Scottish Independence – a lever of uncertainty

14 Apr 2014 – It is not only the UK’s successful £22bn defence and aerospace industry that is hugely concerned about the possibility of a ‘YES’ vote emerging from September’s referendum on Scottish independence; the wider manufacturing industry should also be concerned about the potential economic uncertainty which such a result could deliver.

Whilst warship building remains a large part of the overall defence and aerospace industrial capability in Scotland, the industry is not limited to shipbuilding alone. Babcock Marine, BAE Systems, Insyte, Raytheon, Rolls-Royce, Selex, Thales UK and many more have historically invested significant sums in Scotland’s manufacturing infrastructure; the result is that approximately 170 companies related to the defence and aerospace industry employ an estimated 17,000 skilled professionals. Meanwhile the MOD directly employs around 17,000 people, who support an additional 12,000 Scottish-based jobs; as a useful guide I would estimate that non MoD defence and aerospace industry revenue probably generates a minimum of £3bn to the Scottish economy every year.

Having invested significant sums in respective Scottish-based facilities over a great many years perhaps the most important business aspects required by those that have chosen to maintain large scale manufacturing and service based defence and aerospace related manufacturing operation in Scotland is political and economic stability; two aspects which the independence referendum is undoubtedly jeopardising.

These are in many cases highly sophisticated engineering and electronics based businesses that require a constant process of research and technology investment. What they fear are periods of international uncertainty or additional risks caused by domestic economic and financial uncertainty. Whilst it is certainly true that many of the international companies which have chosen to invest and in Scotland have done so on account of the benefits offered north of the border, the key factor which underpins the continuing presence remains the UK’s ability to deliver political, financial and economic stability.

The UK currently enjoys a corporate tax system which attracts Foreign Direct Investment; would an independent Scotland be able to do the same? In fact, the real question is what could an independent Scotland really offer businesses; could they attract sufficient foreign investment to keep its oil-dependent economy functioning. The currency issue still remains unresolved, as does entry into the EU. Worse perhaps is that Scotland’s economy would most likely struggle to receive sufficient levels of tax based revenues to meet its burgeoning health and welfare commitments let alone anything else – such as a stable and effective defence strategy.

There is also the potential devastating potential of a loss of work for those employed by  BAE Systems and Babcock International if the Royal Navy’s shipbuilding programme drifts away with independence. BAE Systems Govan and Scotstoun yards have long been the home of Royal Navy warship building and with the proposed closure of Portsmouth they will soon be the UK’s only yards able to build large warships. At Babcock International’s huge Rosyth based facility the various large sections of the two ships built at the various BAE Systems yards are in the final assembly process. In July the first of the two new CVF carriers, HMS Queen Elizabeth, will be launched by Her Majesty the Queen and the second ship, HMS Prince of Wales, will follow in less than three years. But will this, and the future Type-26 programme, be possible if Scotland chooses to go independent?

Until recently industry has been cautious as to how it should respond to the independence question but it is increasingly showing itself to be of one mind; that of Union. The bottom line is that the defence and aerospace industry wants less risk as opposed to more. It wants and needs security as opposed to uncertainty.

The Scottish people must know the risks. An ADS spokesman recently suggested that; “There will be lasting consequences” if Scotland go for independent in September. The warning has been issued but will the electorate heed it?

Howard Wheeldon FRAeS
Wheeldon Strategic Advisory Ltd,
Email: hwheeldon@wheeldonstrategic.com
Tel: +44 (0) 7710 779785

 

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