Business heads vote with their feet for fear of capital controls

Listen to this article

00:00
00:00

The heightened risk that Scotland may vote for independence on September 18 has galvanised the small business community and private investors. There is now widespread talk about the dangers of remaining based and invested north of the border – and some action to limit exposure.

BD Network, a Scotland-registered marketing company with offices in England and Australia, is one of those planning to shift its base to London in the event of a Yes vote. Ghill Donald, BD’s founder, said he moved the company’s bank account from Lloyds in Scotland to Barclays in England over the summer and has also told his personal financial advisers to ditch any Scottish fund management exposure.

“The message needs to go out from Scottish business,” said Mr Donald. “If there’s a Yes vote, we’re leaving.”

Alastair Cameron, who runs a small business, Braeburn Consulting, with close to £250,000 in revenue, said he also moved 90 per cent of his cash holdings, as well as a slug of personal savings, south of the border. “To set up a new business in England and move my money now was extremely cheap and easy. I worry that it wouldn’t be after a Yes vote.”

Analysts and investors drew parallels with other country break-ups, particularly the “velvet divorce” of the Czech Republic and Slovakia in the 1990s. “If there is a velvet divorce, there is a risk of money being trapped,” said Alan McFarlane, partner at Edinburgh-based Dundas Global Investors.

Business people like these, and others who have campaigned against independence, express concern that currency and capital controls could be imposed if markets panic after a Yes vote. Every business person contacted by the Financial Times who had moved money to England said they knew of several others who had done the same.

For the time being, such action appears to be marginal. Royal Bank of Scotland and Lloyds, which owns Bank of Scotland, said they had experienced no surge in fund transfers from Scotland.

Financial advisers said private investors had been busy calling them about the risks attached to an independent Scotland. The investment trust industry, much of which is based in Scotland, has been a particular focus of concern, they said. The Association of Investment Companies and individual fund managers said investors were worried about the future of Isa tax-free wrappers and any prospective toughening of the trusts’ capital gains tax exemption.

Bankers began to admit in private that should the referendum yield a Yes victory, then Westminster could be pressured into a swift statement of support for Scotland’s continued use of the pound to calm a nervous populace. Large financial services companies, such as Standard Life, Lloyds and Royal Bank of Scotland are expected to announce a move of domicile from Scotland to England. Indeed, Standard Life has said as much publicly, though the banks have so far been silent on the topic.

Attention will also fall on Mark Carney, governor of the Bank of England, who has made clear that the central bank will stand behind both Scotland and the rump of the UK until independence is implemented.

Sir John Gieve, a former deputy governor of the Bank of England, said the BoE would now be discussing with Scottish lenders the measures necessary to stem any movement of deposits to accounts south of the border.

“All the lessons of the Northern Rock episode will come into play,” he said, referring to the 2007 bank run. “You need to make sure the internet platforms are robust so people don’t panic that they can’t quickly move their money. And there will need to be plenty of cash ready to stock cashpoints. Banks will also need to secure adequate wholesale liquidity in advance so they can assuage any questions in the markets.”

Additional reporting by Jonathan Guthrie and Martin Arnold

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.