An independent Scotland: what could it mean for our money?

Latest opinion polls suggest the Scottish independence vote is very close. We look at what might happen if the 'Yes' camp wins.

With a matter of days left until Scotland goes to the polls to vote on independence, there has been a surge in support for the ‘Yes’ campaign, in opinion polls at least. This has left many people both north and south of the border wondering what this means for their money.

As the polls have narrowed, the British Government in Westminster has offered promises of more concessions in a bid to win votes for continued union.

However, detail over what exactly would happen if Scotland gets its independence has been somewhat lacking from both sides.

Here’s what has been said in terms of our finances, although this could all be subject to change, and what expert commentators think could happen.

Currency

The British Government has said an independent Scotland would not be able to use the pound and the Bank of England has also said it would be too problematic. The Westminster Government arguably sees this as one of the major ways of swaying people to vote ‘No’.

In reality, Alex Salmond is probably correct to call this is as something of a bluff, as legally Scotland can go on using the pound (this is known as ‘sterlingisation’).

While a more formally ‘shared’ currency isn’t ideal, it would be probably be the least damaging solution in the short term. Having said that, the UK Government is likely to impose conditions on any arrangement and Scotland will not be truly ‘independent’ from a currency and central bank perspective.

One longer-term option is for Scotland is to have its own currency, as there seems to be little appetite to eventually join the euro.

Opinion is divided on which of these routes it would go down.

Jobs and pay

The minimum wage will continue to rise in line with inflation, says the Scottish Government.

There will certainly be job implications for people who work in the financial services industry, particularly in Edinburgh.

Scotland’s capital is home to the likes of Lloyds, Standard Life, and Royal Bank of Scotland. Some companies have already either said explicitly or hinted that they would relocate, meaning staff would potentially need to relocate or find other jobs.

Taxes

The ‘Yes’ campaign has promised not to raise taxes, and the personal tax-free allowance, benefits and Tax Credits would increase in line with inflation. It will also scrap the so-called ‘bedroom tax’, the tax allowance for some married couples, and the Shares for Rights schemes for employees, which offers tax breaks in return for signing away some employment rights. And it would stop the roll-out of Universal Credit and Personal Independence Payments.

The Westminster Government has tried to counter this by promising to offer greater taxation and welfare powers to the Scottish Government in the event of a no vote.

Many experts think taxes will have to rise in the event of independence as the Scottish Government's revenue projections are too optimistic.

Free childcare

The Scottish Government has promised the equivalent of 30 hours free childcare a week (double the current UK amount) for every three- and four-year-old and every ‘vulnerable’ two-year-old.

Free higher education

The ‘Yes’ campaign has promised to protect free higher education for Scottish students.

Household bills and financial products

The ‘Yes’ campaign is pledging to reduce energy bills by around 5% by removing the cost of some environmental schemes from them.

However, mortgages could become more expensive for Scottish people if interest rates were no longer pegged to the Bank of England Base Rate. This could also apply to credit cards and loans.

The cost of UK companies dealing with people in two separate nations could also ultimately be passed on.

In terms of bank and savings deposits, the UK Financial Services Compensation has said that there will likely be an interim period where up to £85,000 of money held in each institution would be protected.

It’s not clear what would happen to ISAs. For Scottish people, the worst-case scenario, according to investment company Hargreaves Lansdown, is that they would be treated the same as other non-UK residents. This means while existing ISAs would continue to be open and receive interest, no more money could be saved into them. In all likelihood though, a Scottish ISA would be created.

Pensions

The Scottish Government has promised to review the rate of increase in the State Pension age. It is also promising a maximum single-rate State Pension of £160 a week from 2016, which would be £1.10 a week higher than the rate pledged for the rest of the UK. These moves are both in part due to lower life expectancy in Scotland.

It would also retain the Savings Credit, due to be scrapped in the UK, for low-income pensioners. Again, there are some question marks over how this would all be paid for. Current workplace pension rights would be protected.

The Westminster Government has said that an independent Scotland will need to set up its own pension protection body.

Investments

If Scotland does vote ‘Yes’ then there is likely to be a period of turbulence on UK stock markets, with serious money likely to be wiped off Scottish companies and UK companies with major interests in Scotland. Of course, this would also provide buying opportunities.

Markets hate uncertainty and the period immediately following initial independence would be very uncertain.

Certain banks and wealth management companies are advising investors to lessen their exposure to the UK in the short term. However, this could backfire if the 'No' vote wins.

There are also likely to be extras costs for investors if investment companies have to manage customers in two separate nations with different tax rules and regulation.

Future UK Governments

If Scotland did go it alone, there would be huge implications for the Labour Party. Currently 41 of the 59 Scottish seats in Westminster are held by Labour MPs. The removal of those seats would make it very difficult for Labour to form a majority UK Government in the future.

While there’s no suggestion this will be immediate, as the 2015 General Election is due to proceed as planned, it could mean the financial road the rump UK travels via its Government may be very different to the one it would go down with Scotland still in the UK.

Promises, promises

Of course, promises can be broken. Something that’s always worth bearing in mind at the ballot box.

What do you think will happen? Are you worried about your money? Sign in and share your thoughts below in the Comments box.

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