briefing papers on scottish independence

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1

Response to the Scottish Government consultation on Non-Domestic Rates

Scotland’s Future

Scotland’S Future

On 18 September 2014 the people of Scotland will vote on the constitutional future of Scotland, voters will be asked the question: Should Scotland become an independent country?

This will be the most important decision the people of Scotland will make for 300 years, and each person will come to a view about how to vote based on the information provided between now and September. But whatever the outcome of the referendum, the key challenges facing Scottish businesses will remain.

Your chamber’S approach

Aberdeen & Grampian Chamber of Commerce is North-east Scotland’s leading private sector, member-focused, business organisation. The Chamber represents more than 1,250 businesses with almost 130,000 employees in the private sector covering all industry sectors, ranging in size from sole traders to multi-national corporations. The Chamber wishes to play a constructive and mature role in the constitutional debate and as such, will remain impartial and apolitical as the debate moves forward.

We will be looking to support members so that they can become as informed as possible about the likely outcomes in the event of a Yes or No vote. This will take the form of “filling in the gaps” where there is a lack of clear information, and cataloguing and summarising the evidence published by the respective campaigns.

This booklet is part of that process. We have endeavoured to read all the information coming from the Yes and No campaigns, the Scottish Government, UK Government, and external agencies on the main issues businesses want more information on. The papers summarise the potential outcomes facing Scotland in the event of a Yes or No vote, each campaign’s preferred outcome, and our analysis of the likely end result.

As you will see, there are still many unknowns, with many of the preferred policy outcomes subject to negotiation or the next political party which forms the next Scottish or UK Government. However, we will continue to hold both campaigns to account and press them to clarify what the final outcome will be.

Rachel ElliottPolicy [email protected]

James BreamResearch & Policy Director [email protected]

Currency is important Currency policy impacts on

imports and exports through

exchange rates. It also impacts on

government borrowing and

investment; and on monetary

policy

CURRENCY

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, currency was identified by

82% of AGCC’s 159 respondents as an important factor for their business. Two thirds also stated that they

wanted more information to help them understand the current policy direction promoted by the respective

campaigns.

The options available with a ‘yes’ vote

1. Scotland enters into a currency union with the rest

of the UK

2. Scotland continues to use sterling without a formal

agreement with the rest of the UK

3. Scotland sets up its own currency

4. Scotland joins the single European currency

The options available with a ‘no’ vote

1. Sterling continues to be used

2. The UK joins the single European currency

AGCC view of likely end game position

Scotland seeks to use sterling. It is not clear

whether this will involve a currency union.

Some further thoughts and information

The Scottish Government has set up a Fiscal Working Group who have been tasked with overseeing the design of a fiscal framework for an

independent Scotland. It is out of their work that the Scottish Government has come to their favoured position. The UK Government, however,

has stated that Scotland entering into a currency union with the rest of the UK would be subject to negotiations, and would expose both Scotland

and the UK to significant macroeconomic risks. Better Together are of the view that an independent Scotland, if it assumes EU membership,

would be required to join the Euro.


Sterling continues to be used.

The Policy Direction

Option 1 is the favoured option of the Scottish

Government. Yes Scotland campaign do not

appear to have a consistent favoured option for

the currency, this requires more clarity.


There does not appear to be a will from the UK

Government or Better Together Campaign to

adopt the Euro.

August 2013 VERSION 1.6

Updated March 2014

Scotland’s Future – Briefing Paper 1

This is a working document and will be updated as more information becomes available, see latest version at www.agcc.co.uk/policy1/#scotland-s-future

Information updates

17 September 2013 – Research published by the National Institute of Social and Economic Research, assessing choices on currency, concluded

it would be a prudent option to set up a new currency in an independent Scotland. The research highlighted that retaining the pound would limit

how the country could deal with a financial crisis.

26 November 2013 – The Scottish Government White Paper Scotland’s Future states that it is in Scotland’s interests to retain Sterling and

asserts that monetary policy would be set according to economic conditions with ownership and governance of the Bank of England undertaken

on a shareholder basis. They also indicate that it would be open in the future for the people of Scotland to choose a different option.

29 January 2014 – On a visit to Scotland, Bank of England Governor Mark Carney did not endorse or oppose Scottish Independence. In a speech

to the SCDI he outlined that three elements would be essential for a successful currency union; an integrated economy with free movement of

labour, capital and goods, a banking union, and a fiscal pact.

13 February 2014 – The Scotland Analysis paper, Assessment of a sterling currency union, concludes that HM Treasury “would advise the UK

Government against entering into a currency union” due to the lack of evidence that adequate proposals and policy agreements could be secured

to ensure a stable currency union. Launching the paper, Chancellor George Obsorne said there was “no legal reason” why the rest of the UK

would want to share sterling with an independent Scotland. He stated that “if Scotland walks away from the UK, it walks away from the UK pound.”

31 March 2014 – Media reports quote an unnamed UK Government Minister suggesting that a deal could be done which would allow an

independent Scotland to retain the pound. In a joint statement following the reports, George Osborne and Danny Alexander denied this would be

the case.

http://www.agcc.co.uk/policy1/#scotland-s-future

MEMBERSHIP OF THE EU

In the Scottish Chambers survey conducted between 4 June and 19 June 2013, Scotland’s future status in the EU was identified by 73% of AGCC’s 159 respondents as an important issue for their business. Two thirds of businesses also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.


