The contracting sector may not benefit from an independent Scotland – at least not from a purely business and economics perspective.
Oil and gas, offshore engineering and energy, financial services, IT and video games are just some of the contracting centres of excellence with a strong base in Scotland. So why might they not in fact be strengthened by an independent Scotland?
The reasons are many, starting with macroeconomic issues. Would Scotland remain in fiscal union with the UK, or would it join the euro, or would it establish its own central bank and currency? This is important, because major contracting clients in Scotland, or firms with Scottish offices or subsidiaries, could find themselves in a different fiscal regime to the rest of the UK. This is a very real possibility, because the government in Westminster has already made it clear that to enjoy the benefits of the pound, Scotland must remain part of the United Kingdom’s fiscal union.
Of course operating across multiple countries presents no problem for major transnational organisations hiring contractors. However, Scottish independence could impose new and additional costs on contractor clients – costs they would not incur if they choose to cease operations in Scotland. Many of the firms in Dundee’s gaming industry and Aberdeen’s oil and gas and offshore engineering supply chain are small Scottish-owned businesses, and unlikely to relocate. But many others are not, and may be faced with strong commercial reasons to relocate away from Scotland.
Big business and financial sector analysts have already expressed concerns about the negative impact independence may have on inward investment. Indeed, the boards of some global businesses have reportedly already indicated that inward investment projects in, for example, the renewables sector in Scotland, have been shelved indefinitely because of uncertainties over an independent Scotland’s financial stability. Added to this, the Confederation of British Industry (CBI) Scotland opposes plans for an independent Scotland on business grounds, because so many questions remain unanswered.
Then there are taxation issues as they directly impact on contractors. What corporation tax regime would a new Scottish state impose and would the rate from small companies be greater or lower than that in the UK? Where would contractors working in Scotland be domiciled for tax purposes?
What about contractors of Scottish origin who would become Scottish citizens – would bilateral tax agreements between Scotland and the UK cost them more, or less, of their earnings? What rates of income tax and National Insurance Contributions, assuming they continue to exist, would be imposed on umbrella company contractors?
Scotland punches above its weight in contracting terms, and hosts not just UK, but global centres of expertise in core and profitable contracting disciplines. Setting aside the politics and sentiment surrounding the issue, there are worrying business and commercial reasons to fear that an independent Scotland might not be good for contracting.
Published: Tuesday, January 17, 2012
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