Constitutional Future

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1 Scotland s 2 Constitutional Future Views, opinions and questions Outstanding issues and remaining questions on Scotland s constitutional future July 2014

2 CONTENTS Foreword 3 1. Introduction 4 2. White Paper Scotland s Future: your guide to an independent Scotland 7 Introduction and summary Finance and the economy Health, wellbeing and social protection Education, skills and employment International relations and defence Justice, security and home affairs Environment, rural Scotland, energy and resources Culture, communications and digital Building a modern democracy 3. Further devolution in the event of a no vote Impact of constitutional change on the solicitors profession Views, opinions and questions: closing the circle 50

3 Foreword In just over two months, the people of Scotland will be asked to cast a vote in the referendum on Scottish independence, arguably the most important vote in their lifetime. It is essential that everyone is equipped with the right information so each person can reach their own judgment and collectively deliver a decisive result. Yet despite much debate, a major White Paper, devolution commission reports, analysis papers and a draft Independence Bill, many of us believe important questions on Scotland s future remain unanswered. There continues to be uncertainty on several fundamental issues. Debates over the currency we would use, membership of the EU and proposals over tuition fees continue, but we raise further questions on contingency plans if negotiations cannot be completed ahead of the proposed independence day. Guarantees of further devolution in the event of a No vote have also been offered but we believe voters will need more information on how this can and would be delivered. These issues go to the very heart of the referendum debate. The Law Society of Scotland has worked hard to play an active but firmly non-partisan role in the debate on Scotland s future. We are not taking a view for or against Scottish independence, not least because the views of our solicitor members are as varied as the Scottish public s as a whole. Our interest has been to ensure there is a robust but respectful debate, which properly explores the issues and allows everyone, our members and the wider public, to make an informed choice on 18 September Last summer, we published a detailed discussion paper which set out some key questions. That paper was well received and widely credited as a fair and neutral contribution to the debate. Since then, we have commissioned polling work on how the referendum campaign has engaged the public. We have hosted or partnered with others in delivering events in Edinburgh, Perth, Aberdeen and London. We held a hugely successful conference in April at Dynamic Earth and submitted evidence to several parliamentary inquiries, both in Holyrood and Westminster. The paper builds on all of that work. It looks at many of the issues which have arisen in the last 12 months, focusing on a Scottish tax regime, currency, EU membership, education, justice and the legal profession. It responds to issues in the Scottish Government s White Paper but also considers the UK parties devolution commission reports. It also looks at the direct impact of independence on the Scottish solicitor profession itself. The paper has come after a huge amount of work by the Law Society s staff and committees, which are made up of experienced solicitors and people from outwith the legal profession altogether. I am personally grateful for the time and effort which they have put into this document. Ultimately, this paper shows how many questions remain to be answered, how many issues are still to be resolved. I hope the referendum campaigns, political parties and our political leaders will take the opportunity to provide the clarity and detail where we think it is needed. The Law Society of Scotland is looking forward to continuing to engage in the debate, not just in these remaining two months but beyond September 2014 as Scotland embarks on the next stage of its constitutional journey. Alistair Morris President The Law Society of Scotland 3

4 Introduction About the Law Society of Scotland The Law Society of Scotland seeks to lead and support a successful and respected Scottish legal profession. We were established in 1949 to promote the interests of the solicitors profession in Scotland and the interests of the public in relation to that profession. This means the Society has an important and prominent role in civic Scotland and has an independent voice on fundamental issues such as the rule of law, constitutional and legal development and the fair and efficient operation of the law for all its citizens. As the professional body of nearly 11,000 solicitors who collectively engage with millions of people across a wide spectrum of issues, we are able to tap into a broad base of experience and expertise. Our Council and various committees are made up not just of legal practitioners but also non solicitors, academics and other experts from outside the legal profession. As the statutory regulator of the legal profession, we work to ensure the highest possible standards. We also have a duty of care to the public to ensure they are better aware of their rights and how they can access the Scottish justice system. For these reasons, the Society has a particular interest in good government and the creation of law which is necessary, effective, clear, accessible and coherent. We respond to public consultations and recommend to political representatives detailed amendments during the passing of legislation. We enjoy a regular programme of engagement with MSPs, MPs and peers from across the political divide and seek at all times to ensure political decision-makers understand the impact of the decisions they take, intended or otherwise. About the referendum on Scottish independence The Treaty of Union (1707), which brought together Scotland and England in the United Kingdom of Great Britain, contains provisions which have been key in maintaining, amongst other things, a distinctive legal system in Scotland. This is undoubtedly a factor in the continued sense of national identity in Scotland even though the treaty is 307 years old. Scots law and the Scottish legal system are institutions which have served the people of Scotland in times of union and devolution. We believe that whatever Scotland s future, Scotland s law, legal system and legal profession must be at the centre of policy development. The Scottish Independence Referendum Act 2013 provides that the referendum will take place on 18 September The Society has taken a close interest in Scotland s constitutional future for many years. In particular we commented on the National Conversation, the consultations concerning the Calman Commission on Scottish devolution, the Scotland Act 1998 section 30 order, the Scottish Independence Referendum (Franchise) Bill and the Scottish Independence Referendum Bill (achieving some changes to the Referendum Bill during its passage in Parliament). We took a keen interest in the section 30 order because it provided the legal basis for the Scottish Parliament legislation. We commented on the UK and Scottish Government consultations and briefed peers, MPs and MSPs during the order s passage in both the UK and Scottish Parliaments. The referendum will present the most significant constitutional issue to people in Scotland since the referendum to establish the Scottish Parliament in The question offered to the electorate is Should Scotland be an independent country? If the vote is yes the route to independence will begin. If the vote is no there would be no immediate or automatic change to the status quo. The main political parties which oppose independence have all been considering Scotland s constitutional future in the event of a no vote in the referendum and have each made proposals for further devolution. However, these are not promoted on an agreed basis by all the parties and so the precise form and content of any further devolution would be dependent on the results of the referendum and of the 2015 UK general election. There is common ground on certain issues, however, and so there may be scope for steps to be taken in relation to those issues in advance of the 2015 UK election. 4

