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15 September 2014

How would the government and civil service deal with a Scottish Yes vote?

The government insists it has done no contingency planning for Scottish independence, so what would the civil service do in the event of a Yes vote?

By Emran Mian

It may not happen but let’s assume Scotland votes Yes. What happens next? The Cabinet Secretary told a select committee last week that the civil service has done no contingency planning. Having worked in government for ten years, I find that surprising. Whether the contingency is floods, terrorism or a Eurozone crisis, there has been a much sharper focus on planning in recent years, a development that gives politicians the confidence to make decisions quickly and supplies assurance behind the scenes to businesses and others.

The increased risk we are facing now in the absence of a plan is that we tumble from a Yes result into several weeks of wheeze, rumour, claim and counter claim, making it more likely that the markets will respond badly and the divorce of nations will be acrimonious.

What would a more pleasant aftermath look like? The first piece of the status quo to give way may be the party conferences. Labour’s conference is due to start two days after the referendum, followed in consecutive weeks by the Conservatives and then the Liberal Democrats (in Glasgow!), proof positive that the Westminster parties have long assumed the vote will be No. But, as a constitutional crisis rages, it doesn’t feel tenable for parliament to be closed for three weeks. It will be important for the Prime Minister to agree a plan with the cabinet – and potentially the other party leaders – then allow a debate in the House. The party conferences can be postponed till later in the year.

Provided this happens, Parliament will be able to discuss the first steps for independence negotiations quickly. The government could take a firm hold of these but a more open process may be helpful. The first reason is that I’ve yet to meet anyone who is confident that all the issues that need to be settled have been identified. A negotiation that commences by taking evidence from academics, regulators, businesses and civil society organisations will have a much better chance of flushing out as many as possible. If that isn’t done, then a panoply of concerns will make its way instead into newspaper articles, petitions and motions in the House. The negotiations are going to be messy whatever happens but an open process will make them more manageable.

What is more the outcome of the negotiations should ideally have the broad based support of the rest of the UK electorate. Put bluntly, the rest of the UK will want a good deal that looks after its interests. Unity among the major political parties, achieved via a cross-party group that leads the negotiations, may be the best way of getting there.

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Is that realistic? It may not be and, even if that cross-party process is agreed, it is likely that UKIP for example will stand outside it, a perfect place from which to protest that Team Westminster is screwing up again. Nevertheless the choice between a government-led or cross-party approach is a big one and best taken early before party lines form.

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Parliament will also have to settle what to do about decisions that affect Scotland during the time between the Yes vote and independence. Will the Scots stand for decisions about the economy, tax and welfare being taken at Westminster for another year or more after the vote? They will probably have to; however, suspicion that Westminster is queering the pitch for independence will be widespread. Already one poll shows that up to 70 per cent of those planning to vote Yes believe that the UK government is hiding news of a new oil and gas find in Scotland. To prevent deep distrust there may need to be an expanded role for an independent body such as the Office for Budget Responsibility or a Joint Committee of the Westminster and Holyrood Parliaments to monitor the effect on Scotland of pre-independence policy decisions.

Equally the legitimacy of Scottish MPs at Westminster will be under question. Will they be representing the short-term, pre-independence interests of their constituents or the longer-term interests of the rest of the UK? It may be hard for them to make a convincing case that it’s the latter; and they may by their own conscience or via political pressure decide to recuse themselves from many votes. Practically, many of them may in any case stand down at the next general election – or earlier. Some senior civil servants of Scottish background may face the same hard choice: stay and fight the case for the rest of the UK, or go home and participate in nation building.

In terms of becalming the financial markets after a Yes vote, there will be immediate questions about Sterling and the future of the Scottish banking sector, another reason why politicians can’t vanish from Westminster for three weeks after the vote.

However, as RBS, Lloyds and Standard Life have already signalled, their balance sheets may quickly start moving south into the rest of the UK. In one sense, this doesn’t change anything for the UK – it will stand behind systemically important institutions in the future much as it does today; their balance sheets are and it seems will remain in the UK. However, this migration will undermine one of the major arguments against a currency union, namely that the size of the Scottish banking sector relative to its economy is too large. By the time of independence, that may no longer be the case and so the currency debate will take place against a moving backdrop.

If the Scottish government signals soon after a Yes vote that it is happy with the other likely conditions for a successful union – for example, it volunteers a set of fiscal rules to which it will bind itself – then the position of the UK government may become increasingly hard to sustain. To avoid the turmoil, and though it will mark a major U-turn by the Chancellor, Prime Minister and the leaders of the other two main parties too, they may want to go first in proposing the terms for a currency union rather than being forced back step by step.

All of these decisions will have been simpler to make and higher quality if contingency plans were ready. They’re not and so we will be relying on the ingenuity under pressure of our political leaders and civil service. If the vote is Yes, Team Westminster will have to switch to its A-game remarkably fast.

Emran Mian is the director of Social Market Foundation