Brexit: lessons from Scotland

Chris Harte, CEO, Morton Fraser
Chris Harte, CEO, Morton Fraser

Economist JK Galbraith once said that an admirable facet of politics was the shortness of its memory. But now a referendum on Britain’s place in the EU is a certainty, a short memory is something businesses can ill-afford.

Only 18 months ago we were fighting another in-out referendum – on whether Scotland should remain in the UK or leave. I am surprised more comparisons are not being made with that vote.

Being based in Scotland is not a barrier to having a UK-wide perspective; for these purposes, it is highly instructive. Our clients are UK-wide, trade overseas, are listed firms, pension funds, SMEs, private individuals, government departments, local authorities and more. The effects of political uncertainty have been conspicuous to us across the gamut of business.

So what can we expect from the referendum?

Our experience shows there will be three phases: reflection, inertia and aftershock.


This is happening right now. Clients and employees alike want to know the risks and rewards of each outcome. Does the vote put an end to uncertainty? What will global markets make of indecision? How will it affect our political and, therefore, legislative environment?

Commercially, some investment decisions are already taking longer. Any uncertainty is being given greater scrutiny. Deals will go through and business will continue, but year-on-year the pace of investment will be slower.

The financial markets feel this most keenly as uncertainty manifests itself as volatility. Reuters columnist James Saft argues that pricing on the FTSE 100 is more volatile now than at any time in the past 15 years, which would include the September 11 attacks and the credit crunch. If this is true, imagine what is to come.


The moment inertia takes effect will vary by sector. Commercial real estate investment will probably see a slowdown months before the vote whereas M&A activity may get closer to the wire. The triggers for inertia will be context and the value in waiting: do I really need to buy this office block, sign this production agreement or complete this acquisition now? Is my view changed by the outcome of the referendum?

As the vote edges closer these questions become harder to ignore and easier to answer.

In Scotland, we saw evidence of the ‘wait and see’ approach the closer the vote became. Indeed, the realisation that the break-up of the UK was a possibility became much more evident among investors in the months leading up to the vote. Legal activity did not stop during the referendum but with over a year’s worth of data now available to us, it does appear to have been stymied.


Do not expect the vote on 23 June to be the end of the matter. The UK political system is still feeling the effects of the Scottish vote. There are two reasons for this: first, the result was closer than many expected; and second, the democratic process itself caused a shift in political power.

This matters because politics shapes economies and determines the context of legal business. It is naïve to think that once the vote is determined certainty will return and confidence be enhanced.

The parallels between the Brexit and Scottish independence debates make this a fair assumption. From the tight race in the polls to the effects on commerce and the political impact of leaving a trading bloc, it would take something extraordinary for business to avoid feeling an aftershock.

“Politics shapes economies and determines the context of legal business”

The commercial property sector is a good example. One consequence of political uncertainty in Scotland has been a softening of investor sentiment towards Scottish property, despite the referendum having returned a majority in favour of remaining part of the UK. Having assessed the impact of independence in the lead-up the referendum it has not been easy to forget it.

The fact that our next decision is about our relationship with the largest trading bloc in the world makes the aftermath of the Brexit vote the least certain phase of all. During the Scottish independence vote we asked our staff to engage with the issues. It is probably even more important for lawyers to do so as we address potentially leaving the EU. It is the duty of our profession to reflect reality and adapt for the benefit of others whatever the outcome – we cannot do that if we are not engaged.