Will the new calls for Scottish independence affect the housing market?

Over the coming weeks and months we can be confident enough to assume that hundreds, thousands or hundreds of thousands of newspaper column inches will be dedicated to the question of Scottish independence. Would it work? What are the advantages and disadvantages? What are the political ramifications? What could it mean for the economy?

Will the new calls for Scottish independence affect the housing market?

However, the question we’re really interested in is the economic one. Despite Brexit worries the property market is currently performing well. The question is whether a Scottish vote to leave the United Kingdom would result in economic hardship on both sides of the border? The answer is far from simple.

Firstly, Scotland voted overwhelmingly to remain in the EU. This has been the main driver for First Minister of Scotland, Nicola Sturgeon, to demand a second referendum, though this is unlikely to occur before Brexit negotiations are concluded. The demand has not gone down well so far and debate is once again raging. Could Scotland re-join the EU in the event of a yes vote? During an interview in 2012, José Manuel Barroso, former European Commission President, said: “For European Union purposes, from a legal point of view, it is certainly a new state. If a country becomes independent it is a new state and has to negotiate with the EU”. This would certainly present a large barrier for Scotland in the event of independence but would it still apply today? According to an EU spokesman it would.

Not just this, but NATO membership also becomes a messy issue, with the NATO Secretary General Jens Stoltenberg confirming Scotland could only apply to join the defence alliance after it had legally split from the UK. Stoltenberg told Sky News the rest of the UK would remain a NATO member if Scotland voted for independence: “A new independent state has to apply for membership, and then it is up to 28 allies to decide whether we have a new member”. That raises significant questions for both the Scottish and UK governments over the status and future of the Trident nuclear submarine system, which is based on the Clyde, and UK airbases in Scotland.

Could an independent Scotland really rely on a robust and healthy UK economy to provide it with a framework for economic prosperity post-independence? The issue of currency is a complicated one. Sturgeon, in an interview with Sky News, said that Scotland would retain sterling despite the UK Government assuring voters last time round that it wasn’t a possibility. Alex Salmond, former First Minister, then contradicted Sturgeon by saying Scotland could ditch the pound before insisting that the country would not adopt the Euro. Sturgeon echoed this by insisting that Scotland would not adopt the Euro despite it being a condition of EU membership should the country apply independently. The economic shock of a shift in currency could have extremely adverse effects on the Scottish economy. Further to this, though, Scotland currently spends far more than it collects in taxation thanks to the Barnett Formula which was a funding mechanism introduced as a short-term solution to political disputes in 1979 by Joel Barnett which still applied today. It means that any increase or reduction in expenditure in England will automatically lead to a proportionate increase or reduction in resources for the devolved governments in Wales, Scotland and Northern Ireland. Many have argued that the arrangement is unfair with spending per head in Scotland in the most recently published figures at £10,152 whilst the average in England is just £8,529.

The property market in Scotland, whilst not quite as high-performing as the equivalent in England, would also see a huge decrease in demand and interest with many investors from outside of the Scottish borders keen on the security of UK investment.

Overseas investors currently pumping money into the English, Welsh and Northern Irish property markets could well be put off completely by the economic instability and uncertainty of an independent Scotland—however on the other hand, many are foregoing the potential instability and taking advantage of the exchange rate while the pound is still low. Whilst Scotland is risking a great deal by potentially cutting off a secure and blooming economy such as the UK’s, England remains fairly well protected.

With house prices, yields and capital appreciation on an almost-constant upward trajectory and foreign investment hitting huge levels of popularity it’s highly unlikely that a wider UK would feel a significant pain from Scotland leaving the union.

Ultimately the last word will go to the Scottish people, but given that the economy is performing well above expectations as it stands their economy and certainly their property market are at great risk whilst those of the wider UK remain well protected.

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