Part 5: Domestic and Financial Implications

 

 

Domestic and Financial Implications of Scottish Independence:

 

Scottish independence would certainly have implications in international law. The outcome of such would certainly be both unique and ground-breaking, with the complex constitutional framework of the United Kingdom creating barriers for a clear and conventional split.

 

Barriers such as entitlement to E.U. membership may have consequences regarding a newly independent Scotland’s relationship with foreign neighbours; but what must also be remembered, is that the other nations of the United Kingdom would also become foreign states rather than domestic domiciles.

 

Similarly to the international consequences, there are too many domestic implications of Scottish Independence to fully and accurately discuss within a legal framework. In this piece, the aim will be to discuss some of the more important implications in the public domain. The main domestic implications have focused on finance the national debt, or more importantly, which nation is attributed to what proportion, if any, of the current United Kingdom responsibilities.

 

 

 

National Debt:

 

The United Kingdom is a nation enshrined in debt since the Second World War. The value of this debt is hard to define as economists often murk the water to include liquid assets and borrowing structures, however it is agreed that the figure is somewhere in the region of £1.1 Trillion.[1]

 

At present, the United Kingdom works to service this debt as a whole; however should Scotland become and independent nation and therefore no longer part of the United Kingdom, a question arises over how this debt is apportioned or if there is any liability on Scotland at all to take responsibility for the United Kingdom’s debts.

 

Politically, it would have to be argued that an amicable solution would be found between the states upon independence to prevent any animosity between two neighbouring countries.

 

Legally however, the wealth of information and international precedent would indicate that Scotland, upon independence, would not have to accept any responsibility for the debt of the current United Kingdom should it be treated as the new state and the United Kingdom as the continuator state.

 

“Where the predecessor state continues to exist, it

Would appear that the presumption is that the responsibility for the general public debt of the predecessor state remains with the predecessor state after the secession”[2]

 

This statement above appears to be based on various pieces of international precedent. The issue with the precedent is the relevance that it has to the particular matters in the United Kingdom. One cited precedent is when Texas seceded from Mexico in 1840, and denied responsibility for any of the country’s debt. Panama did not assume any of Columbia’s debt when it seceded in 1903 and more recently, Pakistan did not inherit any of India’s debt after partition in 1947.[3] It is however noted that such arrangements were negotiated to result in such an outcome. At present, there is no seeming agreement between the current Scottish Government and Westminster on the matter and therefore concrete precedent to parallel in this instance.

 

Not for the first time in the debate over Scottish Independence, the Vienna Convention is available to lend some form of interpretation on the matter. Again, the problem with the Vienna Convention is that it has never been ratified by the United Kingdom and therefore not of any particular legal standing; it is however helpful as a guide in International Law for the position that may be adopted.

 

“When part or parts of the territory of a State separate from that State and form a State, and unless the predecessor State and the successor State otherwise agree, the State debt of the predecessor State shall pass to the successor State in an equitable proportion, taking into account, in particular, the property, rights and interests which pass to the successor State in relation to that State debt.”[4]

This is far from incontrovertible evidence that Scotland would not have to pay its share of the national debt; however it would certainly indicate that the wealth of current evidence is in favour of such a claim should the remainder of the United Kingdom be deemed as the continuator state.

 

Issues pertaining to secession of states are complex and controversial, but norms can be discerned and have generally been observed. The matter of whether Scotland and the rest of the UK will observe these norms if Scotland votes for independence is an open question.[5]

 

 

 

Implications for the Banking Sector:

 

The banking sector is a very important part of the United Kingdom economy. The Royal Bank of Scotland, often seen as one of the top banks within the United Kingdom has traditionally always had its home in Scotland. At present, the head office and registered office of the bank is at the Gogarburn complex on the outskirts of Edinburgh.

 

This, prima facie, would be a situation that causes little confusion or difficulty. The problem is that the Royal bank of Scotland, although based in Scotland, carries out approximately 90% of its business in England through not only itself, but is subsidiary companies such as NatWest Bank. Again, this matter would not at first be unusual; many companies carry out business away from their official base. In legal terms though, this could have serious consequences for the bank within the European Union and United Kingdom framework should Scotland become independent.[6]

 

European Union Council Directive 95/26/EC, from 1995, states that banks must have their head offices, “in the same member state as its registered office”.

Council Directive 95/26/EC was passed due to the collapse of Bank of Credit and Commerce International (BCCI), due to allegations of fraud and money laundering. The Directive is designed to ensure banks are regulated in the country where they have most of their operations. BCCI was founded by a Pakistani financier with head offices in London and Karachi, but was registered in Luxembourg.

The problem with the directive is that it has not been tested in a legal case thus far, and therefore never been challenged. However, it does require a bank to have its head office, ‘in the same member state as its registered office’. There is similarly an implication that the registered and head offices should be located where a group has most of its activities.

The E.U. directive states that a regulator should prohibit a bank from operating where the, ‘geographical distribution of the activities actually carried on indicate clearly that a financial undertaking has opted for the legal system of one member state for the purpose of evading the stricter standards in force in another member state within whose territory it carries on or intends to carry on the greater part of its activities’.

If we relate this directive to the mechanical working of RBS, the biggest bank in Scotland, then this could mean they would need to ensure their legal base is in England, since the larger part of their activity is south of the border. In doing so, this would have financial implications for an independent Scotland.