5 We believe it is essential that the debate around Scotland s constitutional future is conducted with mutual respect for both sides of the argument. Whatever the outcome of the referendum, the campaigns, the political parties and the media all have a responsibility for ensuring that the debate before the vote is focused on issues not personalities, is robust but not hurtful and elucidates rather than obscures. More unites the political parties and campaigns than divides them. All want a stable, successful Scotland whose people can live in peace and prosperity with freedom to live their lives as they want in accordance with the law. Recognition of this shared community of interest must underpin the debate about Scotland s constitutional future and should allow that debate to take place in a mutually respectful way so that the electorate will vote having heard all the views from the parties and the campaigns. nd the campaigns. Our work on Scotland s constitutional future Since we published our paper Scotland s Constitutional Future: views, opinions and questions in August 2013, there has been lots of activity from the campaigns Yes Scotland and Better Together, the political parties, the Scottish and UK Governments as well as by the third sector, learned and professional organisations and bodies within civic Scotland. The Society has been active in this period too: 1. Polling In December 2013, we conducted public polling through Ipsos MORI concerning knowledge about the referendum and found that campaigners on both sides of the independence debate need to do more to engage and inform voters. The results included: i. Only 14% of voters said they were very well informed about the issues being debated in the campaign so far. That figure fell to just 10% for female voters. ii. 40% said the debate has been useful in helping them decide how to vote in the referendum. iii. 54% said the debate so far has not covered the issues important to them. This figure fell to 40% for year olds. iv. 67% said they found it difficult to decide whether the information provided in the debate was true or not. 2. Finding out the views of the profession We surveyed the commercial solicitors firms about their views concerning Scotland s constitutional future and raised the same questions at the Law Reform committee conveners meeting and with local faculties of solicitors around Scotland. 3. Broader engagement We worked with other professional organisations to provide a series of events which were hosted by the Royal Society of Edinburgh where the main party leaders gave their views on independence. 4. Debates in London We conducted two debates in London. One was held in the UK Parliament in November 2012 with four panellists debating independence, and the other at Plaisterers' Hall on 11 February 2014 with the Rt. Hon. Sir Menzies Campbell QC MP and Stewart Hosie MP. 5

