if Scotland becomes an independent state, the current integrated GB [Great Britain] energy system could not continue as it is now.” The paper says a separate Scotland and the continuing UK would be looking to “best serve their own policy objectives.”

Currently the UK’s energy market can spread the costs of investment and supply across millions of households and businesses. Without access to this market, Scotland would have to fund supply to remote energy customers from Scottish taxpayers’ cash.

There’s also the issue of subsidies provided to Scotland’s renewable energy assets. Indeed, one fund managed told Investors Chronicle that this issue is perhaps one of the most “fundamental problems” with independence. That’s because some of the biggest infrastructure projects in the UK at present comprise renewable energy schemes in Scotland and these all receive “subsidies from the UK consumer and the UK taxpayer.” Shares in Infinis Energy (INFI) - which floated in November and has seven Scottish wind farms - could become a casualty of this uncertainty. Overall, the white paper estimates Scottish independence would add around £110,000 to annual energy costs for a medium-sized manufacturer in 2020.

The current Scottish government’s position is that an independent Scotland could remain part of a fully integrated energy system. Scottish energy giant SSE (SSE) - while neutral on the referendum - agrees. Indeed, the company has pointed to Ireland as an example - despite there being two sovereign countries within it, it has a single energy market.

How tough the UK government would actually be in the event of a yes vote remains unclear. But the processes of thrashing out changes to renewables funding and the single energy market would be lengthy and create much uncertainty. It would likely mean a hiatus in investment until the new regulatory and legislative landscape emerges from the fog and such a backdrop of uncertainty won’t be good news for shares in the sector – SSE’s (SSE) in particular. KG

Aerospace & defence

Centuries of union have left Scotland and the rest of the UK with deeply intertwined defence commitments. Disentangling them would prove messy, not to mention, costly for both sides.

At present, around 8 per cent of the UK’s military personnel are located in Scotland, spread across around 50 Ministry of Defence (MoD) sites. The MoD is by far the largest customer for the Scottish shipbuilding industry, which has been instrumental in the delivery of the Royal Navy’s Type 45 destroyers and the Queen Elizabeth Class aircraft carriers. Current UK government plans will see Scotland home to one of three Royal Navy main bases, including all its submarines, by 2020. And one of three Royal Air Force fast-jet main operating bases will be there, too.

The UK government has also said that a yes vote could mean companies based in Scotland would no longer be eligible for UK defence contracts. A government white paper on the subject notes that all of the UK’s complex warships are designed and built within the UK for reasons of national security. And current MoD plans for complex warships include the Type 26 Global Combat Ship programme at the BAE Systems Maritime Naval Ships site in Scotstoun. The government also says that a final decision on where these ships will be built will not be taken until around 2015. But many of the MoD’s prime contractors have Scottish operations including Babcock (BAB), BAE Systems (BA.), Rolls-Royce (RR.) and QinetiQ (QQ.) - such uncertainty won’t be good for sentiment towards their shares.

The UK’s strategic nuclear deterrent, carried by submarines based at Clyde naval base, is another area of huge uncertainty. The UK government says that in the event of a yes vote “other options would be considered.” But the government concedes that moving these facilities would “cost billions of pounds and take many years.” If the nuclear deterrent is moved, then the entire submarine operations would go with it, including the Royal Navy’s attack submarines. The UK government warns that this could threaten the future of the base, which is the biggest employment site in Scotland – another negative for the Scottish economy. KG

Transport

Within the transport sector, the most obvious victim of Scottish independence would be Aberdeen-based FirstGroup (FGP). The troubled rail and bus operator has had plenty to contend with since 2012 when the West Coast franchise award was withdrawn, and a break-up of the UK won’t help. That’s because it operates a number of rail and bus franchises in Scotland and while this might continue to be the case, the way in which these franchises are renewed - or indeed how they are subsidised – represents a big uncertainty.

As it stands, when a franchise becomes due for renewal, the Department for Transport (DfT) invites bidders to tender for that contract. In the past, many services required a public subsidy and the level of subsidy required by each bid was one of the factors considered by the DfT. Despite tweaking the system, a public subsidy for most rail franchises is still made available through a direct grant to Network Rail from the UK government. Uncertainty over Scotland’s replacement system, as well as the level of subsidy available, won’t help sentiment towards listed rail and bus players operating in Scotland.