The fact that the directive has never been challenged leaves many questions over how this would be affected by any subsequent agreements between Holyrood and Westminster regarding banking agreements. The matter is far from clear, but it is an interesting subject to consider.

 

 

Domestic Borders:

At present, as part of the United Kingdom, travel between Scotland and England is governed simply by a road sign on all major routes between the two countries. The reason for such is that, as discussed earlier, Scotland and England are actually the one country with domestic recognition as nations of no real significance. Upon independence however, this would change. Scotland would become its own sovereign state and would not remain part of the United Kingdom set-up. Arguably, this would lead to border patrols and the requirement for passport control on state lines. There has been no real meaningful discussion on this matter by any political movement therefore any real guidance on the current situation.

In order to find a solution for this question we must look at how this matter is currently dealt with between the United Kingdom and Ireland, and also within the European Union that Scotland would arguably be a part of.

Currently, Northern Ireland and Ireland are two separate countries. Northern Ireland is part of the United Kingdom, with Ireland being a sovereign state of its own. Travel between the two nations is entirely common, as is travel between Scotland and England at present.

Although the two nations are completely separate, travel between Belfast and Dublin is not hindered by border patrol between the two countries. Instead, an agreement has been made between the Irish Government and the United Kingdom for a common travel area.

Any person that has been examined for the purpose of immigration control at the point at which they entered the common travel area does not normally require leave to enter any other part. However, certain persons subject to the Immigration (Control of Entry through the Republic of Ireland) Order 1972 (as amended) who enter the United Kingdom through the Republic of Ireland do require leave to enter. This includes:

those who merely passed through the Republic of Ireland;

persons requiring visas;

persons who entered the Republic of Ireland unlawfully;

persons who are subject to directions given by the Secretary of State for their exclusion from the United Kingdom on the ground that their exclusion is conducive to the public good;

Persons who entered the Republic from the United Kingdom and Islands after entering there unlawfully or overstaying their leave.[7]

 

The Common Travel Area also involves some co-operation on matters relating to immigration issues. A third country national may be refused permission to enter Ireland if it is his or her intention to travel onwards to the UK and he or she would not qualify for admission to the UK under the Aliens (Amendment) Order 1975.

 

If such an agreement can take place between the United Kingdom and Ireland then it would have to be presumed, that a similar policy could exist between Scotland and England post- independence. An agreement such as this would save financial and logistical implications of a border patrol between allied countries on a small island.

 

The European Union has a similar policy that Scotland may become party to, should it become a member or remain a member of the European Union.

 

The Schengen Agreement was reached in 1995 and created the borderless Schengen area within Europe. The Agreement led to abolition of border checks at common borders. The measures within the agreement were for reduced speed vehicle checks which allowed vehicles to cross borders without stopping[8], allowing of residents in border areas freedom to cross borders away from fixed checkpoints[9] and the harmonisation of visa policies.[10]

 

The Schengen agreement was not initially part of European Union law however it was incorporated as part of the Amsterdam Treaty providing opt-outs for the only two EU member states which had remained outside the Area: Ireland and the United Kingdom. The reasons for the opt-out was based mainly on logistics due to the island nature of the United Kingdom and Ireland that resulted in free travel over entry points difficult. The Schengen agreement is now a core part of EU law and all EU member states without an opt-out, which have not already joined the Schengen Area, are legally obliged to do so when joining the European Union.

This would lead to several questions regarding Scotland and European Union membership, if it were to continue membership through its involvement with the United Kingdom as argued previously, it would maintain the opt-out however if it were to re-apply and become a new member of the European Union then arguably it would have to become a part of such a region and this could result in difficulties for a free common travel area between Scotland and the rest of the United Kingdom as arguably border patrols would therefore need to be put in place to prevent EU travellers entering the United Kingdom via Scotland without appropriate passport checks.

Conclusion:

There are endless domestic implications for Scottish independence on the United Kingdom framework that we currently enjoy. Once again, international precedent and law have some form of impact on the potential destination that any political discussion on the matters may be directed. National debt, the banking sector and border controls are only three of the highly contentious points rose in the current debates on independence. The European Union, and membership thereof, is not surprisingly entrenched in the matters. What is clear however is that once again there is no absolutely guaranteed legal destination for these matters and political discussion will be key in finding an agreement.

 

[1] <http://www.bbc.co.uk/news/business-25944653> Accessed 01/04/2014

[2] Shaw, M., International Law (Cambridge, CUP, 2008) P.998

[3] Ibid p.999

[4] Vienna Convention on Succession of States in respect of State Property,

Archives and Debts, 8th April 1983, Article 40

[5] Dr Matt Qvortup , ‘New development: Comparative perspectives on political divorce settlements—what happens when a country secedes?’ (London, Routledge,2013) p.305

 

[6] Sean Farrell, RBS May Move Headquarters to London If Scots Vote For Independence’ ( 11th March, 2014) <http://www.theguardian.com/business/2014/mar/11/rbs-may-move-hq-england-scotland-independence-carney > Accessed 01/04/2014

[7] Home Office, Immigration Rules, Paragraph 15

[8] European Union, Convention Implementing the Schengen Agreement of 14 June 1985 between the Governments of the States of the Benelux Economic Union, the Federal Republic of Germany and the French Republic, on the Gradual Abolition of Checks at their Common Borders (“Schengen Implementation Agreement”), 19 June 199 Article 2

[9] Ibid, Article 6

[10] Ibid, Article 7

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