1. Scotland automatically assumes EU membership, with the

same terms

2. Scotland automatically assumes EU membership, and re-

negotiates terms whilst a member

3. Scotland has to apply to join the EU with the same terms.

All EU states agree to membership

4. Scotland has to apply to join the EU and has to re-

negotiate terms. All EU states agree to membership

5. Scotland has to apply to join the EU, an EU state vetoes

membership

6. Scotland does not join the EU


1. The UK remains a full member of the EU

2. The terms of the UK’s membership of the EU is

renegotiated, and a referendum is held based on the

renegotiated settlement

3. A referendum is held in the UK without renegotiation,

which results in the UK remaining in the EU

4. A referendum is held in the UK without renegotiation,

which results in the UK leaving the EU


It is still not clear what outcome a ‘Yes’ vote will

result in. More clarity is required, but this clarity

is unlikely to come in advance of negotiations.


The Scottish Government has sought legal advice on which outcome an independent Scotland would assume for EU membership,

but to date have refused to make that information public. They have said information on Scotland’s status in the EU will be outlined

in the White Paper to be published in October.

David Cameron has committed to renegotiate the terms of the UK’s membership of the EU, with a view to holding a referendum on

that renegotiated settlement by the end of 2017. It is not yet known what the terms of the renegotiation will be.


A referendum across the UK is held on EU

membership. It is not yet clear what would

happen if options 2 to 4 were the outcome of a

‘No’ vote to independence.


It is the view of Yes Scotland, and the Scottish Government,

that Option 2 is the most likely outcome. However, EU

officials have indicated that some EU nations with

secessionist movements are likely to try and block Scotland

becoming a member of the EU.


Better Together have highlighted that it is in the UK’s best

interests to remain a EU member. However, Prime

Minister David Cameron has stated that a referendum on

EU membership will take place by the end of 2017 if the

Conservatives win the next election.

AUGUST 2013 VERSION 1.3


The EU is important As a member of the EU,

Scotland has access to the

free market, which enables

free movement of goods and

people across member states.


Information updates

26 November 2013 – The Scottish Government White Paper Scotland’s Future restates their favoured policy that an independent Scotland should

remain a member of the EU. They state that the Scottish situation is sui generis and believes the 18 month period in between a Yes vote and

independence will be a sufficient timescale for agreeing the terms of Scotland’s membership and to complete the necessary procedures. This is a

view supported by Graham Avery, the European Commission's honorary director general

31 January 2014 – The EU Referendum Bill, which would have put into law a 2017 referendum on the UK's membership of the European Union,

failed to pass through the House of Lords within the permitted timescale. Following the fall of the Bill, David Cameron stated that the government

would use every tactic possible to ensure the referendum takes place in 2017.

17 February 2014 – In an interview, EU Commission President Jose Manuel Barroso said it would be “extremely difficult, if not impossible” for

Scotland to gain automatic EU membership. He cited Kosovo as an example of a country which had failed to secure membership as existing members

had vetoed their membership.


Corporation Tax is

important

Corporation taxes have the

potential to encourage or stifle

growth. A stable fiscal regime

supports businesses.

CORPORATION TAX

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, the corporate tax rate was identified by 84% of the 159 AGCC respondents as an important issue for their business. More than 80% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.


1. Corporation tax in an independent Scotland

mirrors the UK rate

2. After independence, corporation tax mirrors the

UK for a set period of time before a new rate is set

3. Immediately after independence, Scotland sets a

new corporation tax rate


1. Corporation tax falls to 20% in 2015 and

remains at that level

2. Further changes to corporation tax after 2015,

as set by the UK Government

3. Scottish Parliament gains further devolved

powers to amend corporation tax in Scotland


Option 3 – Immediately after independence,

Scotland sets a new corporation tax rate.


The 2015 reduction in corporation tax will mean that the UK has a lower corporation tax rate than France, Germany and

Luxembourg amongst other European countries. Further changes to the corporation tax rate after 2015, in the event of a No

vote, will depend on the outcome of the next General Election.

The Scotland Act 2012 retains key taxation levers such as corporation tax and capital gains tax as a reserved issue. Any further

proposals for more devolution would have to clarify whether these issues would become devolved.

The Scottish Government has stated its support for a reduction in corporation tax should Scotland gain independence, but the

Better Together campaign have argued that any attempts to reduce the rate would be blocked by Westminster if Scotland was

part of a currency Union with the rest of the UK. Previous modelling by the Scottish Government only explores the economic

benefits delivered by reducing corporation tax to 20%.


Option 2 - Based on previous reduction

announcements, there will be further changes

to corporation tax after 2015.


The Scottish Government and Yes campaign

have previously expressed their wish to reduce

corporation tax, and First Minister Alex

Salmond has pledged to undercut the UK rate

by 3%.


Since 2011, each Budget has resulted in a

decrease to corporation tax. The Chancellor

announced in the 2013 Budget that corporation

tax would fall to 20% during 2015




Information updates

19 November 2013 – The Scottish Government paper Economic Policy Choices in an Independent Scotland states that a

reduction in corporation tax could be used to “counterbalance the pull of London and the South East. The papers also highligh ts

that corporation tax could be reduced further for certain types of firms to encourage innovation.

26 November 2013 – The Scottish Government’s White Paper Scotland’s Future confirms that they wouldreduce corporation

tax by up to 3% below the prevailing UK rate. The timetable for introducing this pledge would be published within the first term of

an independent Scottish Parliament.


Business Taxes are

important

Tax paid by businesses pays

for public services and

benefits. A competitive

taxation system encourages

enterprise and growth.

BUSINESS TAXES

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business taxes were identified by 85% of AGCC’s 159 respondents as an important issue for their business. 75% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.


