This time next week Edinburgh could have taken the giant leap back to being the capital of an independent state for the first time since 1707.
But no matter the outcome of next Thursday’s referendum, Edinburgh and Scotland will never be the same again. Some might have you believe that a No vote is a vote for no change, but the stresses in the United Kingdom exposed over two years of increasingly bitter argument will not go away and major change is unavoidable.
Back in 1997 as the overwhelming result of the devolution referendum became obvious the sense of excitement on the High Street was tangible as people waving Yes-Yes flags gathered to celebrate. But even those Conservatives who had opposed devolution accepted the result with little more than a shrug.
Next Friday it will be different. If it’s Yes, those people delirious with joy at the emergence of a new independent Scotland will be mirrored by those devastated by the break-up of their country. If it’s a No, a sense of relief that Britain has just about held together will be matched by crushing disappointment that independence has slipped away. And then there will be the majority in the middle either way who will be wondering what the hell happens next.
The only certainty is the months of uncertainty to follow as negotiations go back and forward, either for the establishment of a new independent state or a new nation within the United Kingdom.
The implications for Edinburgh are massive. Here are just a few of them
For the sake of Edinburgh’s economic health the direct linkage between our financial services sector and a central bank needs to be maintained.
If it’s No, the job is done and the Bank of England remains the lender of last resort.
But after the statement by Bank of England governor Mark Carney this week, it is now beyond all doubt that currency union after independence is a non-starter. A Yes vote means the connection with the Bank of England will be broken.
Bluff it is not, because differing financial policies have proved unsustainable in a common currency area and, as has happened in Europe, the bigger economies end up controlling the economic policies of the smaller partners.
But Scotland would need control of its monetary policy if it was to dictate how to meet its considerable public spending commitments and to follow its own taxation priorities. This is the view of leading independence campaigners like Jim Sillars and Denis Canavan, hardly a pair of right-wing monetarists.
For a whole host of reasons it’s essential an independent Scotland establishes a central bank without delay – not least because without one EU membership is impossible. In the rush to claim that keeping the pound is the best way forward, this seems to have been lost.
Without a central bank financial institutions will not have a lender of last resort to back them up in time of crisis. For our banks and big life companies it’s like driving without insurance and for Edinburgh that could be catastrophic.
That is why RBS, Lloyds and Standard Life are now making plans to shift remaining headquarter functions out of Scotland after a Yes vote. This is no bullying, just the pragmatic action of businesses protecting themselves.
The importance of financial services to the Edinburgh and Scottish economies cannot be over-emphasised; it generates £7billion for the Scottish economy and directly and indirectly employs 200,000 people. 20,000 of them work for RBS, Standard Life and Lloyds/Bank of Scotland/Scottish Widows in Edinburgh and anything which is a problem for them is a problems for us all.
It’s not essential for a bank to operate without a lender of last resort, but Edinburgh will not remain a major financial centre without one. Even when Ireland’s punt was tied to sterling, there was still a Bank of Ireland.
Panama’s banks are reportedly prudent because without a lender of last resort they cannot afford to risk failure, but it and the other Central American states which make unofficial use of the US dollar are not major financial centres. Not so long ago Edinburgh was challenging Frankfurt and should be aiming to do so again.
Another big driver of the Edinburgh economy is commercial law and the legal deal-makers prefer the proximity of key banking staff who can authorise big transactions.
It may be true that the real power of RBS and Lloyds has already gone to London but not so Standard Life. But decisions are still made in Edinburgh and even the symbolic loss of official HQs and the further transference of deal-making is the last thing we need and an independent Scotland would have to do all it could to keep these.
THE HOUSING MARKET
The creation of a central bank and a regulator is essential for another reason and that is the property market.
If the remaining financial HQs disappear their top staff will go too. This class and the lawyers and independent advisers servicing it are almost entirely responsible for the top end of the local housing market and the effect on premium prices would cascade through all levels.
A cut in staff at all levels could hit all areas of the city economy, even if it was offset by more civil servants and it is not difficult to see property returning to the 2008 position or even worse.
We know RBS, Lloyds and Standard Life have already made contingency plans to move some operations south in the event of a Yes vote.
The shedding of jobs in the past was partly offset by the launch of new retail banks like Tesco, but with no central bank, bigger new players are more likely to set up elsewhere. Fewer good private sector jobs will be a big problem and not just for the property market.
If domestic borrowing becomes more expensive – and following the Bank of England governor’s warning about interest rates this week that seems inevitable, come what may – you can forget about first-time buyers driving the market.
Edinburgh thrives on the commercial property market, in the process of recovery after five years of stagnation.
But the big deals crave stability and while there is no reason commercial property investment would not continue under independence, there is already evidence the market is on hold pending the result. It will remain so until negotiations are complete and the landscape clear.
As the Financial Times reported this week, break clauses for a Yes vote have started to appear in contracts. Glasgow’s Buchanan Galleries extension is now under review. Work was also supposed to have started on Caltongate but I also understand the development is now in the pending tray. At least the Cockburn Association will be happy.
Every fund manager and property agent in the city tells the same story of investments being held back until the referendum result and the implications of a Yes vote are understood.
This is not to say developments won’t happen eventually, but if investment is held up then so too are the benefits at a time when the economic bandwagon needs to keep rolling.
In a competitive market, places like Leeds, Manchester and Newcastle will be quick to snap up available capital, although any uncertainty following a Yes vote is likely to affect the North of England too.
For a city built on commerce, refusing to take on a share of the national debt when use of sterling ends could be more than just a headache for Edinburgh.
