Scottish independence and personal investments

Posted by Josh Conibear in Personal Finance on 24 February 2014 - Josh worked as a Credit Analyst at checkmyfile until 2014

Reflecting the potential and unceremonial separation of Scotland from the UK, the Scottish Widows brand will see somewhat of a radical makeover, or at least English customers will see a new brand emerge.

The brand was recently split into two when Lloyds Bank sold Scottish Widows Investment Products to the fund group Aberdeen Asset Management, while keeping hold of the core life and pensions business.

This story is simply a taster of what might happen on a much broader scale if Scotland votes for independence in September. If you live south of the border, you might be wondering how much a fracture could damage Britain’s general economic standing (or, whatever side of the border you are on, whether you’re on the hook as a taxpayer if the sterling currency union goes horribly wrong), but you may not have thought about how it might affect you personally. A yes vote might have an impact on the value of your investments.

Indigenous Scottish fund management groups – like Alliance Trust, Baillie Gifford, Kames Capital and Aberdeen – currently have around half a trillion pounds under management (£520bn). But the vast majority of their customers live outside Scotland. 86%of the cash they raked in last year was derived from outside Scotland, according to Scottish government figures.

There is a real possibility that investors may be affected by independence, regardless if you live in Scotland or not.

There’s an old saying “many a mickle makes a muckle” (i.e., that small savings soon amount to large sums) reflecting Scotland's historic reputation for careful financial management. The two clergymen behind the original Scottish Widows, Robert Wallace and Alexander Webster, are credited with inventing life insurance in 1748. And it was a Dundonian jute trader, Robert Fleming (grandfather to Bond author Ian) who pioneered investment trusts in the 1870s before going on to found a City dynasty.

Scottish fund groups, moreover, are still moving markets. Aberdeen’s £600m deal with Lloyds in November saw it overtake Schroders as Europe’s largest quoted fund manager. Not bad for an outfit that was branded a pariah and teetering on the brink of corporate disaster ten years ago, when its role in the split-capital investment trust scandal saw 97% wiped off its share value. The movement isn’t always positive though, as the recent Royal Bank of Scotland (RBS) bail out stands as a monumental reminder.

As Alistair Darling, who is heading the pro-union Better Together campaign, likes to point out, it was another disastrous Scottish colonial adventure, the Darien scheme, which precipitated the 1707 union with England by nearly bankrupting the nation. Had Scotland been independent when RBS went down, needing £45bn, he observes, the same fate would have been unavoidable.

One possible consequence of a breakaway Scotland would be new regulatory and tax authorities that would impose an extra layer of costs on investments there. But even if the union is retained, Clunie reckons the uncertainty surrounding the vote is already “an immediate problem”. As he told The Daily Telegraph, capital investment in the energy sector is being delayed over anxiety about how subsidies might change if Scotland parted from the union.

The creation of a new state is no easy matter, as Gavin McCrone, author of Scottish Independence: Weighing up the Economics notes, “Scotland could be perfectly viable. But it would be a bumpy ride to begin with”. No matter what 2014 will bring for Scotland, it will be an interesting if not testing year for business and investments in the United Kingdom generally.

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