1. Scotland mirrors the taxation system used in the

rest of the UK

2. Scotland mirrors some taxes used in the rest of

the UK and amends others

3. Scotland establishes a separate taxation system


1. Provisions in Scotland Act 2012 are

implemented, with no further changes

2. Further tax raising powers are devolved to

Scotland


Not enough information is known at this time to

come to a view.


While neither the Scottish Government or Yes Scotland campaign have stated their intentions for business taxes in an

independent Scotland, statements in the media indicates that they will not be keen to raise or change business taxation

significantly. Better Together argue that a low tax system and high public spending is unsustainable.

To date, there has been no indication from the Better Together about the future direction of Scotland should it vote against

independence. There has been media speculation that proposals for further devolution will be brought forward, which could have

an impact on future business taxation. However, neither the UK Government or Better Together campaign have brought forward

formal proposals.


Option 1 – Provisions in Scotland Act 2012 are

implemented, with no further changes to

business taxation responsibilities.


The Scottish Government paper “Scotland’s

economy – The case for independence” does not

detail how business taxes, apart from corporation

tax, would change in an independent Scotland.


Post Scotland Act implementation, Scotland will be

responsible for 16% of the tax raising powers. As

yet, there has been no mention of further

devolution of business taxes.




Information updates

4 November 2013 – The Scottish Government’s Fiscal Working Group published its Principles for a Modern and Efficient Tax System in an

Independent Scotland. While it makes no recommendations about the levels of business taxation, the report states that the tax system should be

used to encourage economic growth through in the following areas: trade and investment, entrepreneurship, the development of growth sectors

and innovation.

26 November 2013 – The Scottish Government White Paper Scotland’s Future indicates that they would prioritise tax powers to develop growth

sectors and companies. The paper states that following independence the Scottish Government would examine how best to target tax reliefs to

encourage innovative industries. They also plan to simplify the tax system, although no specific details have been provided.


BUSINESS REGULATION

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business regulation was identified by 58% of AGCC’s 159 respondents as an important issue for their business. Almost 90% of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.


1. Current UK-wide regulatory organisations continue to

monitor the activities of Scottish businesses

2. Some UK-wide regulatory organisations continue to

monitor Scottish businesses, with some new Scottish

organisations also created

3. Rather than replicating the UK model, a new Scottish

model is created where economic and competition

bodies are combined


1. Status quo

2. Further reform to the regulatory environment takes

place


Option 3 – Rather than replicating the UK

model, combined economic and

competition regulatory bodies is created


The Scottish Government have proposed a combined economic and competition regulator. The use of such a model has been

increasing across Europe, with the Netherlands recently establishing the Authority for Consumer and Markets.

The Scotland Analysis paper Business and Macroeconomic Framework highlights that the regulatory organisations would require

institutional infrastructure, such as public bodies, in order to operate effectively. While the paper recognises that current UK-wide

bodies could support the new regulatory regime in an independent Scotland, this would be subject to negotiation.


Option 2 – Further reform to the regulatory

environment


The Scottish Government have proposed a

combined economic and competition regulator

in their paper Economic and Competition

Regulation in an Independent Scotland.


Over recent years there has been gradual

merging of economic and regulatory

organisations. The latest to do this is the Office

of Fair Trading and Competition Commission

August 2013 VERSION 1.1


Business regulation is

important

Businesses want a stable

regulatory environment to do

business safely and fairly, and

without excessive cost

burdens.


Information updates

26 November 2013 – The Scottish Government’s White Paper Scotland’s Future suggests that they will take forward the plans laid out in their

earlier published paper Consumer Protection and Representation in an Independent Scotland. In this paper they propose creating an integrated

economic, competition and consumer body.


Income Tax is important

The majority of people

employed will pay income

tax on their earnings. The

revenue from income tax

pays for public services.

INCOME TAX

In a survey conducted between 4 June and 19 June 2013, income tax was identified by 82% of respondents as an important issue for their business. Almost three quarters of respondents also stated that they wanted more information on this issue to help them understand the current policy direction promoted by the respective campaigns.


1. Income tax continues to mirror the rest of the UK

2. An independent Scotland establishes its own rate

of income tax


1. The setting and collection of income tax

continues to be a reserved issue

2. Further devolution results in the Scottish

Government having responsibility for the setting

and collection of income tax in Scotland


Option 2 – an independent Scotland

establishes its own rate of income tax.


The Scottish Labour party devolution commission published a report in April 2013 calling for income tax to be devolved to

Scotland. This position has the support of Alistair Darling, Director of the Better Together campaign. The issue has caused

friction within the party as some MPs believe that this extension of powers goes too far. Likewise, the Scottish Conservatives

have also set up a working group to examine possible areas for further devolution.

In February 2013, Scottish Finance Minister John Swinney stated in the media that personal taxation would not increase in an

independent Scotland. However Better Together have argued that the Scottish Government policy on income tax is

unsustainable for the level of public services they have indicated they want to provide.


It is likely income tax will be devolved, although

this depends on the support of the wider

Conservative and Labour parties.


The Yes Scotland campaign and Scottish

Government have all stated that independence

will mean Scotland can establish a progressive

taxation regime which addresses inequalities in

Scotland.


The Better Together campaign has not made its

views known on the future of income tax in the

event of a No vote. The Scottish Labour party

and Conservatives are currently examining how

devolution could be strengthened in the future.




Information updates

4 November 2013 - The Scottish Government’s Fiscal Working Group published its Principles for a Modern and Efficient Tax System in an

Independent Scotland. While it makes no recommendations about the levels of personal taxation, including income tax, it acknowledged that

the personal tax system can be used to influence the location decisions of potential workers and their decisions on training and promotion.

