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Could Scottish independence upend your investments?

Should we give a toss about Scottish independence from an investing standpoint?

What would Scottish Independence mean for your investments?

It’s not something I’ve heard much discussed, even as the political accent has turned decidedly Scots recently.

Other consequences of Scotland doing a bunk – such as perpetual Conservative rule over the remains of Blighty, or what the Scottish would do with the US nuclear deterrent – get a lot of airtime.

But there could be far-reaching effects for UK investors that stretch beyond what to call RBS or Scottish Widows south of the border afterwards.

Your investments in Scotland

RBS (aka Royal Bank of Scotland), Scottish Widows, and HBOS (Halifax Bank of Scotland) are just a few of the big names associated with the large Scottish financial sector.

Scots hoarding their money may be a myth, but it’s been happily taken to heart by generations of fund managers and bankers.

No offence to any Welsh readers, but the departure of the Principality Building Society and the car insurer Admiral from the ranks of UK PLC wouldn’t be anything like as wrenching as a change of domicile for Scotland’s financial sector.

According to the Fundwatch website, some 14% of total assets under management – about £550 billion – are managed in Scotland. What’s more:

There are also six FTSE 100-listed companies headquartered in Scotland (Aggreko, Cairn Energy, Royal Bank of Scotland, SSE, Standard Life and Weir Group) and a further 15 in the FTSE 250 (Aberdeen Asset Management, Aberforth Smaller Companies Trust, Alliance Trust, AG Barr, British Assets Trust, Devro, Edinburgh Dragon Trust, Firstgroup, Monks Investment Trust, Personal Assets Trust, Scottish Investment Trust, Scottish Mortgage Investment Trust, Stagecoach, Templeton Emerging Markets Investment Trust and Wood Group).

According to the London Stock Exchange, there are 116 companies listed on the main exchange and the Alternative Investment Market in total (including a number of investment trusts and investment companies) that call Scotland home.

This does not include other companies with significant business in Scotland or those owned by other companies, such as HBoS.

I’m personally in Caledonia Investments, which is the family vehicle of a colourful bunch of Scots and also in the FTSE 250, but which seemingly doesn’t count (perhaps they all live in Mayfair?) There’s also the Edinburgh Investment Trust, which presumably escapes inclusion on the grounds it’s run by a sassenach, Neil Woodford.

Let’s leave aside whether it’s likely that Scotland will overturn the Act of Union with the aplomb of a distant relative down from Kilmarnock for a Home Counties wedding who upends a table after one too many whiskeys/snotty jibes.

What are the issues for investors that could arise from Scottish independence, for investors on either side of the border?

Stock market listings

The good news is I don’t see any immediate problem in owning Scotland-based companies now on the London market. Scotland might want to resurrect the Glasgow Stock Exchange someday, but at first Scottish companies would surely continue to trade alongside the many Chinese, Russian, and Kazakstanian companies listed in London. So neither Scottish or ongoing British (let’s call them British from here) would be left with hard-to-shift holdings.


The prevailing view is Scotland would stick with Sterling in the short-term, although before the Euro became as popular as a Greek at a plate factory, many Scottish Nationalists sang its praises. Whether the two countries using the pound would work is arguable, but there’s a grander experiment going on over the Channel. In the long-term, if Scotland was to adopt the Euro, Scottish-based investment trusts and OEICs might offer a choice of currency-denominated shares, as some other multinationals already do with say dollars and pounds.

Taxes on dividend income

If Scotland won the right to tax and spend on its own account after so many years, I don’t see why foreign investors in Scottish companies would be let off the hook. Presumably, withholding tax would become liable for UK owners of Scottish investments, and vice-verse. Hopefully, our shared history would encourage brokers and other platforms to make managing the tax far more straightforward, or even automatic.


Scotland won’t be able to properly police its financial services from day one. Though the UK hardly does a perfect job either, I’d guess Scotland would ‘rent’ the services of the FSA and others, for a few years at the least. It would be important to keep an eye on where and how your investments (including cash accounts) were being regulated, who would stand behind compensation claims, and so forth.

North Sea Oil

Ah, the black gold that will have Peak Oilers decamping to Aberdeen at the first sign of Scotland becoming a commodity economy! How exactly the oil reserves would be divvied up would be crucial. If Scotland got a per-capita allocation to rights to the oil, then with less than 10% of the UK population it would hardly be a bonanza. However, if the SNP and others got their way, it could receive over 90% of the reserves according to geography, which Reuters estimates is worth about £13 billion a year. Useful, given some argue Scotland is receiving a £16 billion or so subsidy from the rest of the UK today.

UK debt

Despite wanting most of the oil, the SNP only wants its population’s share of the UK’s enormous national debt. And who can blame it? We’d be getting into the realms of politics here, but needless to say neither country – or its investors – is going to get a treasure-filled settlement as a result of the divorce.

The UK state-backed banks

Another thing the SNP apparently doesn’t want a share of is the UK State-backed banks RBS and Lloyds, or the £66 billion bill for investing in them. It says the banking crash is London’s problem. Former chancellor Alistair Darling disagrees, saying that the RBS and HBOS fiasco was made in Edinburgh, and that they only survived because the whole country supported them. The Scottish economy is only worth £140 billion, so it would be even less able to shoulder the £1.5 trillion or so in assumed liabilities of the banks than the UK.

As a Londoner, I’d personally be happy with Scotland leaving these debts and assets to us. I think British taxpayers will eventually make a profit on our by-then foreign owned banks.

