History shows that the Scottish independence referendum in 2014 was dominated by a small group of major factors including the future currency. The SNP government was caught out on numerous occasions and had apparently not thought through the currency situation and the potential tie to sterling going forward. However, today the SNP has announced plans to formulate a new policy which would see an independent currency in the event that the next Scottish independence referendum brings about a yes vote.
Scottish property market
Ironically, the Scottish property market has performed fairly well in recent times after a troubled period in the aftermath of the 2014 referendum. It is common knowledge that the Scottish population voted in favour of remaining part of the European Union and the SNP is using this to force another independence referendum. Today’s announcement of plans for a new Scottish currency in the event of independence has caught many observers on the hop. So, what does this mean for the Scottish property market going forward?
Nothing set in stone as yet
The first thing to say is that the Scottish government has not even asked let alone received the go-ahead to hold a second referendum. Initial indications early this week suggested the UK government would refuse any such request citing ongoing Brexit negotiations as the main focus. The situation has been muddied somewhat by suggestions that a senior European Union politician confirmed that Scotland could “easily” join the European Union in the event of independence. What was actually said is that Scotland could “easily begin negotiations” which is very different from actually joining.
As a consequence, today’s announcement is unlikely to have any major impact in the short term. However, if another independence referendum was authorised by the UK government in the short term then investors in Scottish property may need to think again.
In many ways the SNP policy announcement today is something of a halfway house suggesting that an independent Scotland would use sterling in the short term with a long-term transition to a new currency. However, this policy also lays side-by-side with plans to rejoin the European Union as an independent country which would see Scotland forced to adopt the euro. So, there is no date for the switch from sterling to an independent Scottish currency and everybody seems to have forgotten EU membership criteria now includes adopting the euro.
There is also the issue of debt apportionment as a percentage of the UK overall debt with Scotland accounting for around 10% of the population. As UK debt is in excess of £1.7 trillion this means that an independent Scotland would need to take on circa 10% of this. Previous threats to basically ditch debt liabilities would not be appreciated by the money markets so an independent Scotland would be in a precarious position.
Uncertainty follows uncertainty
If there is one country in the UK which is more used to political uncertainty in recent times it has to be Scotland. Since the SNP came to power the main aim has been to secure independence by hook or by crook. The introduction of a currency exchange policy has caught many by surprise and would introduce currency risk to UK investors looking at Scottish property. While this could be decades away, or never happen, in the event of independence it would need to be a consideration going forward.
That said; the Scottish government received control of 10% of Scotland’s benefit payment system back in 2014. Bizarrely, the Scottish government has “return this control” to the UK authorities until 2024 when the relevant Scottish system will be in place. So, one hand the for the SNP suggested Scotland could be independent within 18 months but it will take a decade (or more) to put in place an independent Scottish benefit system which covers just 10% of overall benefit payments.
At this moment in time investors will be taking threats of a new Scottish currency with a pinch of salt because in the event of independence, and rejoining the European Union, Scotland would be forced to adopt the euro. Perhaps this new policy is confusing an already complicated situation?