What would a Yes vote in Scotland mean for North’s economy?

What would happen economically in Northern Ireland if the Scots vote Yes tomorrow creates more questions than answers, while the prospect of a fairly marginal No vote raises the possibility of an economic bounce for the North.

Economic unpredictability can breed anxiety, but there is the occasional businessperson who sees opportunity whether the outcome is Yes or No. Still, the prevailing economic mood in Northern Ireland over the referendum is one of uncertainty.

Unanswered questions include whether a Yes vote would restrict the ability of the British government to underwrite the Northern Ireland economy.

This relates to the Barnett formula, the system whereby Westminster decides the level of block grant that annually goes to Scotland, Wales and Northern Ireland to allow the devolved administrations run their budgets.

Block grant

In net terms Northern Ireland receives an annual subvention of about £10 billion (€12.5 billion) from the British government. Should Scottish independence put extra pressures on the London treasury, there is the danger that a new formula could be devised that reduces the block grant.

Then there is the question of how the British government would deal with the loss of oil revenue and the possible expense of relocating nuclear bases from Scotland to the south of England.

And economic costs could lead to political consequences. One of the reasons relations between First Minister Peter Robinson and Deputy First Minister Martin McGuinness are so bad is because of Sinn Féin opposition to welfare reform. The question here is whether the British government, under financial pressure, might impose further welfare cuts.

More positively there is the longstanding prospect of the Northern Executive being devolved extra powers to impose its own rate of corporation tax.

British prime minister David Cameron has held off on making a decision until after the referendum. The main rate of corporation tax in the North is 21 per cent, and it is estimated that bringing it in line with the Republic's 12.5 per cent would result in a reduction in block grant of £300 million annually.

Risk-taking

There is an obvious element of risk-taking in creating corporation tax parity on the island but the majority economic view is that it would significantly benefit Northern Ireland, and that the possible £300 million loss in subvention would be more than recouped. The previous DUP finance minister

Sammy Wilson

had reservations about such a move but current minister

Simon Hamilton

is in favour, believing it could create 50,000 jobs. “I think our economy would be revolutionised,” he has told

The Irish Times

.

There is an expectation that, regardless of the referendum result, Cameron will make the corporation tax concession. But Ann McGregor, chief executive of the Northern Ireland Chamber of Commerce and Industry, wonders when will this happen. She has a worry Scotland could steal a march by lowering its corporation tax ahead of the North.

“That would leave Northern Ireland surrounded by countries with lower corporation tax rates which could cause potentially substantial damage to business in the province,” she says.

“Those working in businesses with cross-border interests would also find themselves dealing with two separate regulatory regimes, two different tax systems and possibly even an exchange rate – none of which would make business any easier,” adds McGregor.

Currency

Again in the territory of questions rather than answers, she wonders what currency Scotland would use should it vote Yes. “The euro is the only logical fallback position if Scotland is barred from using the pound after independence,” she feels. “That would leave Northern Ireland with a euro zone country to the south and another to the east.”

Furthermore, there is the concern that an independent Scotland would maximise all opportunities to create greater international investment and more jobs. As well as corporation tax, it could become more competitive through lower income tax and VAT rates which could be to the detriment of Northern Ireland.

It’s all a bit of an economic no man’s land, and matters won’t become clearer until after tomorrow’s vote.

Opportunity in adversity

But it’s in the nature of businesspeople to see opportunity whether in uncertainty or adversity, which is the position taken by

Paul Henry

, chairman of the Chartered Accountants

Ulster

Society.

He says Northern Ireland does business with the Republic, which is not part of the UK, so why should there be any great difficulty if Scotland opts out of the union? “The Republic of Ireland is one of our major export markets . . . There is no reason why Scotland, even outside of the UK, could not be just as important a partner for the Northern Ireland economy,” he says.

Henry proposes that a “Northern Ireland office” should be established close to the Scottish parliament in Edinburgh followed by a “massive trade fair” showcasing “what we make, and why we want their business”.

People shouldn’t be perturbed by what happens on referendum day, Henry advises. “Whether it’s a yes or a no vote, or devo-max, or perhaps the dreaded ‘neverendum’, Northern Ireland must be ready and willing to catch the tide.”