How United is the United Kingdom now?
Scotland has made its voice heard. After lengthy debate and fierce campaigning on both sides, it voted to stay true to its 307year allegiance to the rest of the United Kingdom. The vote, however, came much closer than many politicians in Westminster would have liked. Although the end result was nearly 55% in favour of the current union, the mood for change and offers of devolution will certainly have a significant impact in the coming months. The question now is what that impact will be.
I am in fact writing this week’s column from London, and what an intriguing time it is to be in the City. Unsurprisingly, the rollercoaster of emotions on the ground, and the uncertainty of businesses and investors here, have been visible in the financial markets. In the weeks preceding the vote, as the ‘Yes’ campaign climbed in the polls, the pound sank. Businesses with Scottish offices made contingency plans and banks sent money north of the border in anticipation that the public, with no clarity on what currency would be used if the country became independent, may rush to withdraw as many pounds as possible.
In contrast to the outpouring of jubilation we could have expected in parts of Scotland had the ‘Yes’ vote for independence been victorious, the overriding mood in the UK’s capital when the ‘No’ result was announced was one of sheer relief. It was a relief that total political and economic chaos was avoided. This manifested itself in a strong sterling as the currency reached a two-year high against the euro and climbed half a cent against the dollar.
Yet, in the days following the vote, the initial sense of relief has been mixed with anxiety about what exactly will happen next. Keen to convince his fellow Scots to vote ‘No’, Gordon Brown promised “a modern form of Scottish Home Rule” with public funds and increased devolution if the country stayed in the union; the three main political parties all backed his offer. So, presumably, Scotland will enjoy the autonomy of an American state?
Not all politicians support any drastic or rushed change, however, and devolution would create various constitutional problems. Should Scottish MPs be able to vote on issues that only affect England? Will greater decentralisation be possible on a regional level, granting, for example, power over welfare and education to London which has a similar population to Scotland’s 5 million? The doors are now open for another debate which has the potential to be as loud and divisive as the referendum. The Sterling’s rally quickly faded on the Friday after the result, and the FTSE 100, the UK’s key stock index, closed just 0.3% higher, the effect muted by the uncertainty.
At present, UK investors are looking again to the core fundamentals of the market and speculating on a possible increase in interest rates early next year.
In the long-term, the biggest decisions lie with the politicians. MPs must offer answers and provide a stable outlook for the benefit of citizens and businesses. It is their responsibility to ensure that even if certain powers are localised, the countries benefit from being united. The debate about devolution must not be allowed undermine the strength of the UK’s single market and its shared currency.