26 November 2013 – The Scottish Government’s White Paper Scotland’s Future does not indicate levels of income tax people are likely to pay.

It does, however, suggest that they will seek to simplify the entire tax system. It is not clear how they intend to do this.



OIL AND GAS REGULATION

A survey run in October 2013 of oil and gas businesses, conducted by EY in association with the Chamber, found that only 10% of the respondents had enough information to form a view on how independence would affect their sector. One of the key issues where both a Yes or No vote may have implications for the industry is in regulation.


Scotland creates its own regulatory body, within

government, with the same functions as the

Department for Energy and Climate Change

(DECC).

Scotland mirrors the proposed new regulatory

body, if it is created, proposed for England.

Scotland sets up its own regulatory system for oil

and gas, separate from government, which

operates in a different way to the one in the UK.


Regulatory functions continue to be the

responsibility of the Department for Energy and

Climate Change (DECC).

Regulatory functions, currently the

responsibility of DECC, is moved to an arms-

length body with no additional functions.

Regulatory functions, currently the

responsibility of DECC is moved to an arms-

length body and is given additional functions.


As the Scottish Government has endorsed the

recommendations of the Wood Review, it is

likely they will mirror the changes the UK

Government has confirmed they will implement.


EY and AGCC research indicated that in the event of a Yes vote, 62% of respondents expect the oil and gas industry to become more

heavily regulated. Meanwhile, 90% thought that there would be no change in the regulatory environment if the result of the referendum

was No.

The Scottish Government has commissioned an industry led Oil and Expert Commission to consider options for the implementation of

the key principles set out in the Scottish Government paper. It has also indicated that Ministers are investigating the transfer of legal and

regulatory oversight of the North Sea to Scotland. This would include setting up an office in Aberdeen.


The recommendations contained in the Wood

Review are implemented. At this stage, it is

unknown how long this will take.


In its paper Maximising the Return from Oil and

Gas, the Scottish Government indicates that it

will adopt the current operations of oil and gas

regulation should Scotland become

independent.


Sir Ian Wood has recommended in his review

that an arms-length regulator should be

established with additional functions.

November 2013 VERSION 1.3

Updated May 2014

Information updates

18 November 2013 – The Scottish Government’s White Paper Scotland’s Future outlines that an Expert Commission has been established to

consider the appropriate regulatory regime in an independent Scotland. It will publish its recommendations in the spring of 2014.

24 February 2014 – Sir Ian Wood published his final recommendations as to how the maximum economic return could be secured with the

remaining reserves in the UKCS. Both the UK Government and Scottish Government endorsed the findings. The UK Government confirmed it

would begin implementing the recommendations immediately.

16 May 2014 – The UK Government’s Scotland Analysis paper on energy confirms that the new arms-length body will be operational by October

2014. In addition the Maximising Economic Recovery principles will be enshrined in legislation, and subject to parliamentary business could be

in force by spring 2015.


Oil and Gas Regulation is

important

A strong regulator should

encourage maximisation of

exploration, extraction and

production.



Information updates

26 November 2013 – In the Scottish Government White Paper Scotland’s Future it states that accrued rights will be honoured and protected. They

intend to set the basic rate at £160 per week by 2016, which would be higher than the rate in the rest of the UK by the same date. In addition, the

Scottish Government proposes to set up an independent pension commission to advise on any future rises or changes in eligibility.

4 February 2014 – The ICAS paper, Scotland’s Pensions Future highlights that the Scottish Government’s proposal to have a qualifying period of 7-10

years for the state pension could impose constraints on employee mobility between Scotland and the rest of the UK. In addition, affordability of Scottish

Government proposals is also highlighted as a particular challenge given the projected demographics for Scotland.

22 April 2014 – Unpublished papers from the Department for Work and Pensions highlights that the number of Scottish pensioners is expected to rise

from 1 million to 1.3 million over the next 20 years. If Scotland remains part of the UK, Scottish taxpayers would contribute 8% of the total National

Insurance revenue, but get back 8.8% in return.

16 May 2014 – The UK Government’s Scotland Analysis paper on work and pensions suggests that if an independent Scotland does not implement

the proposed increase in the pension age it would cost the Scottish state £6billion between 2026/27 and 2035/36.



1. The state pension, and the administration of it,

mirrors the rest of the UK.

2. The state pension, and the administration of it,

mirrors the rest of the UK for a transitional period

and changes to the system are made after that

period.

3. Scotland establishes a completely different system

for the administration and payment of the state

pension from the outset of independence.


1. Changes to the administration and payments of

the state pension already announced by the UK

Government, are introduced as planned.

2. Changes to the pension system are introduced,

with more changes announced in the coming

years.


For a transitional period, the administration and payment of

the state pension will mirror the rest of the UK, before

changes are introduced in future years.


In the paper “Pensions in an Independent Scotland,” the Scottish Government states that the single-tier state pension would initially be set at £160 per

week, or £8,320 per annum. This is higher than the new single-tier pension which is due to be implemented by the UK Government in 2016. Nicola

Sturgeon has also indicated that the new Scottish state pension also be uprated by the Triple Lock guarantee, at least for the first term of the independent

Scottish Parliament. The Scottish Government also go on to state that there would be no changes to the delivery of pensions in the event of

independence, as the two existing Pension Centres based in Scotland, which already administers the pensions of people living in Scotland, would

transfer to the responsibility of the Scottish Government.

The UK Government have highlighted that the Scottish Government’s proposals for the state pension have not been costed and the Better Together

campaign has stated that Scotland’s ageing population would make funding a generous state pension very difficult in future years.


