Next year the people of Scotland will decide whether to cut their historic ties with the rest of the UK. What effect could independence have on the Scottish construction industry?
On 18 September 2014 the Scottish government will ask the Scottish electorate to decide whether Scotland should be an independent country. This is a subject that can polarise opinions, but setting aside political issues, it’s important for business people to start thinking about the potential impact of independence. Here are some possible implications of a “yes” vote for the construction industry north of the border.
Given the construction industry’s sizeable contribution to the Scottish economy (roughly £21.4bn a year at present) it is very likely that the built environment will be a focus for an independent Scottish government.
Central to the policy case for independence, is the idea that the Scottish economy would perform more successfully with a full range of tools to boost economic growth. For example, the Scottish National Party has pledged to attract inward investment to Scotland by lowering corporation tax to 3% less than the UK rate which, on the basis of current projections, would mean a rate of 17% in 2015.
The Scottish government has also made it clear that support to the construction industry and its supply chain through investment in infrastructure is crucial to economic growth.
The recent Westminster spending review gave the Scottish Government power to borrow around £296 million for capital spending, and it seems that there will be improvements in infrastructure, no matter how the country is governed.
The topic of energy is never far from the independence debate. Whilst arguments rage about how much North Sea oil and gas revenues an independent Scotland should be entitled to, by consensus Scotland has vast renewable resources.
The Scottish government has set itself the target of generating the equivalent of 100% of Scotland’s gross annual electricity consumption from renewable sources by 2020, and an independent Scotland could offer a stable long-term regulatory environment to investors in renewables - resulting in increased trade, inward investment and tangible benefits for construction.
The Arbitration (Scotland)Act 2010 was introduced with the intention of turning scotland into a global centre for international arbitration to rival London, Paris and Stockholm
Scotland also has an ambitious target to cut carbon emissions by 42% by 2020. The Scottish government has recently come under fire for slow progress against this target, but under independence it is likely to continue to support Scotland’s transition to a low carbon economy, particularly given its potential to create economic growth and international trade opportunities. 50% of all carbon emissions are derived from the built environment, so it is certain that the construction industry has a major part to play in that transition.
The recent decision of the Scottish courts in the long-running case of Whyte and Mackay Limited v Blyth and Blyth Consulting Engineers Limited - in which it was held that the enforcement of an adjudicator’s decision would be contrary to the European Convention on Human Rights - has raised a question mark over the applicability of the scheme to difficult disputes arising after the completion of a contract. The court highlighted that the purpose of the Construction Act when it was brought in was to preserve the cash flow of contractors and sub-contractors during contracts, and cast doubt on the ability of the adjudication process to allow complex issues of fact and law to be resolved effectively within six weeks.
In the light of this sudden knock to the supremacy of adjudication, is there a chance that arbitration could be thrust in to fill the void? The Arbitration (Scotland) Act 2010 was introduced by the Scottish government with the intention of turning Scotland into a global centre for international arbitration to rival the likes of London, Paris and Stockholm. That hasn’t happened yet, but the nationalists’ aim of attracting international investment to Scotland may see a renewed push towards arbitration post-independence. And what about the possibility of an independent Scottish government reviewing the workings of the Construction Act and legislating to curtail the scope of adjudication - for example, restricting it to interim payment disputes - so as to encourage the take-up of arbitration?
There is still, inevitably, a lot of uncertainty about how Scotland might change after independence, and that includes the possible impact on the construction industry. One thing’s for sure, though: the “yes” and “no” camps will be doing their best over the coming months to intensify the debate.
Jonathan Gaskell is a construction lawyer in the Edinburgh office of global law firm DLA Piper