But the airlines appear to have less to worry about. International Consolidated Airlines’ (IAG) chief executive Willie Walsh has publicly supported the SNP’s pledge to reduce, and then possibly abolish, air passenger duty. In its white paper on independence, the Scottish government said air passenger duty would damage tourism expenditure in Scotland by up to £200m. Michael O'Leary, boss of the budget airline Ryanair (RYA), has also thrown his weight behind the proposals. Meanwhile airport operators think abolishing the tax could encourage passengers to catch their flights from north of the border, potentially hitting passenger numbers at north of England airports. Newcastle airport, for instance, has voiced such concerns – although such regional airports tend to be owned by groups of relevant local authorities rather than listed companies. HR

Media & telecoms

Meanwhile, Scottish independence could have “seismic” implications for the media and telecoms industries, according to research firm Enders Analysis. To operate in Scotland, broadcasters might have to establish a base there and apply for a licence from whatever is established as Scotland’s equivalent of Ofcom. True, Mr Salmond has told Scottish broadcaster STV (STVG) that its licences will be honoured through to 2024, but its rivals might be less fortunate - so ITV (ITV) could suffer licensing issues in the future. Indeed, ITV’s chairman Archie Norman has been scathing about the entire concept of independence after telling the Sunday Telegraph that “a few windmills and hydro power do not provide a base for economic recovery.” Moreover, broadcasters such as BSkyB (BSY) might be forced to hash out separate content deals for their Scottish services - that could be expensive.

At the same time, an SNP-led independent Scotland is thought likely to re-auction 2G, 3G and 4G licences, and would probably require winning bidders to offer broader coverage of Scotland than they currently do. That could bolster the costs of such companies as Vodafone (VOD) and O2-owner Telefónica (TEF). Moreover, the UK government has also warned that consumers who make mobile calls near or across the border could be charged international roaming fees. TM

Technology

While in the technology sector, Scotland’s so called Silicon Glen - a hub of high-tech companies such as semiconductor-maker Wolfson Microelectronics (WLF) and video security specialist IndigoVision (IND) – face plenty of uncertainties from Scottish independence. Certainly, it’s conceivable that they could thrive if the Scottish government introduces funding schemes, tax rules and regulations tailored to the specific needs of local tech companies. That could help it steal some of the spotlight from London and encourage the development of other tech clusters.

But the highly skilled technicians and entrepreneurs needed to make Silicon Glen a success may also have very good reasons to go south – such as an onerous personal tax regime. What’s more, limited government resources could mean that research funding and infrastructure investment is lower. Indeed, such risks prompted Angus MacSween, chief executive of cloud-computing specialist iomart (IOM), to call independence “a very silly idea”. He may even lead iomart out of an independent Scotland, as 95 per cent of its customers, and most of its data centres, are south of the border. TM

Retail and food

Officially, retail bosses are keeping quiet about Scottish independence. But, privately, most are vehemently negative. We know this because of a private survey conducted by head-hunter Korn Ferry which widely reported in the press in February. Indeed, 33 chairman of the UK’s most well-known shops were “consistently negative” when asked about independence. Those interviewed were said to include such names Sir Richard Broadbent of Tesco (TSCO), David Tyler of Sainsbury (SBRY), Stefano Pessina of Alliance Boots and Robert Swannell of Marks & Spencer (MKS).

High on the list of concerns is the impact of possible new employment and pension laws and rising supply chain costs. An independent Scotland looks likely to bolster the minimum wage, adopt more stringent staff pension arrangements, increase national insurance contributions and enforce stricter employment contract laws - making it tougher to hire and fire. While hardly catastrophic, it will mean higher costs and a greater administrative burden for retailers. That said, there may be less uncertainty regarding business rates: Scotland already has devolved powers for that area of taxation.

There are logistical worries, too. Not only could EU-related considerations lead to the inconvenience of border controls - although the SNP says it doesn’t want them - but the country is also far more sparsely populated than England, with many villages and houses situated in remote areas. Supermarkets such as J Sainsbury, Tesco and Morrison (MRW) may therefore have to charge more for food north of the border, given the extra supply chain costs involved in stocking shops in far-flung highland villages, let alone fulfilling online orders. Currently, these higher distribution costs are effectively subsidised by spreading them across UK-wide operations.

As already mentioned, an SNP-led independent Scotland currently plans to cut corporation tax. Should that policy change, however - not inconceivable if the Scottish economy struggles - companies headquartered in Scotland could face challenges. Within the consumer goods sector that includes such companies as sausage-casings specialist Devro (DVO) and drinks maker AG Barr (BAG). The latter, in particular, could find itself uncomfortably placed. The maker of Irn-Bru generates 40 per cent of its sales from Scottish consumers and - given the brand’s strong Scottish identity - relocation is probably unthinkable. However, with the Scottish operation merely growing in line with the market, it’s focusing heavily on business south of the border where growth is rather faster. To meet that demand, Barr has invested heavily in a new production and distribution facility in Milton Keynes. Being forced to straddle the border in this way leaves AG Barr looking more vulnerable than most to the consequences of independence.

