Infrastructure in a post referendum Scotland: Business as usual?

Uncertainty, indecision and hiatus are the key risks for infrastructure and business say consultants. Jackie Whitelaw and Robet Kraus report.

Infrastructure company bosses are, in general, pretty relaxed about the impacts of a Yes vote in the Scottish independence referendum on 18 September, it seems.

They are all used to operating in global markets; an independent Scotland would just be a new addition to the international mix.

But general uncertainty spooking the financial markets as the referendum approaches and delays in investment decisions in infrastructure following the vote are the real risk, they say.

“Regardless of the outcome, what we will have is certainty post referendum and this will enable businesses and investors to plan for the future on an informed basis"

“Uncertainty is a problem,” said the chairman of one major international consultancy. “The markets feed on it and we don’t need anything to upset all the positive signals in the economy.”

The historic referendum is now just over a week away and for that reason, for many in the industry it can’t come soon enough.

The fact is there is now an acceptance by both Westminster and the devolved governments that infrastructure investment remains key to driving the economy out of recession.

The question is whether new found independence or preserving the union will continue to serve the best interests of the infrastructure industry in terms of deivering this investment. With large scale projects on the horizon, such as high speed railway, there is concern in the industry over the impact that this referendum could have on speed of delivery.

Hence across the industry there is now genuine concern that, whichever way the vote falls in the referendum, the outcome could cause further indecision and hiatus in spending.

“Regardless of the outcome, what we will have is certainty post referendum and this will enable businesses and investors to plan for the future on an informed basis,” said Kevin Bradley, head of Scotland, programme cost consulting for AECOM.

“If anything it would be just an extra layer of irritation. Separate tax returns, separate accounts. But I am concerned that things will just grind to a halt in Scotland and longterm will money still go into infrastructure or other priorities?" 

“It is important that cross-border and international trading is not hampered in the event of a yes vote," he added.

“The Scottish Government gets this and is tuned in to the fact that the exporting of consultancy services around the globe is a key part of the economy. Furthermore, the Scottish Government is committed to investing in and developing the economic infrastructure in Scotland as it knows that this will promote long term economic growth and will make Scotland a great place to live and work.

“These factors all point to a buoyant market for consultancy businesses post-referendum,” said Bradley. “The risks are around currency, tax and what the credit rating of the country might look like. If money becomes less commoditised then it will be more expensive to do business in Scotland and we will suffer as a result.”

Adapting to a new Scotland in the event of independence will not be a problem, said Tony Gee executive managing director Graham Nicholson. “We work all around the world and have set up business units as far afield as Mongolia so I hope we can manage any necessary changes to our business in Scotland with relative ease.

“Our databases are set up for multiple currencies so they can choose whatever they like! Scotland has its own laws already and we work happily under those so I can’t see any major impact of a “yes” vote on the type of work we do or in the way that we do it.”

“If anything it would be just an extra layer of irritation,” says another consultancy chairman. “Separate tax returns, separate accounts. But I am concerned that things will just grind to a halt in Scotland and longterm will money still go into infrastructure or other priorities? That said, if our Scottish business drops 20% is that really going to be a major issue for us?”

Many engineering firms in Scotland have already reported serious concerns about the impact of independence on their businesses, a common view being simply that an independent Scotland significantly reduces the size of their all-important home market.

Equally there is the view that loss of Scotland from the UK home market portfolio realy does not constitute a huge material loss - particularly when so many major businesses are operating globally. 

The concensus would appear to be that consultants, as is so often the case, can see opportunities ahead, in England, Northern Ireland and Wales, particlularly following a yes vote as the Westminster government refocuses its investment priorities.

The northern city economies in particular are expected to benefit in the bid to create a new northern powerhouse, to borrow a phrase.


Three key issues for the civil infrastructure sector if Scotland votes for independence


In the event of a yes vote this is going to be the thorniest infrastructure issue to resolve. The UK operates as a single energy market. Scotland supplies significant energy to the UK grid particularly from renewables but with independence the “home” customer base just for domestic consumers would fall from 30M to 3M households.

Continued export of energy south of the border would be a vital revenue source for Scotland but getting that energy to the lucrative markets in England would be through English owned transmission grid. Compromise and negotiation will be key.

The Scottish Government proposes that Scotland should continue to participate in an integrated market for electricity through a planned energy partnership with Westminster “but will require a far greater degree of oversight of the market arrangements”. Westminster may have its own take on that.

In terms of EU renewables targets, Scottish renewable energy is a significant contributor to the current UK’s progress. On its own Scotland has a target of delivering 100% of electricity demand and 11% of non-electrical heat demand from renewables by 2020. For the UK to meet its target obligations at least cost it will need to deploy Scottish renewable energy into the GB grid, something the Scottish Government says it is committed to working with Westminster on.

High Speed Rail

It is unlikely that remaining countries in the Union are going to be eager to invest in high speed rail north of Manchester and Leeds to Scotland if Scotland is an independent country.

The priority might shift to High Speed 3 across the Pennines connecting Manchester and Leeds to boost the economies of the northern cities. In the Scotland’s Future white paper, the Scottish Government notes that Westminster has agreed to plan for high speed rail to go beyond Manchester and Leeds.

It says that “an independent Scotland could work together with northern English councils to argue the case more strongly for high speed rail go further north faster”. Proposals for high speed rail between Edinburgh and Glasgow will continue and act as a ‘launch pad’ for further high speed rail services to the south as well as releasing capacity on existing lines in the Central Belt, the Scottish Government says.

National Rail

Since 2005 the devolved Scottish government has had powers to specify and fund work on the Scottish rail network. But the issue of the railways has been complicated this month by the reclassification of Network Rail as a central government body in the UK National Accounts and Public Sector Finances.

New corporate governance, accounting, budgeting, assurance and debt arrangements have been put in place and all decision making powers with respect to Network Rail lie with the UK government in Westminster. In the event of a Yes vote in the referendum Network Rail in Scotland will have to be separated from Network Rail in the rest of the UK with an independent Scotland expecting full control over its future structure and governance.

An independent Scotland would continue to meet its rail financing obligations – including the servicing of regulatory debt for Scotland – in line with the determination made by the Office of Rail Regulation for the period 2014 – 2019, according to the Scotland’s Future document from the Scottish Government. Longer term an independent Scotland would take over financing of its own railways.

Renationalisation has not been ruled out. ScotRail and Caledonian Sleeper franchises are in the middle of rebidding and when they run out in 2025 and 2030 respectively “Scotland will under existing European legislation, have the opportunity to consider all options for delivery of passenger services, including public sector options,” the Scottish Government has said.