6 5. Scotland s Constitutional Future: views and counter views We held a successful conference Scotland s Constitutional Future: views and counter views on 10 April 2014 at which Nicola Sturgeon MSP, Deputy First Minister and the Rt. Hon. Alistair Carmichael MP, Secretary of State for Scotland, spoke. The conference included sessions on currency, Scotland s place in the world, and how constitutional change could deliver a new kind of politics. The event also featured a session which focused on the possible impacts on the legal profession, with senior lawyers on both sides of the argument outlining the opportunities and risks from independence. 6. Scottish party conferences We attended and held high-profile fringe events at the main political party conferences. For the SNP in the autumn of 2013, this focused on the prospects of a yes vote in September For Labour, the Conservative and Liberal Democrat conferences in the spring of 2014, these focused on whether those parties were effectively laying out their own visions and whether those messages were connecting with the public. 7. We have continued to engage with both the UK and Scottish Parliaments by: i. submitting written evidence to the Scottish Parliament s European and External Relations Committee inquiry into the EU and Scottish independence; ii. submitting written evidence and giving oral evidence to the Scottish Parliament s Economy, Energy and Tourism Committee on finance and independence; iii. submitting written evidence to the House of Lords Constitution Committee inquiry on Scottish Independence: constitutional implications for the rest of the UK. 8. We have prepared this second and final paper on Scotland s constitutional future In preparing this paper we consulted our committees in many specialist areas including competition law, pensions law, rural affairs and constitutional law. We also consulted the profession more widely at faculty meetings across the country, at the Law Reform committee conveners meeting, and in a survey of commercial firms whose business is cross border or business orientated. We approached the Scottish Government s White Paper (the White Paper) with the intention of assessing it from the standpoint of our neutrality on the substance of the question in the referendum. That is why we do not comment on parts one or two of the White Paper (the case for independence and Scotland s finances) which we assessed as political in nature. We believed that examining parts three, four and five (analysis of potential changes, building a modern democracy and questions and answers) allowed us to consider the legal issues raised and to ask the questions of the Scottish Government. The issues this analysis raised can be found in the summary and at the end of each section. About this paper This paper is designed to follow up on the work carried out in 2013 when we published Scotland s Constitutional Future: views, opinions and questions and to respond to the White Paper Scotland s Future: your guide to an independent Scotland. As referred to above, our committees and sub-committees have considered many aspects of the White Paper and have commented on a number of sections. We consider what the effect would be of a yes vote based on the assumption that an independent Scotland would become a member state of the EU and would therefore be obliged to act in accordance with EU law. We raise issues arising from the White Paper and also introduce the results of our survey work with the profession from large commercial firms to local faculties across Scotland. We also comment on the developments concerning further devolution from the Liberal Democrat Party, the Labour Party and the Conservative Party. We seek to close the circle on the questions we asked in last year s paper. Both the UK Government and the Scottish Government have produced responses to many of our earlier questions, sometimes directly or through the medium of the White Paper. We acknowledge the approach of both governments and the campaigns and urge them to continue to inform the voters as we approach the referendum and to conduct the debate with mutual respect. 6

7 CHAPTER 2 WHITE PAPER SCOTLAND S FUTURE: YOUR GUIDE TO AN INDEPENDENT SCOTLAND Introduction and summary The Scottish Government published the White Paper, Scotland s Future: your guide to an independent Scotland on 26 November The White Paper sets out the current Scottish Government s proposals about independence and what it might mean. The government seeks to answer questions it has been asked about independence. The White Paper contains five parts which cover: Part one: an overview of the case for independence. Part two: the national finances comparing Scotland and the UK as a whole. Part three: an analysis of changes and how a future Scottish Government can make the changes. Its seven chapters focus on: - Finance and the economy - Health, wellbeing and social protection - Education, skills and employment - International relations and defence - Justice, security and home affairs - Environment, rural Scotland, energy and resources - Culture, communications and digital Part four: entitled Building a modern democracy it sets out the timescale and process for Scotland to become an independent country. Part five: questions that the Scottish Government has been asked and its answers. The guide is more than a usual Government White Paper. A White Paper is generally used as a means of setting out Government future policy preferences on a subject. A White Paper is often the basis for a Bill to be introduced into Parliament. This paper is not related to a specific Bill but rather is a guide which sets out how independence may enable a future government to act. The paper states: This guide sets out the gains of independence for Scotland whichever party is in government and this Government s vision and priorities for action if we are the first government of an independent Scotland (page xiv). 7

