On September 18, Scotland will hold a referendum on whether it should become an independent state. Although Scotland is a decidedly minority partner in the economy of the United Kingdom – it holds 8.3% of the population of the UK and less than 10% of the UK’s estimated GDP – the prospect of Scottish independence may hold particular interest for Canadians. The legal framework of the United Kingdom, and some of the possible economic and political outcomes of a “yes” vote, are summarized below.

What is the United Kingdom?

The UK is a state. It has international legal personality – it can declare war, enter into treaties with other states, and be sued. It is a “country” as we understand Canada to be a country. It is also a constitutional entity, in the sense that it is a unit of government with sovereign authority over its territory and citizens. The constitution of the UK is not a written document, however. Rather, a series of long-held conventions and important legislative acts “constitute” the government and the supreme legal framework of the UK. At its most basic, the UK exists as a state because it is generally recognized as such.

The “United” in “United Kingdom” refers to the union of four distinct nations: Wales, Scotland, England, and Northern Ireland. No two nations came into the union by the same path, and none are governed in like manner. The term “United Kingdom” has a relatively short history, coming into popularity after the First World War. It mainly refers to the union of Scotland and England, as those two nations historically had independent monarchical dynasties in a manner not experienced in Wales or Ireland.

The UK is not a federal state, like Canada. There is no constitutional division of powers between sub-national states, like the provinces, which unite to form the state-level entity. Scotland is not the political or constitutional equivalent of Nova Scotia.

The United Kingdom’s supreme governing body is the Parliament seated in Westminster Palace, in London. This is the Parliament of which David Cameron is the current Prime Minister. Westminster exercises all legislative powers with respect to foreign affairs and defence, financial regulation, relations with the European Union, and other matters of national interest. It plays a different role in each of the four nations, as explained below.

Wales

Wales is a Principality with only recent experience of democratic self-governance. Wales and England have been yoked together legally since at least 1283, a fact achieved by conquest. Wales has had an elected legislature, the National Assembly for Wales, since 1998. It was largely an administrative body, akin to an elected executive, until 2011 when it gained greater powers to legislate without deference to Westminster. The Assembly still has few meaningful fiscal powers, and legislates only with respect to certain devolved areas of competence. Wales and England have the same judicial system and criminal law, controlled entirely from Westminster.

Northern Ireland

Northern Ireland has a similar constitutional position. It has an elected legislature, the Northern Ireland Assembly, which meets in the grand surrounds of Stormont in Belfast. Unlike Wales, the Northern Ireland Assembly can legislate in any area of competence not explicitly reserved to Westminster. On account of the complex history of governance in Northern Ireland, the list of reserved powers is lengthy. The ministers who form the government of Northern Ireland are chosen by the assembly in accordance with the sectarian power-sharing arrangement set out in the Good Friday Agreement. Prior to that historic event, Northern Ireland had been governed directly from Westminster through a Cabinet-level position, the Secretary of State for Northern Ireland, since 1974. Before that, Northern Ireland had an elected assembly, whose governments reflected its majority Protestant population.

Scotland

Scotland also has a devolved legislature, in place since 1998 with increased powers granted in 2012. The Scottish Parliament legislates on any matter not reserved to Westminster. The list of reserved powers is short, and the Scottish government exercises significant fiscal authority. As such, the Scottish government, at present, is the most independent and devolved of any regional authority in the UK. Scotland’s Parliament is not a legal successor to its previous Parliament, dissolved in 1707. Prior to that, the Crowns of England and Scotland were united, but the governance was legally distinct.

England

England, which constitutes the vast majority of the UK, has no legislature. The Westminster Parliament is the sole authority for the governance of England. This fact gave rise to the so-called “West Lothian Question”, named for the constituency of the former Scottish Labour MP Tam Dalyell, who made the observation that Westminster’s exercise of both national and regional powers for England, but not for Scotland, gave Scottish MPs authority over English local affairs. England’s economic fortunes are particularly diverse, and England has no history of regional government. Constitutional reformers have periodically suggested English regional assemblies as a solution. This idea reached a zenith – or a nadir – in November 2004, when voters in the Northeast of England, a culturally and geographically distinct part of the nation, rejected a proposal to create an elected regional assembly. Nearly 80 per cent of voters, with a 50 per cent turnout, voted against the idea. It is difficult to discern if the regional assemblies were popularly perceived as too weak or too powerful. The dismal referendum result put paid to further attempts to establish regional assemblies in Cornwall and Yorkshire. The Conservative-Liberal Democrat coalition elected in Westminster in 2010 has not prioritized the strengthening of local government in England by this means.