The changes already confirmed by the UK Government

are introduced, with further changes to the system

announced in future years.


The Scottish Government published its “Pensions in an

Independent Scotland” paper during September 2013. In the

paper, the Scottish Government should have the ability to

have a state pension which is appropriate for the Scottish

population.


The UK Government announced in the 2013 Budget that

reform of the pensions system would take place. The

Pensions Bill 2013 is currently going through the

legislative process. The Bill contains a requirement to

review pension rules every five years.

Pensions #1

STATE PENSION By far the largest proportion of the circa £40billion expenditure by the UK Government in Scotland is related to welfare and pension costs (a reserved power). With an ageing population, the provision of adequate state pensions will be under pressure, no matter the result.

October 2013 VERSION1.4

Updated May 2014


The State Pension is important

Workers contribute to the state

pension through their earnings,

with many workers making

inadequate provision for

retirement.




Pensions #2

OCCUPATIONAL/PRIVATE PENSIONS The future of private and occupation pension schemes is a major concern of Chamber members in this region. If Scotland were to become independent the EU would deem UK pension schemes which Scottish people currently contribute to as a Cross Border Scheme. This would put new requirements on pension funds, which could have an impact on Scottish pension savers.


1. Workers continue to contribute into the existing

schemes they are members of, with no changes.


schemes they are members of, but schemes are

subject to changes.

3. Workers have to make new arrangements for their

private pensions.



schemes they are members of, with no changes

for the foreseeable future.

2. The UK Government introduces further

changes to the requirements for private

pensions.


Until negotiations take place with the UK Government

and EU about the requirements for cross-border

schemes, the likely end game position is unknown.


The Yes Scotland website and the Scottish Government paper “Pensions in an Independent Scotland” states that pensions will continue

to be paid in the same way after independence and that any accrued benefits will not be affected by Scotland becoming independent.

However, the Institute of Chartered Accountants in Scotland (ICAS) have highlighted that the Scottish Government plans for personal

pensions would be subject to EU rules which require cross-border pension schemes to be fully funded at all times. They have urged the

UK and Scottish Government to enter into discussions with the EU Commission about any transitional arrangements. Better Together

are also critical about the assumptions made in the Scottish Government paper, arguing that there is no evidence yet that the promises

made can be delivered.


Workers continue to contribute into existing schemes

they are members of, with no changes for the

foreseeable future.


The Scottish Government has published its proposals

for the future of pensions in an independent Scotland.

However, the paper makes assumptions which are

based on the outcome of future negotiations.


The UK Government are currently rolling out the

requirement for all employers to automatically enrol

employees in a workplace pension scheme. Better

Together have made no comment on the future of

private pensions in the UK.

October 2013 VERSION1.4

Updated April 2014

Information updates

26 November 2013 – The Scottish Government White Paper Scotland’s Future asserts that accrued rights will not be affected by Scotland

becoming independent. The Scottish Government also signals its intention to negotiate with the UK Government on transitional arrangements to

address EU funding rules.

4 February 2014 – The ICAS paper, Scotland’s Pensions Future, states that the proposal to have transitional arrangements over a three year

period is “wholly insufficient for many schemes which are currently funding their deficits over much longer periods.” They ask for the Scottish

Government to clarify what they will do if negotiations are unsuccessful.

28 March 2014 – The European Commission confirmed that it would not change the rules associated with the Directive which requires all cross-

border pension schemes to be fully funded.

24 April 2014 – The Scotland Analysis paper from the UK Government on work and pensions stresses that a significant number of administrative

functionS would need to be created in an independent Scotland to regulate and protect pensions. A new pensions regulator would be required,

along with a Scottish versions of the Pension Protection Fund.


Pensions are important

Too few workers contribute a

sufficient proportion of their

salary into a private pension in

order to maintain an income

when in retirement.


Immigration is important

Businesses in the North-east rely

on a reliable source of labour. In

order to fill the ongoing skills gap,

businesses rely, to an extent, the

free movement of labour and

recruitment of export staff.


IMMIGRATION

In a Scottish Chambers survey conducted between 4 June and 19 June, visas and immigration law was identified by 60% of the 159 respondents in Aberdeen and Grampian as an important issue for their business. 48% of respondents also stated that they needed more information on this issue to help them understand the policy direction currently being promoted by the respective campaigns.


1. Scotland mirrors the immigration laws and rules of

the rest of the UK.

2. Scotland mirrors the immigration laws and rules of

the UK for a transitional period, after which it

establishes its own policies in relation to

immigration.

3. Scotland establishes its own immigration policies

and laws from the outset of independence.


1. No further changes are made to immigration

rules and legislation.

2. Immigration legislation and rules change,

making it more difficult for immigrants to settle

in the UK

3. Immigration legislation and rules change,

making it easier for immigrants to settle in the

UK.


Scotland will likely pursue different immigration

policies than the rest of the UK, and make it

easier for certain types of immigrants to enter

Scotland.


While the SNP have been clear that in the event of a Yes vote they anticipate changes in immigration policy to make it easier for

immigrants to come to Scotland, as yet, neither the Yes campaign or Scottish Government have outlined what their policy

positions would be in relation to issues including citizenship and the criteria to secure permissions for leave to remain. In addition,

they have not outlined what agency would have responsibility for monitoring immigration and border control.

It should also be pointed out that much of Scotland’s new immigration policies will depend on whether it is a member of the EU

come independence.


Specific policies could be different, depending

on which party wins the next general election. As

such, the likely end game result for immigration

policy is unknown.