8 IIn setting out the vision and priorities for action for a future first government of Scotland, the paper appears to edge towards becoming a manifesto document for a future election. Whatever the precise political nature of the White Paper it does set out many of the priorities which a future government, if elected, could choose to pursue but there still remain unanswered questions to which many people will want a response before the referendum vote. The paper states that a vote for yes would mean that the most important decisions about our economy and society will be taken by the people of Scotland (page i). In the event of independence, that would be the role which the elected Scottish Government and Parliament would perform on behalf of people in Scotland. Independence does not mean that a state can act totally independently without regard to other states because, in the modern world, a state is obliged to act along with other states in many ways. A state can decide whether or not to enter into international agreements (including the EU) but having done so it is obliged to act in accordance with whatever obligations those agreements set out. States are also subject to a range of de facto constraints including the reaction of other states, markets and international institutions. The White Paper, therefore, is attempting to set out where the most important decisions for the Scottish economy and society would be taken. Independence from the UK is the main political objective which would locate all decision making about policy and law to Scotland. Membership of the EU is another policy decision which the White Paper adopts. This involves ceding decision making power to the European institutions in which Scotland would be represented in the event of membership of the EU. In that context, decision making about policy and law operates within the framework of the treaties and the laws which come from the European institutions. We believe that certain pillars should underpin Scotland s constitutional future and constitutional structures, in the event of a yes vote in the referendum. We will comment at a later date on the Scottish Government s recent Consultation Paper on their draft Scottish Independence Bill which was published on 16 June For present purposes, we simply highlight the fundamental constitutional pillars we consider of importance. 1. Rule of law and commitment to human rights In the event of independence the rule of law must be paramount and form the basis of any new constitutional arrangements. Concomitant with that principle is a commitment to maintain the human rights of all people in Scotland, to respect liberty within the law and to ensure accountable government. 2. Legal certainty The need for as much legal certainty as possible at the point of independence is key. It would have been desirable for voters to know the detail of the proposed relationship both between Scotland and the UK and between Scotland and the EU at the time of the referendum. That seems unlikely but we encourage both sides of the debate to provide as much information as they can to the voters in a way which sets out the issues clearly and which weighs the arguments in a respectful way. 3. Administrative continuity There would also be a need to ensure administrative continuity in the event of independence as regards what are currently reserved areas of administration, particularly on the role and status of the Civil Service and other issues, for example citizenship and immigration, social security, pensions, financial services, company law and equality law. The following chapters of this paper consider some of the proposals contained in the White Paper and explore what would be the consequences of a yes vote based upon the assumption that an independent Scotland would become a member state of the EU and therefore obliged to act in accordance with its rules. Insofar as there are policy choices to be made, these would be for a Scottish Government and Parliament after independence and not by the present Scottish Government in the run-up to the referendum. 8

9 This section of the paper follows the schematic in the White Paper, part three. Our committees and sub-committees looked at each of the chapters and identified areas in the White Paper where they had expertise and knowledge which enabled them to comment. Accordingly, some areas in the White Paper have been left to others to comment. Finance and the economy In relation to chapter 3 of the White Paper on finance and the economy we have commented on competition law, mergers, procurement and state aid, consumer protection law and taxation. We set out the following issues as a result of our analysis: 1. In the event of independence thought would need to be given to the creation of a Competition Appeal Tribunal or to negotiate a sharing arrangement with the UK Competition Appeal Tribunal. 2. In the event of independence, transitional arrangements would be needed concerning tax law in order to provide certainty for tax payers. 3. In the event of independence, thought would need to be given to aligning the tax system more closely to Scots Law. 4. In the event of independence, thought would need to be given to what competition, merger control and defence procurement arrangements would be established. Health, wellbeing and social protection In relation to chapter 4 of the White Paper on health, wellbeing and social protection we have commented on pensions law. We set out the following issues as a result of our analysis: 1. Thought would need to be given to ensuring that the Scottish Pensions Regulator is in place at independence. 2. In the event of independence thought would need to be given to an early double taxation treaty with the continuing UK (ruk). 3. What projections have the Scottish Government regarding the policy and implementation resources which would be needed to create a Scottish pensions law and administration? Education, skills and employment In relation to chapter 5 of the White Paper on education, skills and employment we have commented on the higher education (HE) issues of tuition fees and research councils. We set out the following issues as a result of our analysis: 1. Thought should be given to providing more detail on the objective justification for the policy concerning tuition fees in the White Paper. 2. Publication of any independent research which underpins the objective justification argument concerning the policy in the White Paper would be helpful. 3. In the event of independence, thought would need to be given to a contingency plan in the circumstances that ruk and Scotland cannot negotiate a shared Research Council. 9

10 International relations and defence We commented on Scotland and the EU and the membership requirements of other relevant international organisations and treaties. We set out the following questions as a result of our analysis: 1. What contingency plan exists if the negotiations with the EU for EU membership were not to be concluded in the 18 months between the referendum and independence on 24 March 2016? 2. What arrangements does the Scottish Government propose for the negotiations with the UK regarding independence and the EU regarding EU membership? 3. What arrangements has the Scottish Government planned to deal with negotiations with the UN, NATO, WTO, the Commonwealth, the Council of Europe, the International Criminal Court and the double taxation treaties? Justice, security and home affairs We commented upon the justice system and immigration. We set out the following issues as a result of our analysis: 1. In the event of independence, as well as addressing in the constitution key issues such as the independence of the judiciary, thought should also be given as to how the independence of the Lord Advocate as prosecutor and the Crown Office as the prosecutorial department would be entrenched in the constitution. 2. What transitional arrangements does the Scottish Government propose for cases pending before the UK Supreme Court, in UK wide tribunals and at international courts in the event of independence? 3. In the event of independence, thought would need to be given to the arrangements to recognise the rights of residence of persons with leave to remain in the UK who are resident in Scotland. Environment, rural Scotland, energy and resources We commented on agriculture, fisheries and energy law. We set out the following issues as a result of our analysis: 1. In the event of independence, thought would need to be given, particularly in connection with agriculture and fisheries, to the procedures to mitigate any possible delay in becoming an EU member. 2. In the event of a yes vote, thought should be given by the Scottish Government to consulting on energy regulatory rules and policies before independence. Culture, communications and digital We commented on intellectual property and patent design and trade mark registers. We set out the following issues as a result of our analysis: 1. In the event of independence thought would have to be given to accession to treaties in the sphere of intellectual property. 2. In the event of independence thought would have to be given to patent, design and trade mark registers. 3. In the event of a yes vote in the referendum, would the Scottish Government encourage a common Intellectual Property Office in negotiations with the UK Government? 10