Only Northern Ireland exists by operation of law – it was cleaved from the balance of Ireland in 1922, when the latter part, the Republic of Ireland (or the “South”) gained a modicum of independence which snowballed into full sovereignty by the 1930s. Scotland, England, and Wales are, as nations, indissoluble and eternal. Their governments, however, are all creations of statute. The Parliament at Westminster gave birth, simply by passing various Acts, to the Welsh Assembly, the Northern Irish Assembly, and the Scottish executive. Technically, Westminster could dissolve the whole structure at its whim. No constitutional convention prevents this from happening.

Unless, this being the UK and therefore complicated, the existence of these regional governments has become constitutional. As the constitution of the UK is unwritten, it is changeable through gradual evolutions in settled law. For instance, the conclusion of the Good Friday Agreement is a seminal event in Irish history. It is also a quasi-treaty with the Republic of Ireland. It is arguable that the principle of power-sharing for Northern Ireland, or at least consultation with the minority sectarian group in one form or another, is constitutional. Similarly, the Scottish Parliament is now an entrenched part of the legal landscape. Although Westminster may retain the authority to transfer or remove powers from Holyrood (an area of Edinburgh where the Scottish Parliament meets in a bizarre but fascinating edifice), it is also arguable that the existence of a Scottish devolved authority is now constitutional.

What is Britain?

The full legal name of the UK is “The United Kingdom of Great Britain and Northern Ireland.” Great Britain is a geographic term – it refers to the large island on which England, Scotland, and Wales are situated. For some, there are two nationalities in the UK: British and Irish. Today, the term “British” is largely self-applied by the English, as the term “English” is so commonly used to refer to speakers of the English language. The use of “British” in Wales and Scotland has declined, in favour of “Welsh” and “Scottish”. There is no formal control of the use of the term “British” in public administration: the British Library in London is the national library of the UK; the British Transport Police only provide their services in Great Britain; “Team GB” includes athletes from Northern Ireland, who may also elect to compete on the team of the Republic of Ireland.

If Scotland Votes “Yes”, What Will It Declare Independence From?

If Scotland votes “Yes”, it will become an independent state. The United Kingdom will continue to exist, but without Scotland. Scotland will still be “British” in the sense that the geography and border will not change. The Scottish government will, presumably, position itself as a national government at the head of a new state on the international stage.

An unanswered question in the ongoing debate is the position of the Crown. As the relationship between Canada and the UK demonstrates, there is no need for Scotland to become a republic for independence to be achieved. Given the relatively high popularity of the Queen, her Scottish roots (Elizabeth Bowes-Lyon, better known as the late Queen Elizabeth the Queen Mother, was Scottish), and the constitutional stability she represents, the expectation at present is that Scotland will adopt a system of governance akin to the other Commonwealth nations, such as Canada, who retain the Queen as their sovereign.

Will Scotland Remain a Member of the European Union?

No. This question has been much debated in the course of the referendum campaign. Legally, it has a simple answer. The United Kingdom is the Member State of the European Union and the signatory of the relevant treaties. The UK will continue to exist after Scotland declares independence, so Scotland is not the legal successor to the United Kingdom in any way. If Scotland, as a new state, were to seek admission to the European Union, it would have to apply through the elaborate and complex procedures that have served to enlarge the EU since its inception. Iceland is going through that process at present. One might expect the process to be quicker for Scotland, having already adopted de facto most European law, but a conservative estimate is that the admissions process would take three to five years.

The European Union is not a typical treaty organization. It is a constitutional order of states, which has international legal personality (the European Union can enter treaties in its own right), but does not diminish the sovereignty of its members. Any member can withdraw from the EU if it chose to do so – the EU is not indissoluble or anything more than a powerful legal arrangement. Although sovereignty is not diminished, the authority of the governments of the EU Member States has undeniably been reduced by membership. The Member States have agreed, through the various treaties which empower the operation of the EU, to delegate authority over whole areas of regulatory concern to the European Commission, which is partially overseen by the legislative body of the EU, the European Parliament, and the supreme governing body of the EU, the European Council. This latter entity is made up of the Member States themselves. The European Parliament is directly elected but has relatively limited powers. It serves to block or modify legislative projects dreamed up by the Commission. It does not dream itself. Scotland has six Members of the European Parliament, but would have none if Scotland succeeds from the United Kingdom until it was re-admitted to the European Union as a Member State at a later date.