The SNP has, in the past, called for Scotland to

have specific immigration rules to address

Scotland’s labour needs and requirements.


Immigration is a highly politicised issue at

Westminster, and it is likely there will be further

tightening of immigration rules and legislation.

October 2013 VERSION 1.3 Updated May 2014

Information updates

28 November 2013 – The Scottish Government’s White Paper Scotland’s Future outlines some of the policy positions they will take should

Scotland become independent. They indicate they will introduce a points-based system targeted at addressing the needs of Scottish society.

They also state they will lower current financial thresholds and salary requirements for entry and re-introduce the post-study work visa.

16 May 2014 – The UK Government’s Scotland Analysis paper on immigration states that an independent Scotland would have the option of

joining the Schengen area if it joined the EU, or the Common Travel Area which operates between the UK and the Republic of Ireland, but not

both. Membership of the Common Travel Area would require cooperation from the Scottish Government on certain aspects of visa and immigration

policies.



Defence is important One of the main

responsibilities of any

government is the security of

their country and the

protection of its people,

territory, economy and

interests.


DEFENCE

Defence is a policy area which has been subject to significant reform over the last 3 years. By 2015, the UK will spend £23.9billion on defence. A significant proportion of defence employees and resources are based in Scotland. This includes the nuclear Trident programme, which the SNP have stated they would remove from Scotland should it become independent.


1. Scotland establishes its own armed forces, using

facilities and people previously controlled by UK

forces

2. Scotland establishes its own armed forces, but is

required to establish new facilities and recruit new

staff.

3. Scotland enters into an agreement with the UK to

share armed forces and their resources.

4. Scotland enters into an agreement to contribute

forces to a wider defence organisation.


1. Changes currently being implemented by UK

Government will continue, with no further

changes beyond 2020.

2. Changes currently being implemented by UK

Government will continue, with further reforms

initiated beyond 2020.

3. UK forces eventually join a coordinated EU

defence force.


Not enough is known at the point to come to a

view on the likely end game position.


The UK Government in its Scotland Analysis paper on defence acknowledges that negotiations would have to take place over

the defence resources currently based in Scotland, and over defence staff who are Scottish. However, it highlights that these

would be very difficult issues to resolve and that an independent Scotland could not simply co-opt existing armed force units

based in Scotland or move Scottish staff into a new Scottish force. The paper also highlights that European states with similar

sized populations to Scotland do not have their own armed forces and instead make contributions to EU and/or NATO defence

arrangements.


It is likely further reform will take place beyond

2020.


Aside from stating that an independent would

have a defence budget of £2.5billion and would

remove Trident, there has been no comment

on what a Scottish defence force would look

like.


The UK Government of the time are required to

review defence forces every 5 years in order to

ensure the defence force is fit for purpose.

Defence spending has been reduced yearly

since 2010.

October 2013 VERSION 1.2

Information updates

13 November 2013 – The Scottish Global Forum, a think-tank closely aligned with the Yes campaign, published a breakdown

of what the £2.5 billion budget would fund in a Scottish defence force. According to their research, the budget would fund four

frigates, 15 fast jets and 9000 soldiers. This would make the force of similar size to Denmark.

26 November 2013 – The white paper ‘Scotland’s Future’, published by the Scottish Government anticipates that Scotland will

inherit a share of the UK’s defence assets. The paper also indicates that the Scottish Government intends to progressively bu ild

up a force of 15,000 regular personnel over the 10 years following independence. In addition, the Scottish Government restates

its commitment to remove Trident from the Faslane base and instead use Faslane as the headquarters of the Scottish defence

force



October 2013 VERSION 1.1


MEMBERSHIP OF NATO

NATO (North Atlantic Treaty Organisation) is a defence alliance made up of 28 countries, which has the central purpose of safeguarding the freedom and security of members through diplomatic and military action. It is open to any North Atlantic state to join, as long as they fulfil the entry criteria. Membership of NATO is a proposed cornerstone of an independent Scottish state but this is not clear cut given the importance placed on nuclear deterrent by NATO.


1. Scotland assumes NATO membership

automatically upon independence.

2. Scotland has to apply for NATO membership, and

after negotiation is accepted as a member.

3. Scotland has to apply for NATO membership and

after negotiation is refused membership.

4. Scotland does not join NATO.


1. The UK continues with NATO membership.

2. The UK leaves NATO.


Scotland will have to apply to become a

member of NATO. Admittance is not

guaranteed given its stance on nuclear

deterrents.


NATO is believed to have confirmed to Scottish Government officials that an independent Scotland would be required to apply

for NATO membership. It is also NATO policy that countries wishing to join the alliance are not permitted to do so whilst in an

existing military or territorial dispute with an existing member state. The negotiation process would take around three years and

involve negotiations around the retention of nuclear weapons in Scotland, which the SNP have pledged to remove from

Scotland.


The UK continues as a NATO member.


At its 2012 conference, the SNP approved a

motion supporting continued membership of

NATO, albeit on the condition that membership

would not require the retention of nuclear

weapons in Scotland.


There has been no indication from UK political

parties of any intention to remove the UK from

NATO.

Information updates

18 November 2013 – The Scottish Government’s white paper ‘Scotland’s Future’ states that it is in Scotland’s interests to remain a member of

NATO. It recognises that while membership will be subject to discussion and agreement by other members, it is in the interests of Scotland and

other countries to secure an interim membership through negotiations taking place in the period between a Yes vote and independence.


NATO is important NATO regards the UK Trident

programme as a strategic element of

its nuclear defence policy. The Trident

programme is currently based in

Scotland on the Clyde.