11 Building a modern democracy We commented on constitution, government and citizens and equality and human rights treaties. We set out the following issues a result of our analysis: 1. Would the constitutional platform set out a separation of powers between the executive, the legislature and the judiciary? 2. In the event of independence thought should be given to what statutory protection from discrimination should be available and what characteristics should be protected. 3. Thought should be given to whether the prohibited conduct set out in the Equality Act 2010 should be replicated in any new Scottish equality legislation. Moreover, should it be possible for a service provider, employer, etc. to objectively justify direct age discrimination? 4. In the event of independence the Scottish Parliament would have to consider the effectiveness of the Scottish-specific duties imposed by the public sector equality duty and the practices that develop in the context of any decision to impose an equivalent of the public sector equality duty in legislative form. Furthermore, issues arise from the operation of the current equal pay regime and whether certain modifications are required. 5. In the event of independence a future Scottish Government would need to give thought to whether there should be a Scottish equivalent of the Equality and Human Rights Commission or should the remit of the Scottish Human Rights Commission (SHRC) be extended to include equality duties. Also, consideration has to be given as to whether an equivalent body, the SHRC with an extended remit or recognised trade unions ought to have the power to raise representative proceedings on behalf of a class of individuals with a protected characteristic. 6. In the event of independence thought would need to be given to whether to move the Employment Tribunal into the Civil Court system as a specialist Employment and Equality Tribunal. 7. Thought would need to be given to how the independence of the Civil Service could be embedded in the constitution. 8. Thought would need to be given to what additional human rights instruments the Scottish Government would accede to, in the event of independence. 9. Does the Scottish Government ascribe to the constitutional principles for shared bodies? 10. What proposals does the Scottish Government have in the event that shared arrangements could not be agreed with the UK Government? Finance and the economy A supportive, competitive and dynamic business environment Chapter 3 of the White Paper deals with proposals for a supportive, competitive and dynamic business environment. Competition policy is considered (page 100) and the Scottish Government indicates that a Scotland which is an EU member state would continue to meet the regulatory requirements associated with membership. The White Paper indicates a streamlined and efficient regulatory model combining regulatory and representative roles on competition and consumer issues. The Society s sub-committees have examined chapter 3 of the White Paper and have restricted their comments to those areas in the chapter whereby they have expertise. 11

12 Competition law Taking into account the proposals in the White Paper we acknowledge that in the event of independence a key element in creating a supportive, competitive business environment would be modern, effective competition law. This section contains our analysis of the considerations which any government would need to have explained in the event of independence: restrictive agreements, practices and abuse of market power enforcement and regulation mergers procurement and state aid consumer protection law our tax system. Restrictive agreements, practices and abuse of market power 1. Background The Competition Act 1998 (modelled on Articles 101 and 102 on the Treaty on the Functioning of the European Union (TFEU)) prohibits agreements between undertakings, decisions by associations of undertakings or concerted practices which i. may affect trade within the United Kingdom [(UK) or a part of the UK]; and ii. have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom [or a part of it] (the Chapter I prohibition), unless an exemption under the Act applies. The Act prohibits conduct on the part of one or more undertakings which amounts to an abuse of a dominant position if it affects trade within the UK. Enforcement concerning intra-uk or intra-eu cases is by, respectively, the Competition and Markets Authority (CMA) and the European Commission. Each enforcement body is subject to judicial control and investigates conduct prohibited by the law and levies fines on the undertakings concerned. All EU states have aligned their national competition laws with TFEU Articles 101 and 102 in much the same way as the UK. An independent Scotland would, as a member of the EU, be expected to ensure the same approach. Article 106 TFEU also applies which prohibits the use of state power to enable anti-competitive conduct by public or special undertakings. Regulation of any economic activity needs to be compatible with EU law including the Services Directive and any applicable sectoral directives. The EU expects the Competition Act regime in its member states. 2. Competition law in the context of independence The principles embodied in the Competition Act 1998, Articles 101 and 102 of TFEU, apply to trade intra-uk and trade between EU states. All three sets of law are effects based. That is to say: the conduct is prohibited, irrespective of the location of the perpetrator(s), within or outwith the UK or EU. If an independent Scotland were an EU member state, there would need to be a Scottish version of the Competition Act 1998 and an effect on trade between Scotland and ruk as EU member states would come under TFEU. Conduct previously prohibited under the Competition Act 1998 would need to be covered by equivalent Scots law. Insofar as it produced an effect in ruk, it would be covered by the Competition Act (England & Wales and Northern Ireland). And insofar as it produced an effect on trade between EU member states (such as, on the given premise, trade between ruk and Scotland), Article 101 or 102 of TFEU would apply. 12