One might imagine the Scottish government would take steps to mitigate the leaving of the European Union through an act of continuance, purporting to keep all pre-existing legislation in place. This might provide comfort for individuals and businesses seeking certainty of the law, but would not be wholly sufficient. The European Union has its own courts, in which individuals and businesses, and other Member States, can bring suit against Member States that fail to adequately implement EU law. A case against or by Scotland would have no standing, again until Scotland was re-admitted.

Re-admission itself is not a certainty. The future of Sterling, the currency of the UK, has been much debated in the independence referendum. It is unlikely a currency union between the UK and Scotland would come to pass – there is no appetite for this in England, regardless (and because) of the machinations of Scotland’s separatist leaders. For much of the history of the Scottish independence movement, this question was easily answered: the currency of an independent Scotland would have been the Euro. Seeking admission to the Euro at this point in time is politically toxic, such that the “Yes” campaign have enthusiastically endorsed the keeping of the pound. This is overreach on their part, however, and currency stability is a very real concern in the wake of the break-up of the United Kingdom.

The modern day European Union may not be keen on yet another non-Eurozone state entering the fold, having accommodated the currencies of the UK, Sweden, and Denmark out of political necessity – and certain currencies of the newer Eastern European members out of economic necessity. Even worse would be a situation in which Scotland’s own currency was unstable, possibly due to Scotland’s high proportionate revenue from oil exports but relatively lower purchasing power. Ideal conditions for Scotland’s entry into the EU would be the maintenance of Sterling in the interim, to be jettisoned for the Euro on admission. The UK will likely not permit it.

The UK is also empowered to block Scotland’s entry to the European Union as a matter of law. The Maastricht Treaty of 1992 requires each Member State to approve each enlargement. Other nations in Europe have regions with separatist movements – Spain (with regard to Catalonia) and Belgium (with regard to Flanders) come to mind. Those Member States, who have limited economic or social ties to Scotland, might also be minded to send a domestic political message by preventing Scotland’s re-admission to the European Union.

What Could the Consequences of Scottish Independence Be for Canadians?

As England is the bulk of the UK economy, and the United States and Asian nations are the key export markets for our products, Canada should not expect an economic disaster if Scotland declares independence. Nevertheless, Canadian businesses with interests in the United Kingdom should consider at least the following:

  1. The Pound. As discussed above, uncertainty with regard to the currency is the biggest immediate concern. Redenominating assets may be practically difficult, and, if relocation of a liquid asset was required, withholding or other taxes might be triggered. Scotland might impose capital controls to preserve the holdings of Sterling inside the country; this is unlikely given the significant blow to confidence that inevitably follows such a drastic move.
  2. The UK Economy Generally. House prices will likely fall, as long-term instability about the resolution of the currency issue would dampen enthusiasm for borrowing. Gilts (sovereign bonds) issued by the United Kingdom would likely be downgraded, increasing yields and putting further pressure on the currency. It is entirely unclear what share, if any, Scotland would inherit of the UK’s sovereign debt issue, and what form such an inheritance would take.
  3. North Sea Oil. Canadian business is a major participant in extraction in the North Sea. The Scottish government will be dependent on oil revenue, particularly in its early years, to fund the (likely very costly) development of alternative pensions and social insurance schemes for its citizens. Production in the North Sea has been in decline since the late 1990s, and is set to continue in that direction. How the Scottish government will assume full regulatory control is completely unknown (as is, for that matter, even the nautical boundary between Scotland and England.) While the Scottish government can be expected to be encouraging of the industry, one might reasonably expect efforts to boost the share of revenues taken by the state before the wells run dry.
  4. Public Investment. The key economic concern of the Scottish government in the event of a “Yes” vote will almost certainly not be expenditures on economic development. As immediate capital concerns (pensions, as described above) are likely to take priority, any expectations of Canadian businesses involved in infrastructure, development, or public procurement would be safely advised to anticipate some measure of slow-down.
  5. Foreign Relations. Scotland could be expected to court good relations with Canada, given our long association with the United Kingdom, the Scottish heritage of many Canadians, and our (relative) geographic proximity. At its highest, the Scottish/Canadian relationship might resemble the Irish/Canadian relationship, in which Canada looms much larger in the public consciousness there (particularly as a destination for emigrants) than Ireland does here. Relations between the two countries are warm, if trifling. Scotland will never be the military power or gateway nation to the EU that the United Kingdom is now, and will continue to be, regardless of the outcome of Thursday’s vote.