The day after Scotland voted to remain in the U.K., companies began counting the cost of staying together.
Lloyds Banking Group Plc may still consider moving south to England, according to a person familiar with the matter. Diageo Plc, the distiller that makes Scotch whisky including Johnnie Walker, said after the vote that “the future for this sector will remain bright provided there is no further regulation or taxation on the industry.”
While companies expressed relief about the outcome of the vote, they voiced uncertainty about the devolution of more tax powers to Scotland. Conservative U.K. Prime Minister David Cameron said today he will make good on pledges to give more policy-making control to Scotland, known as “Devo Max.”
Proposals outlined by Cameron on handing more power to Scotland and changing the way the U.K. Parliament functions would influence decisions made by Lloyds on where its legal headquarters should be, said the person familiar with the matter, who asked not to be named because the discussions are private. Tax rates are one factor, as is coming regulation on separating retail and investment banking, the person said.
“There is the potential for Scotland to become a relatively less attractive base for banks, so over time there could be a more subtle and less costly partial drift south,” said Ian Gordon, an analyst at Investec Ltd. in London. “Banks could conceivably consider the possibility of changing domicile when regulations are overhauled, especially when ring-fencing rules are introduced in 2019.”
Royal Bank of Scotland Plc shares rose as much as 4.6 percent as it halted a contingency plan to move operations out of the country in the event of independence. Standard Life Plc also rose, gaining as much as 1.9 percent, even as Scotland’s largest insurer expressed caution about what happens next.
“We recognize that further constitutional change is very likely following the clear result of the referendum,” said Standard Life, which had also threatened to quit the country. “We will consider the implications,” it said in a statement.
“The key concern for financial institutions is how any remaining uncertainty will impact business,” said Simon Morris, a financial services partner at law firm CMS. “For example, Scottish firms launching new funds and product lines may choose to do this out of England in future to avoid uncertainty around where Devo Max might lead.”
Companies such as RBS, Standard Life, Weir Group Plc, John Lewis Partnership Plc, Wal-Mart Stores Inc.’s Asda and Kingfisher Plc played a lead role in warning about the economic impact of a vote for independence over the past two weeks.
“There can be no doubt that many businesses will breathe a sigh of relief that the prospect of a contentious currency debate and prolonged economic negotiations have been avoided, and yet we know that significant changes are still on the cards,” said Simon Walker, director-general of the Institute of Directors in London.
“As negotiations commence on a future settlement for Scotland, the focus must be on ensuring that any new powers are used to boost Scotland’s economic competitiveness, unleash enterprise and attract further investment,” Walker said.
That echoed comments by Weir Group Chief Executive Officer Keith Cochrane.
“From a business perspective, it is important we now concentrate on long-term stability for Scotland within the U.K.,” the head of the engineering company said.
Ian Cheshire, CEO of home-improvement retailer Kingfisher, said his company would stick to its current investment plans in Scotland after threatening to put them on hold.
While the arguments of Cochrane, Cheshire and other CEOs helped win the day for the pro-union camp, economists said the promised devolution of taxation powers to the Scots raises the prospect of a more federal system across the U.K.
“After a No, the U.K. will not be the same, it will change fundamentally,” said Rob Wood, a former Bank of England official now working as chief U.K. economist at Berenberg in London. “The fallout doesn’t have to be bad, but it could lead to uncertainty and that will be bad for business.”
Andrew Goodwin, chief U.K. economist at Oxford Economics, said greater devolved powers for Scotland is the “best possible outcome because it keeps the union together, which is what most businesses want, but at the same time it gives the Scottish government power over its own spending.”
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