13 Enforcement and regulation The White Paper sets out the current Scottish Government s proposal for a combined economic regulator that will bring together the economic regulatory functions of communications, energy, transport and water (page 406). Whether restrictive agreements and practices and abuses of market power are dealt with by a discrete organisation or a division of a unified organisation, the remit would be to enforce competition law. In the event of independence, there would be a Scottish competition authority and an ruk authority, where there is currently only a UK authority. Apart from those situations where the effect of prohibited agreements or conduct were confined to Scotland or to ruk, such agreements or conduct would be subject to scrutiny under the laws of each of Scotland and of ruk and the EU by, respectively, the national authorities of Scotland (in Scotland) and ruk (in ruk) and the European Commission (in both Scotland and ruk). The relative Scottish and ruk authorities would co-operate through the European Competition Network (ECN). The requirements imposed by competition law upon businesses operating in Scotland or ruk would be unaltered. Mergers This section discusses whether in the event of independence Scotland would require its own merger control regime and the policy issues that need to be resolved if such a regime were to be introduced. 1. Institutional and legal requirements Under the current UK merger control regime all mergers exceeding thresholds set out in the EU Merger Regulation (EUMR) fall under the jurisdiction of the EU Commission, unless the merger is referred back to the UK. The UK retains jurisdiction over mergers that do not exceed the EUMR thresholds. The Enterprise Act 2002 sets out the rules for review of these mergers by the UK competition authorities but EU law does not require member states to operate national merger control regimes. Member states have significant freedom in their national merger regimes institutionally and in the substantive law. This applies equally to the current UK and would apply to an independent Scotland in the EU. The Scottish Government s paper on Economic and Competition Regulation in an Independent Scotland focused predominantly on the institutional framework rather than the substantive rules. 2. What could a Scottish merger control regime look like? Given the absence of specific EU requirements for a national merger control regime, thought could be given to the following options: no merger control regime a separate Scottish regime based either on the UK Enterprise Act or on the EUMR an entirely new regime. Each of these options would have its own advantages and disadvantages. We identify some of the considerations that would influence any decision and highlight some policy choices that would need to be debated in the event of a yes vote. 3. A merger control regime The key reason for a merger control competition regime is to prevent monopolistic or oligopolistic market structures. This objective needs to be balanced against the need for businesses to have freedom in how they engage in business, particularly given general competition law. There may also be other public policy considerations (employment or diversity issues) that can influence a merger review. 13

14 4. Specific issues for small economies Smaller countries and economies face particular issues in their merger control regimes. In particular, questions of scale arise in small economies which can lead to higher concentration levels and reduce incentives for new entrants. Mergers are likely to be cross-border and difficult to influence. A separate merger control regime on its own is unlikely to guarantee a minimum level of competition in a small market so that in a small economy arguably a stronger focus has to be on effective control of abuse of dominance. 5. Policy choices to be made in the event of independence The decision on whether to have a (separate) merger regime in an independent Scotland would raise a number of policy choices that the Government of an independent Scotland would need to consider in the event of independence. The requirement for a separate merger or other forms of control (abuse of dominance regime) would need to be examined. This would include whether there should be: a) A mandatory regime where the competition authority would review all relevant cases and be able to establish a track record in cases. b) A voluntary regime which would entail the danger that otherwise problematic mergers would not be identified and would escape review and intervention. Whichever scheme was adopted, it would have to capture the right mergers by having appropriate jurisdictional thresholds and clear public policy objectives. Catching too many extra-territorial mergers would mean that the authority could have too many unproblematic cases. Catching too few cases would undermine the effectiveness of the regime. In the event of independence, thought would need to be given at an early stage to the circumstances which lead to a merger prohibition. This is not simply a question of adopting the current UK test (significant lessening of competition) or the EU test (significant impediment to effective competition) but rather creating a system which is fair to business and to the consumer. In that context the controls might be quite different from existing controls. 6. Institutional structure for a Scottish merger control regime The White Paper confirms that in the event of independence a competition authority would be established to ensure EU rules designed to ensure competitive markets are applied (page 401). There would be advantages arising from the institutional knowledge gained from other aspects of competition or economic regulation (in the same or other sectors) and disadvantages arising from the size or scope of the institution. 7. Procedural and policy issues In the event of independence any government would need to ensure the competition authority had a rigorous, transparent and predictable decision making process. Various systems exist in the EU with differing levels of decision makers ranging from decisions being taken only by a small case team via a more hierarchical system of decision makers outside of the actual case team to a system where the decisions are taken by politicians. Most systems seek to safeguard the rigour of the decisions. Merger reviews would need to be conducted within strict binding timetables aligned with those used in other countries. Merger regimes work best if political influence over the outcome is excluded or restricted as this increases predictability and transparency. There are existing structures such as the European Competition Network (ECN) and the International Competition Network that facilitate cooperation both on policy and case work. There would also be a need to cooperate on case work and policy with the ruk s CMA. 14

