Perhaps the most noteworthy development of last week’s UK regional elections was the Scottish National Party (SNP)’s victory in establishing the first-ever single-party majority administration in the Scottish Parliament’s history.

The most eye-catching part of the SNP’s policy platform is its commitment to independence, and the desire to hold a referendum on the issue during the current parliamentary term. However, I do not necessarily expect the SNP to move rapidly to a vote for separation. Not only do opinion polls show a large majority in favour of maintaining the Union, but the success of the ‘No’ campaign in the UK’s Alternative Vote (AV) referendum is likely to give SNP First Minister Alex Salmond pause for thought. Instead, I would expect Salmond to use the threat of independence to extract significant concessions from Westminster over tax raising power, borrowing capabilities, oil tax revenue, and areas of competency.

The ability of the SNP to play the ‘independence card’ in echoes of Canada’s Quebec nationalists in the 1990s means that the issue could have a significant impact upon the taxation and spending priorities of the UK government. Moreover, the British government could even up the ante itself by calling a pre-emptive referendum to try to remove the SNP’s bargaining chips.

As such, some political volatility could be ahead even though independence is not part of BMI’s core scenario. A majority of voters remain committed to the Union, as do the three main UK political parties. The only way in which my colleagues and I see independence becoming a realistic possibility is if the UK government were to block legitimate SNP policy demands – such as the ability to lower corporation tax, as Northern Ireland is being permitted – which in turn allows the Nationalists to present independence as the only way ahead for the Scottish economy.

Key Issues In A ‘Velvet Divorce’

Back in June 2008, Business Monitor Online actually published a scenario for Scottish independence. The most salient issues that we discussed included:

• The future of the pound sterling as a major currency
• The future of the North Sea oil and gas industry
• Potential Scottish membership of the EU
• Potential push for Irish reunification
• Potential loss of the UK’s defence installations in Scotland
• Potential loss of the UK’s Great Power status

To quote Abba, ‘breaking up is never easy’.

Tags: Alex Salmond, break-up of UK, election, implications, independence, oil wealth, Referendum, scenario, Scotland, SNP
Posted in: General, Geopolitics, Political Risk, UK
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