OIL & GAS TAXATION

Research conducted as part of AGCC’s Oil and Gas Survey has shown that an increasing number of oil and gas companies are taking the independence referendum into consideration in the future plans and investment proposals. The research has also shown that stability (or instability) in the UK fiscal regime has a knock on effect on confidence and activity levels in the UKCS. Rising confidence, activity and investment in the industry over the last two years has been attributed, in part, to progressive changes to tax allowances.


1. Scotland mirrors the fiscal system used for the oil

and gas in the rest of the UK.

2. Scotland mirrors part of the taxation system used

in the rest of the UK for the oil and gas industry,

and amends other taxes.

3. Scotland establishes a different fiscal regime for

the oil and gas sector.


1. UK Government makes further changes to the

fiscal regime for oil and gas beyond 2015.

2. UK Government makes no changes to the fiscal

regime for oil and gas beyond 2015.

3. Oil and gas taxation becomes a devolved

power.


Scotland mirrors the majority of oil and gas taxes

in the UK.


In its recent paper Maximising the Return from Oil and Gas the Scottish Government states that it will adopt a presumption in

favour of existing aspects of the North Sea fiscal regime, as it is currently administered, to support stability in the industry. The

paper also commits to undertake consultation with the industry before it implements any changes to the fiscal regime in the future.

In October 2013 the UK Government introduced the first decommissioning relief deeds which guarantees the decommissioning

tax relief a company will receive.


The UK will make further changes to the fiscal

regime for oil and gas, in consultation with the

fiscal forum.


The Scottish Government published its paper

Maximising the Return from Oil and Gas in the

July 2013. In the paper it committed to

implement existing aspects of the fiscal regime

to support stability.


The UK Government has established a fiscal

forum and in its recent Oil and Gas Strategy

committed to undertaking collaborative work

with the forum in the future when making

decisions on the fiscal regime.

November 2013 VERSION 1.2 Updated May 2014

Information updates

18 November 2013 – The Scottish Government’s White Paper Scotland’s Future indicates that they will simplify the business tax regime, but do

not state how they will do this. However, the papers also states that they have no intention to increase the tax burden on the oil and gas industry,

and any changes to the fiscal regime will be subject to consultation.

16 May 2014 – In the UK Government’s Scotland Analysis paper on energy the UK Government confirms that it will review the UK fiscal regime

for oil and gas, in line with the recommendations in the Wood Review. The reviews findings will be reported at the 2015 Budget statement.


Oil and gas taxation is important

Revenues from oil and gas

companies contribute 15% to the

UK’s total corporation tax take. The

industry relies on a stable fiscal

regime to plan for future activity.



SOVEREIGN WEALTH FUND

Sovereign Wealth Funds are pools of money derived from a country's reserves, which are then set aside for investment purposes that will benefit the country's economy and citizens. Of the 20 major oil producers in the world, the majority operate some form of national sovereign wealth fund. A recent survey conducted by EY, in association with the Chamber, showed that 60% of respondents supported the creation of some form of fund.


1. A short term stabilisation fund and long term

savings fund is established upon independence.

2. A short term stabilisation fund is established upon

independence.

3. A long term savings fund is established upon

independence.

4. No wealth fund is created.


1. Status quo

2. The UK sets up some form of wealth fund.


Some form of wealth fund is created using oil

and gas revenues. However, it is not known

what institution would take control of such a fund

if Scotland were in a currency union with the rest

of the UK.


The Fiscal Commission Working Group, which was tasked by the Scottish Government to come up with a proposed wealth fund

model, published their paper Stabilisation and Savings Fund for Scotland in October 2013. In the paper they propose setting up

a stabilisation fund where excess oil revenues can be placed, and an investment fund where money could be placed provided

Scotland was running a manageable deficit. This view was supported by the Centre for Public Policy for the Regions.

However, confidential papers written by Scottish Government advisors obtained by the Better Together campaign through

Freedom of Information requests stated that “it would have had to reduce public spending, increase taxation of increase public

sector borrowing” if a wealth fund had been established in the past 20 years. The advice goes on to state “there would be

comparatively few opportunities to invest in an oil fund in future years.”


It is unlikely that the UK will introduce a wealth

fund.


The creation of some form of wealth fund, using

oil and gas revenues, has always been a key

policy objective of the SNP.


There has been no indication that a future UK

Government would seek to create a wealth fund

using oil and gas revenues.

November 2013 VERSION 1.4 Updated May 2014

Information updates

26 November 2013 – The Scottish Government’s White Paper Scotland’s Future restates their commitment to establish both a stabilisation fund

to manage year on year changes in oil and gas revenue, and a long-term savings fund to invest a proportion of wealth generated from oil and

gas production in financial assets.

24 February 2014 – UK Energy Minister, Ed Davey, appeared to rule out the possibility of the UK Government setting up a fund in the future.

16 May 2014 – The UK Government’s Scotland Analysis paper on energy suggests that; “In the event of independence Scotland would be

exposed to a narrower tax revenue base and more volatile fiscal position.” Thus making it more difficult to sustain a fund without public spending

cuts.


A Sovereign Wealth Fund is

important

The SNP want to use the

revenues from oil and gas to

maintain levels of public spending

in the future.


Financial Regulation is

important Businesses rely on rigorous but

fair financial regulation to

encourage stability in financial

markets. It has an impact on

lending, exchange rates and

business confidence.

FINANCIAL REGULATION

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, financial regulation was identified by 79% of AGCC’s 159 respondents as an important issue for their business. 53% of respondents also stated that they wanted more information on this issue to help them understand the policy directions of the respective campaigns.