15 Effective merger control requires effective judicial redress. Currently merger decisions can be reviewed by the Competition Appeal Tribunal (CAT). The CAT is highly specialist and its rules and procedures are very modern. Cases are heard at a speed which would simply not be replicable in the ordinary courts in England, Wales or Scotland. In the event of a yes vote, thought should be given to either creating a Scottish CAT or seeking to negotiate for the existing CAT to operate as a shared resource. Procurement and state aid 1. Procurement The implementation for Scotland of the obligations of the UK as a member of the EU and under the Government Procurement Agreement is already substantially devolved. Independence would create an EU/international border. This could render obligatory wider advertisement of below-euthreshold and other contracts that are outside the scope of the EU procurement directives. Otherwise (assuming continuing observance of EU/EEA legislation) independence would not alter the procurement obligations to be met. Defence procurement law is not devolved. The Defence Procurement Directive 2009/81/EC is implemented for the whole of the UK by the Defence and Security Public Contracts Regulations 2011 SI The directive governs defence-related procurement for military material or services related to sensitive matters. This implementation is not devolved and ultra-sensitive procurements are outside EU/EEA obligations altogether. Thought would need to be given, in the event of independence, to what defence procurement arrangements a future Scottish Government would establish. 2. State aid Independence would make no difference to what did or did not amount to a State aid under EU law or to the lawfulness of an aid. Nor would it alter the status of a subsidy under the Agreement on Subsidies and Countervailing Measures. Nor would it alter the fact that regional aid is about aid to EU regions, not regions of a single state. That is established by case law and follows the perception that aid given for the purpose of assisting a region, as such, might not distort a national market but yet still distort the European single market. As a part of the UK, Scotland is an infra-state entity for the purposes of applying the selectivity test to measures that cause undertakings taxed in one part of a state to be advantaged compared with undertakings taxed in another part of the same state. This is lawful only if the infra-state entity has institutional, procedural and economic and financial autonomy (as explained in the case law). Independence would mean that Scotland would be a state. The infra-state issue would then be relevant only to differentiate between regions of the state of Scotland. Consumer protection law The Scotland Act 1998 schedule 5, section C7 reserves the area of consumer protection to the UK Parliament. This reservation includes the sale and supply of goods and services, guarantees, hire purchase, trade descriptions, misleading and comparative advertising, price indications, trading stamps, auctions and hallmarking. The subject matter of a number of Acts of great importance to consumers is also reserved including the Fair Trading Act 1973, the Consumer Credit Act 1974 and the Estate Agents Act Many other reserved areas touch on consumer interest such as energy policy, competition policy, financial services and markets, weights and measures, betting, gaming and lotteries and data protection. In the event of independence all these areas would pass to the Scottish Parliament. Many of these areas are subject to EU law as one of the key drivers in market and product regulation, and the Scottish Government and Parliament would be expected, in the event of EU membership, to implement EU law in these areas. 15