If it is in Edinburgh’s interest to have a Central bank, it is also in its interest to take on a fair share of debt, so building a reputation for responsibility and probity isn’t hampered by what would be seen as a massive default.
The new country would not want to borrow money at far higher rates than is necessary and having already seen the effect of uncertainty in the financial markets this week, adding to the turmoil would be unwise to say the least.
Unlike oil, with proper management financial services won’t run out. And unlike renewable energy, it doesn’t need huge public subsidy. So pulling the rug from under it would be as sensible as banning oil rigs.
While Scotland remains in the UK, Scottish universities can levy tuition fees on students from other parts of the UK even though Scots can study for free. However, other EU nationals must be treated the same as Scottish students and this is why a few canny youngsters from Northern Ireland made sure they signed up for Scottish Universities as Irish nationals to avoid the charges. But as soon as England becomes a foreign EU country, all English students would have to be treated the same as their continental counterparts and the fee income would disappear. For Edinburgh University that’s 5000 people paying £9000 a year. £45m isn’t small change, especially if the UK research grant tap is turned off.
The problem would also be solved by England leaving the EU, but that is by no means certain. And if Scotland was out the EU the universities could continue to charge English students and introduce fees for EU students too.
There is little chance Scotland will not negotiate a place in the EU and this could feature in negotiations. But without fee income from English students, the funding gap would need to close and the pressure to introduce some sort of levy on Scottish students would increase.
Like Dublin, scholarship is big business for Edinburgh and anything which damages the financial health of higher education is not in the city’s interest. At least the good people of St Leonards wouldn’t have to worry about student accommodation as much.
The cost of setting up embassies around the world is one thing, but for Edinburgh a new foreign office and defence ministry has obvious employment attractions although there would be no guarantee they would be in the city.
It’s unlikely a foreign office would be based anywhere else but the defence ministry could easily be out of town, as in Ireland where it is in Kildare to the west of Dublin.
There has been optimistic talk of a mini property boom in teh capital from embassies moving in, but just as ther has been suggestions that Scottish diplomats could piggy-back on UK facilities abroad, other countries might just as easily employ one or two people in small offices linked to their main bases in London.
Dublin is home to about 60 embassies, but whether Regent Terrace would turn into Ballsbridge /Donnybrook (where 4-bed semis can cost m ore than £1m) remains to be seen.
Clearly independence means a complete overhaul of a Scottish Parliament which was not designed to govern a sovereign state.
You’ll have to go far to find anyone who thinks Scotland needs more politicians, but obviously under independence Scottish MPs and Lords will be out of a job.
For the full responsibility and scrutiny required of national administration, the Scottish Parliament will need to match the likes of Ireland, Norway or Demark where their main chambers have 166, 169 and 179 members respectively compared to the current 129 MSPs. Ireland has a second chamber of 60 senators.
And the number of civil servants in Edinburgh will multiply to service the needs of a fully-fledged independent nation.
But what if it’s a No?
It is an understandable tactic for those arguing for independence to portray the proposals of Unionist parties for further devolution as sham promises which will be ignored in the event of a No vote, but too much has happened and too much is at stake for that to be remotely possible.
And in any case, from devolution to the Scotland Act and the referendum itself, Westminster’s recent track record is one of promises honoured.
I have to declare an interest because I was Scottish Conservative leader Ruth Davidson’s director of communications when she washed away her “line in the sand” and backed more powers for the Scottish Parliament. I also wrote the remit for the Strathclyde Commission which produced the Tory proposals for more devolution; as it all had the enthusiastic support of Downing Street I can assure readers these are no empty gestures.
That’s why hardened opponents of more devolution like ex-Scottish Secretary Michael Forsyth reacted so angrily. Others who argued Alex Salmond should be denied a consolation prize for what was apparently inevitable defeat look a bit stupid now.
The truth is that more powers for Holyrood was never about handing anyone prizes, but an acceptance that simply sticking an elected assembly onto the old Scottish Office was not good enough.
It was also recognition that the Scotland Act, set to deliver more powers next year if it is not overtaken by events, was too little, too complicated and too late to make any real difference to Holyrood’s underlying weakness.
A re-think of the way Holyrood operates is needed because it struggles to cope with its responsibilities as it is, especially when it comes to scrutiny, but to deal with personal taxation and welfare payments at the very least will significantly increase the workload. As with independence, it will require more politicians and a team of Scottish civil servants who currently don’t exist.
New South Wales (population seven million) has 135 members in its state parliament split into two chambers of 42 and 93, and sends 48 representatives and 12 senators to the Australian parliament in Canberra. That’s the kind of model a new Scotland within the UK could follow, with less than the current 59 Westminster MPs to balance it out. So one way or another the building at the foot of the Canongate will have outgrown the role envisaged for it in the 90s and after only ten years and well over £400m the Holyrood complex might no longer be suitable.
Like most capital cities, Edinburgh will ultimately cope with whatever settlement is reached but in the short term at least the challenges for the city following a Yes vote are huge.
Contingency plans, major project reviews, contractual break clauses and investment delays are not scare-mongering but reality and getting the financial tap fully turned back on will be a priority after next Thursday.
The version of independence on offer might have immediate political advantages but significant longer-term economic disadvantages.
Financial services are at the heart of Edinburgh’s financial services and a central bank is crucial. But to establish the reserves that will need will draw millions of pounds away from other areas and that affects the whole of Scotland.
So what will be the right thing to do for Edinburgh will have consequences for the whole country. With less than a week to go, that doesn’t seem to have been considered.
This is not to say an independent Scotland couldn’t work, but no-one should think that how it has been outlined is how it should be. I would expect an independent Scotland to resolve these issues over time, but who knows how long it would it take and at what cost.