Challenges for business in Scottish independence, says Barclays

A vote for Scottish independence in September’s referendum could have a modestly negative impact on the UK stock market, according to a report from Barclays.

The bank says independence would present several companies with significant challenges, ranging from the likely currency regime to pensions, labour costs, taxation and procurement, even though Scotland only accounts for about 2 per cent of sales by companies in the FTSE 350.

On balance, it says a Yes vote could have significant consequences for sectors such as the banks, oil, defence, beverages, transport, business services, asset management, insurance, utility, property and industrials.

Scotch whisky is Scotland’s second-largest export industry after oil and gas, with more than 90 per cent of volumes sold outside of the home market. The analysts say that, given their dominance in whisky, drinks firms Diageo and Pernod Ricard are arguably the stocks with most to lose from a move to independence.

Simon Hales, a Barclays analyst, says: “In our view, the biggest risk to the Scotch industry is related to any potential exit from the European Union. If the EU were not to admit an independent Scotland this could put the product’s geographic indication status under threat as well as putting at risk the tariff-free trading it enjoys in the EU member states. It may also increase the supply of counterfeit product.”

Barclays analysts say other stocks with potential for an adverse reaction to Scottish independence include BG Group, Wood Group, RBS, Lloyds, BAE Systems, Babcock, SSE, Aggreko, Weir Group and Standard Life.

On the other hand, they say companies that could experience a beneficial impact include: easyJet, Ryanair, and IAG, as a result of the Scottish government’s commitment to halve air passenger duty. The report says London-based property companies such as Derwent, Great Portland Estates, and Berkeley Group, could also benefit from any weakening of sterling or migration towards London.

The analysts say commentary on independence in recent months has centred on uncertainty concerning what the fiscal terms for oil and gas production are likely to be and which assets/regions are affected by a new maritime border.

“While we feel this uncertainty may hinder investment in the near term, in the longer term it is clear hydrocarbon development will be a key part of Scottish fiscal revenues – whichever country’s revenues that may be – and, indeed a new independent Scotland may have conditions that ultimately encourage activity,” says the report.

“Therefore, while any uncertainty may be a short-term concern, in the medium to longer term it is unlikely to change our positive investment view on either the oil service or oil producer sectors. For the oil services potentially most impacted are Subsea 7, Wood Group, Hunting and Technip.”

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