16 The organisation of the UK Government in areas affecting the consumer means that several Whitehall departments and executive agencies or non-departmental public bodies (NDPBs) have policy roles. Disentangling the departmental structure would be a considerable task. It would be important for the government of an independent Scotland to develop skills among the Civil Service and policy makers so that the implementation, policy creation and supervision roles in these areas would operate with the least disruption. The creation of an adequate consumer rights and fair trading architecture would be essential to preserve the best aspects of existing consumer law. Some of this may have been facilitated by recent changes in consumer advocacy in Scotland, e.g. transfer to Citizens Advice Scotland of responsibility in this area but independent regulators and oversight arrangements would be necessary. Our tax system The section of the White Paper "our tax system" (page 117), sets out the implications of independence. The Scottish Parliament would be able to decide which taxes Scottish tax payers would have to pay and the rates at which they would pay. There would be power also to determine the operation of the Scottish tax-gathering system, to the extent the Revenue Scotland and Tax Powers Bill does not do so. The White Paper recognises that under the Scottish Rate of Income Tax (SRIT), established by the Scotland Act 2012, the Scottish Parliament would be able to adjust only all rates of SRIT in the same direction, and points to the ability, in the event of independence, to adjust all rates and thresholds in any direction "for a variety of reasons" including social engineering and behaviour modification, which would contribute to the Scottish Government's approach to joined-up government. We accept that tax systems may be used for purposes other than pure revenue-raising, but the underlying purpose must always be transparent. The White Paper identifies that the Scottish tax system should be "re-designed based on a clear set of principles". It refers to the principles being simplicity, neutrality, stability and flexibility. Keeping to these principles could produce a system which, in the event of independence, ensured that taxpayers pay the tax they owe and do not pay tax they do not owe. We welcome the approach to the administration and collection of LBTT and Scottish Landfill Tax (SLfT), by the involvement of Registers of Scotland and the Scottish Environment Protection Agency. This is a practical and simple approach to the reduction of compliance costs for both government and taxpayer, and chimes well with the comments of both the Fiscal Commission and the Institute for Fiscal Studies. The devolved taxes, Land and Buildings Transaction Tax (LBTT), the proposed landfill tax and the Scottish rate of income tax under the Scotland Act 2012 have given a chance to shape Scottish taxes which apply to Scots law and practice. Until now the tax law and guidance issued by the UK Government and HM Revenue & Customs (HMRC) have not been tailored to Scots law and practice. This has resulted in practical solutions being developed by practitioners so the taxes can function in Scotland. Setting up a tax system in Scotland could take years to achieve (if done properly) and the practicalities require considerable thought. Knowledge about tax law is available within the Civil Service, the legal and the accountancy professions. However, the expertise in administering tax is centralised in London. An independent Scotland may wish to expand Revenue Scotland, which would deal with the whole suite of taxes. VAT has a separate treatment because VAT must be constant within each member state in Europe and it has less direct influence as an economic lever. Certainty for individuals and businesses would be necessary while the Scottish Parliament consulted on a new system of taxes and implemented this systematically. It would also be important to establish the underlying principles of the new system, such as the importance of meaningful consultation and transparency, from the outset. Constructing a new tax law in the context of independence could provide an opportunity for a simple and creative system designed to assist taxpayers and avoid a silo culture between the revenue authority and spending departments. Given the positive experience we have had so far with LBTT, it would be worthwhile identifying other areas of law where related tax provisions could be more aligned with Scots law, for example, in relation to trusts. As a general proposition, whatever the outcome of the referendum, a tax system which is tailored to Scotland and Scots law is essential. 16

17 We cannot comment on the political objectives or tax rates issues raised in the White Paper, except to say that differential rates and thresholds create complexity. For example, there are at present different thresholds for UK income tax and for UK national insurance contributions. In the same vein we would welcome consistent definitions for Scottish tax purposes of key concepts such as "trade" and "business". On the tax issues in general, we welcome the ambition of a modern and effective Scottish tax system. Issues regarding finance and economy 1. In the event of independence thought would need to be given to the creation of a Competition Appeal Tribunal or to negotiating a sharing arrangement in respect of the UK Competition Appeal Tribunal. 2. In the event of independence, transitional arrangements would be needed concerning tax law in order to provide certainty for tax payers. 3. In the event of independence, thought would need to be given to aligning the tax system more closely to Scots Law. 4. In the event of independence, thought would need to be given to what competition, merger control and defence procurement arrangements would be established. Health, wellbeing and social protection Chapter 4 of the White Paper deals with: pensions Scotland s social protection system and welfare housing and communities health, social care and the NHS sport. The Society s sub-committees have examined chapter 4 of the White Paper and have restricted their comments to those areas in the chapter where they have expertise. Pensions Pensions law consists of two distinct areas, pensions law and pensions tax law the former consists of the law in the Pensions Acts while the latter concerns tax relief which is mainly in the Finance Act In this section, the Society assumes that in the event of a yes vote in the referendum Scotland and the UK are both members of the EU, sterling is the currency used in Scotland and the ruk (acknowledging that a formal currency union has been ruled out by the UK Government) and, in both jurisdictions, the initial position is that each has a carbon copy of both sets of law. The comments in this section do not include the state pension nor entitlements in respect of national insurance. Occupational pension schemes and pensions law Starting with pensions law and occupational pension schemes, each existing UK pension scheme would need to decide if its main administration is located in Scotland or the ruk. The use of main administration as a criterion for location is derived from the Institutions for Occupational Retirement Provision (IORP) Directive (2003/41/EC). Having done so, the scheme would consider whether or not it is conducting cross-border business. If it is an ruk scheme, it would need to apply to the Pensions Regulator for permission to do so. One of the key issues would be how this process could work on independence given that the Scottish Pensions Regulator would not have its formal powers until independence. 17

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