Of less concern, however, is the uncertainty over independent Scotland’s currency. True, there will be transaction costs and back office administrative burdens here should Scotland be denied the pound. But most of the UK’s big retailers are already well-versed in operating in other countries where there are different currencies: Next (NXT), Dixons, (DC.) Marks & Spencer, Debenhams (DEB) and SuperGroup (SGP), to name just a few, have substantial overseas operations. Primarily English-based retailers, however, such as Greggs (GRG), Dunelm (DNLM), Home Retail (HOME) and J Sainsbury, might find that challenge relatively greater. JB

A Scottish stock exchange?

Will independence bring with it the creation of a Scottish stock exchange? After all, the nation states created as a result of the collapse of the Soviet Union have all established their own exchanges and Scotland’s economy is rather better developed. It’s also worth remembering that, until 1973, Scotland did indeed have its own exchange: in Glasgow.

The country isn’t lacking in companies to list on its own exchange, either. According to a report by economists Paul Marsh and Scott Evans – using a methodology that gives greatest weight to the location of a company’s head office to identify 'Scottishness' – there are 100 listed Scottish companies with a combined total free float market capitalisation of £73bn (3.3 per cent of the UK total). And while the top three stocks account for 40 per cent of the index, such concentration is not unusual for the exchanges of smaller developed nations. Neither has the performance of Scottish stocks been especially poor. Since 1955, Messrs Marsh & Evans have calculated that the annualised real return on Scottish stocks was 5.7 per cent versus an only marginally better 6.8 per cent for the rest of the UK.

Still, simply because a separate exchange is feasible doesn’t make it likely. Significantly, a Scottish exchange would rank an unattractive 28th in the world – and that’s in the event that all 100 Scottish stocks identified chose to have their primary listing in Scotland. Yet independence could cast doubts over continued FTSE membership of Scottish registered companies – they might be deemed foreign stocks and would need a 50 per cent, rather than a 25 per cent, free float to be considered for FTSE UK eligibility. Companies place a high value on FTSE membership: “this enlarges the investor pool, enhances liquidity, and arguably, at the margin, lowers their cost of capital,” points out Messrs Marsh & Evans in their report. Rather than risk losing FTSE membership companies may look to move - to varying degrees -outside of Scotland.

Overall, Marsh and Evans conclude that by the 1970s the UK’s regional exchanges were no longer viable – partly because of the need for hefty IT expenditure which, in any case, would have helped drain liquidity from these markets to London. “We believe it will now be very difficult to reverse that trend, even in the context of a new national stock exchange for Scotland.”

Largest Scottish companies

Devo-Max: the risk of a no vote

Investors may be tempted to assume that, should Scotland vote against independence in September, then it’s back to business as usual. Not so! While a no vote continues to be the most likely outcome, a rejection of outright independence is unlikely to be by a sufficiently crushing majority for the debate to simply disappear. In the event of a no vote a much enhanced collection of devolved powers – dubbed 'Devo-Max' – are likely to be offered to Scotland.

In such circumstances the really big uncertainties - such as EU membership or the possibility of losing sterling – will no longer haunt the corporate world. But, as Capital Economics points out, “Westminster will offer Scotland greater spending and tax autonomy”. Indeed, just this month, the three pro-union parties jointly pledged to extend devolution, although their individual proposals do differ.

■ Lib Dems: Their plans would effectively create a form of Scottish federal state. They involve giving Holyrood control over income tax, inheritance tax and capital gains tax and would leave Scotland raising 50 per cent of its own revenue instead of 15 per cent now.

■ Labour: The party plans a commitment to allow Scotland to raise 40 per cent of its revenue through the variation of income taxes along with the devolution of welfare benefits – notably housing benefit.

■ Conservative: Details remain scarce, but the Tories have endorsed the findings of the Strathclyde Commission - sponsored by the Conservatives - which calls for giving Holyrood full powers over income tax.

■ SNP: The party rejects Devo-Max totally – it simply want independence. In the event of a no vote, they’re likely to continue agitating for independence while making full use of any further powers thrown at Edinburgh by Westminster in its attempt to further entrench devolution as the long-term solution for Scotland.