1. Scotland takes full control of financial regulation,

and sets up its own regulatory body/bodies, with

responsibility for every aspect of financial

regulation, including macroeconomic policy.

2. Scotland sets up its own regulatory body with the

responsibility of monitoring financial conduct, but

macroeconomic policy is determined by the Bank

of England.


1. The current system for financial regulation

continues, with no changes in the future.

2. Elements of the financial regulatory

environment are reformed.

3. The financial regulatory environment

undergoes total reform in the future.


If, as we expect, Scotland retains Sterling then it

is likely the Scottish Government will take

responsibility for financial regulation, with the

Bank of England retaining control of monetary

policy.


The regulatory environment for the UK currently has two organisations responsible for financial conduct; the Financial Conduct

Authority and the Prudential Regulation Authority (which is part of the Bank of England). The Bank of England sets monetary policy.

The Scottish Government’s White Paper Scotland’s Future sets out the Scottish Government’s preferred policy option upon

independence. They restate their position that it is in Scotland’s best interests to retain Sterling and therefore monetary policy should

be set according to economic conditions across the Sterling area with ownership and governance from the Bank of England,

undertaken on a shareholder basis. In relation to the conduct of financial institutions, the Scottish Government states it will establish

its own regulator.


It appears likely there will be further reform of the

financial regulatory environment in further years.


In February 2013 2013, the Scottish Government

appointed Fiscal Commission recommended that

the Scottish Government take responsibility for

financial regulation, which would include setting up

a financial conduct regulator, and that the Bank of

England retain responsibility for monetary policy.


The Banking Reform Bill is currently going through

the legislative process at Westminster. This

includes further reform which will force banks to

separate their retail and investment activities.

January 2014 VERSION 1.1



Information updates

27 February 2014 – Standard Life in its annual report indicated that it was developing contingency plans in the event Scotland becomes independent.

Amongst the material issues which led to the decision to develop contingency plans was the uncertainty about the future arrangements for financial

regulation in an independent Scotland.


Business rates are

important

Business rates are a property-

based tax levied on businesses

before they even make a profit.

The Chamber has campaigned

for reform of business rates.

BUSINESS RATES

In a Scottish Chambers survey conducted between 4 June and 19 June 2013, business taxes were identified by 85% of AGCC’s 159 respondents as an important issue for their business. Business rates is a commercial property tax levied on businesses and was noted as the most burdensome cost on retail businesses in a North-east Retail Survey conducted by the Chamber in 2013.


1. Scotland continues with the current rates system,

mirroring rate changes in the rest of the UK.

2. Scotland continues with the current rates system,

but no longer mirrors rate changes with the rest of

the UK.

3. Scotland reforms the business rates system,

removing its linkage to commercial property values.


1. The business rates system continues in its

current form, with Scotland mirroring rate

changes in the rest of the UK.

2. The business rates system in the rest of the UK

is reformed, and Scotland continues with the

current system.

3. Both business rates systems in the UK and

Scotland, are reformed.


Scotland continues with the current rates

system, mirroring rate changes in the rest

of the UK.


In the Scottish Government’s White Paper Scotland’s Future they commit to maintaining the Small Business Bonus and

maintaining business rates parity with the rest of the UK. Following on from an initial consultation on business rates at the

beginning of 2013, the Scottish Government has also brought forward proposals to consult on the reintroduction of transitional

relief in 2017, introduce powers for local authorities to create their own relief schemes and

The Chancellor announced a 2% cap on business rate increases for 2014/15 at the 2013 Autumn Statement, which was matched

by the Scottish Government.


The business rates system continues in its

current form, with Scotland mirroring rate

changes in the rest of the UK.


The Scottish Government has committed to

undertake a thorough and comprehensive

review of the business rates system

between 2013 and 2017. The initial

consultation ruled out the prospect

removing its link to commercial property

values.


To date there has been no indication for

any of the political parties that they wish to

fully reform business rates. However, there

is an increasing lobby on this issue from

business organisations.




Information updates


Territorial Waters are

important

The location of territorial

waters will have an impact

on the jurisdiction of oil and

gas operations and other

marine activity such as

fishing.


TERRITORIAL WATERS

A survey published by EY, conducted in partnership with the Chamber showed that 90% of the oil and gas companies

who responded wanted more information on how independence might affect their business. As the debate has

progressed, one of the most contentious issues has been over the oil and gas industry and the potential revenues that

could be generated if Scotland become independent. However, revenue predictions have been based on the territorial

waters boundary being in a certain location.


1. The Scottish territorial waters boundary is not

changes.

2. The Scottish territorial waters boundary is amended.


1. The boundary of UK territorial waters remains the

same.


To date, the UK Government has not indicated

whether it will seek a review of territorial waters

if Scotland becomes independent. As such, we

assume that current territorial waters will remain

the same.


The SNP have claimed that following independence, 90% of North Sea oil and gas would be in Scottish waters. Under current

UK legislation, Scotland and England’s territorial waters are divided in a way which supports that statement.

However, territorial waters between different countries are set under the United Nations Convention on the Law of the Sea III.

Under the convention, it could be debated that because the Scottish border extends on a North-eastern trajectory at Berwick,

Scotland’s territorial waters could be amended to reflect the land border. To date, the UK Government has not indicated whether

they would look to amend the territorial waters.


The boundary of UK territorial waters remains

the same.


It appears that Yes Scotland and the SNP do not

expect Scottish territorial waters to be amended.


Territorial waters are determined under UN law,

therefore is it unlikely that the current

boundaries will be amended.


Information updates



briefing papers on scottish independence

Documents