The UK gilt market

Another elephant in the room. Dividing up the UK gilt issuance by population on a roughly 8:92 basis between Scotland and the ongoing UK would be nightmare, and would trigger a credit event in bond market terms. It’s more likely the new governments would create some kind of debt facility that the Scots would have to pay-off in lieu of their share of gilts.

Scotland’s credit rating

According to the specialists at M&G’s Bond Vigilantes blog, Scotland would be unlikely to get a AAA-rating for its debt, mainly on account of its spindly GDP growth. The UK might still warrant a AAA rating on fundamentals, but the turmoil merely hinted at above of splitting Scotland from the UK could see our debt downgraded anyway on sentiment grounds.

A re-rating for England and Wales?

Still, I wonder if the remaining UK would actually enjoy an upgrade in the wake of Scottish independence? The markets might react favourably to perma-Tory government (even if many citizens wouldn’t) as well as the loss of the drag from the heavily public sector-weighted Scottish economy and its liabilities.

The loss of the UK’s oil reserves wouldn’t be the disaster they’d have been 20 years ago, and I’m not some oil groupie anyway. Give me the more vibrant and creative South East over a bunch of black gloop that’s boiling the planet.

These are just some of the issues for investors that might emerge from Scottish independence – please do share your own thoughts in the comments below!

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{ 8 comments… add one }
  • 1 ermine January 14, 2012, 10:32 am

    Give me the more vibrant and creative South East

    Would it be rude to highlight that the vibrancy of this is somewhat dependent upon the energy from the black gloop from elsewhere? That powers the servers that show this blog, and runs the HFT kit etc.

    Agree with the general sentiments, though, unknitting Scotland from the UK looks like it could be the devil’s own job. Even on the oil, Salmond is perhaps 20 years behind the production peak. The dissolution of the UK would be a shame in other ways, Scotland has much to admire.

    Not sure about that perma-Tory government. In a lot of things, some is good, but more is not always better. Applies to ice cream, and any one flavour of government, Tory or otherwise IMO 😉

  • 2 The Investor January 14, 2012, 10:41 am

    Hi ermine. Thanks for your comments. I agree about the undesirability of perma-Tory rule. I imagine I’ll vote both ways in the future, as I have in the past, and more importantly I like the possibility of loss to keep them on their toes. But I do suspect the bond markets might take a more universally positive view.

    I’m going to have to do my debunk on peak oil post soon. Of the world’s potential problems, it’s not even top ten issue for me. I think it’s a non-event in our lifetimes, at least, and probably forever.

    Maybe we should wait a little bit longer for our compound interest clash to settle down though? 😉

  • 3 William January 14, 2012, 11:48 am

    Everyone seems to have forgotten the reasons/rationale behind the creation of the United Kingdom in the first place. There were sound reasons then which apply equally today. As individual nations – England, Scotland, Wales and Northern Ireland are weaker individually but stronger combined. If Scotland gains independence how long before England, Wales and Northern Ireland want to go it alone. What is unfair is the situation regarding Health, Education etc between Scotland/Wales (probably Northern Ireland) and England. Devolution has already weakend the concept of a United Kingdom. All the home nations were represented in Westminster.

  • 4 Tyro January 14, 2012, 12:19 pm

    You get a gold star for being the first to raise this, as it was the first thing that came to my mind once the kerfuffle hit the press – though actually in the form of wondering about the effect on house prices (I own property in Edinburgh though I’m not Scottish and wouldn’t plan to live in Scotland post-independence, so am beginning to contemplate jumping ship). Any views about effect on prices, TI or other readers? Two worrying scenarios that occur to me are (a) big drops in prices once it looks like independence is in prospect; (b) a blight on prices from here onwards simply because of the uncertainty. But I’m not confident about assigning probabilities to either of them.

  • 5 DBSausage January 14, 2012, 3:13 pm

    Has anyone tried to put a cost to Scotland seceding from the UK? Not so much the cost of the referendum, but the cost of sorting out, and implementing, many of the issues highlighted above?

    It seems to me to be a colossal waste of time, effort and money.

  • 6 Dave January 15, 2012, 9:46 am

    Speaking as a Scot in Edinburgh, I really don’t think there’s much appetite for independence (at least, not from anyone I meet here). It’s all very well at a high level, but once you get down to the nitty gritty – in almost every area, not just finance – you can see what a tangled web we’d have to unravel, and how many inefficiencies would be introduced by the huge costs of duplicating Westminster institutions.

    However – in Scotland we have a 2.5-party system just like you do down south, except we have the choice of the Lib-Lab coalition or the SNP. That means if people want to vote against the status quo, they have to vote SNP – as I did at the last election. (In contrast, for the Westminster election I voted for whoever was most likely to beat the Labour incumbent, strictly providing there was no credible tory candidate).

    I don’t think people voted SNP because they were particularly pro-independence, when the knives are out.

    To be honest, the only thing that worries me is that with a Tory government opposing the referendum on behalf of the union, significant numbers of people here will automatically vote the other way, and we might end up with independence by accident, rather like we got a majority SNP government instead of a chastised minority Lib-Lab coalition, which is what a lot of people hoped for.

  • 7 Phil April 23, 2013, 10:52 am

    I certainly wouldn’t want my money held in a foreign country and would move my pensions and ISAs to England if independence went ahead.

  • 8 Robert Gibbs December 2, 2013, 12:44 am

    Well speaking as a Sassenach, let’s cut to the chase, will my investment in Scottish Friendly be safe if they were to go bust, following a “yes” vote. Does anyone know? Bob Gibbs

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