Scotland post Brexit – January 2017 Update

Background

Although the EU Referendum was a UK-wide referendum, there were very significant variations in voting patterns across the country, with all the Regions of England (other than London) as well as Wales voting for Leave but with Gibraltar, Northern Ireland and Scotland all voting to varying degrees for Remain. In Scotland the vote was approximately 62/38 in favour of Remain with Edinburgh, Scotland’s Capital, being 74% Remain.

 

The governing Scottish National Party (SNP) election manifesto in May 2016 anticipated the possibility that “Scotland is forced out of the EU against its will” and provided that in that event it would justify seeking authority to hold a second Scottish Independence Referendum.

In the immediate aftermath of the EU Referendum, Nicola Sturgeon as the First Minister of Scotland indicated that the Scottish Government would actively look at ways to preserve continuity of membership of the EU for Scotland. While a draft Referendum Bill has been prepared in advance of a possible Second Scottish Independence Referendum the Scottish Government has also focussed its attention more broadly on maintenance of membership of the EU Single Market. In August 2016, Michael Russell was appointed by the Scottish Government as its as Minister for UK Negotiations on Scotland's Place in Europe, essentially to look at the implications of Brexit for Scotland and to lead negotiations with the UK Government in that context.

The Scottish Government established its Standing Council for Europe, chaired by Professor Anton Muscatelli, principal and vice chancellor of the University of Glasgow, to provide ongoing advice to Scottish ministers on the impact of proposed changes to the UK's relationship with the EU on Scottish interests. With input from the Standing Council for Europe the Scottish Government published on 20th December 2016 its 49-page long "Scotland's Place in Europe" paper setting out what it would like to see happen in the context of Brexit.

So while it is still no clearer whether the Scottish Government will at some stage push for a Second Scottish Independence Referendum, this remains “on the table” and therefore is a possibility depending both on the outcome of its negotiations with Theresa May’s UK Government and the deal agreed that the UK reaches with the EU on Brexit.

There are clearly other factors that will influence whether the Scottish Government will in fact seek a second Scottish Independence Referendum. These include whether it can make progress with the EU and/or individual EU states as to Scotland’s ongoing membership of the EU and/or the Single Market. There is also no certainty, at least at present, as to whether any Scottish Independence Referendum if held would gain majority support.

Scotland's Place in Europe

The Scottish Government’s paper entitled "Scotland's Place in Europe" proceeds on the premise that Scotland voted to remain in the EU and that its economic and wider interest are best served by Scotland remaining in the EU. There is recognition, however, that given the UK-wide result of the EU Referendum that there is political imperative for the UK Government to trigger Article 50 and for the UK to leave the EU. In the these circumstances the next best option would be retention of membership of the Single Market through the European Economic Area (EEA) Agreement. Given this, the paper really sets out three approaches to what it sees as protecting Scotland’s interests and relationships with Europe:

The paper therefore places emphasis on ways on which Scotland can retain membership of the Single Market through EEA membership either for the UK as a whole or for Scotland as part of the UK. As a separate consideration the paper says that retention of membership of the EU Customs Union would be beneficial for the UK (and for Scotland within the UK) but the proposal is that Scotland would follow the UK position to maintain access for Scotland to the UK market and to avoid any hard border between Scotland and the rest of the UK.

The paper does not focus on the prospect of Scottish independence or of seeking a second Independence Referendum. However, it is implicit that in the absence of an outcome that is satisfactory to the Scottish Government it will seek to pursue that course.

A Differential Brexit Deal for Scotland

The Scottish Government has said that it will seek to negotiate a “differential arrangement” if the UK government does not pursue retaining membership of the EEA of the Single Market (a so-called “soft Brexit”). This would arise if the UK seeks some form of “hard Brexit”, most likely in the form of a trade deal with the EU (although it could alternatively seek to default to World Trade Organisation rules).

In these circumstances the Scotland in Europe paper suggests that Scottish Government would want the overall UK Brexit deal to provide mechanisms to allow Scotland (as part of the UK) to remain within the EEA and the Single Market. These arrangements would be designed to allow businesses in Scotland continuing to be able to trade in both goods and services within a Single Market and to retain the rights of people resident in Scotland to travel, live, work and study in other EU and EEA countries.

The paper acknowledges that there would be some additional complexities to these arrangements in the context of the negotiation of the overall UK arrangements on departure from the EU but suggests that such differential arrangements are not without precedent across the EU and EEA. What the paper proposes seems broadly modelled on a “Norway option” to ensure continued membership for Scotland of the Single Market, and collaboration with EU partners on key aspects of policy and participation in key EU programmes.

Key aspects of the differential arrangements highlighted by the Scottish Government paper include:

UK Sponsorship - as long as Scotland remains part of the UK there will need to be some form of UK sponsorship for any Scottish membership of EFTA. That is because membership of both the EFTA Treaty and the EEA Agreement is open only to "states". The argument is made by the Scottish Government that there is a benefit to the UK as a whole in having at least part of its territory (Scotland) still within the Single Market and able to retain and attract indigenous and inward investment on that basis.

Financial Contribution - there would need to be ongoing financial contributions to the administrative and operational expenditure of the EU (as made by existing EEA countries). The amount of such contributions would be a matter for negotiation in due course but the Scottish Government argues could be met from Scotland's pro-rata share of current UK contributions to the EU.

Application of EU Law – in order to retain membership of the Single Market through the EEA, Scotland would require to apply the laws of the Single Market to those goods and services traded between Scotland and the rest of the Single Market, as well as the associated flanking measures. Scotland would need to accept the jurisdiction of the EFTA Surveillance Authority and the EFTA Court in the context of the necessary EU laws and regulations.

Competence of Scottish Parliament/Government - membership of the Single Market under the terms of the EEA Agreement would require the Scottish Parliament and the Scottish Government to have competence to legislate in the policy areas covered by the EEA Agreement in order to uphold the core principles of the European Single Market; namely the free movement of goods, services, capital and persons.

Customs Union – while the view of the Scottish Government is that the UK should stay within the EU Customs Union, the paper suggests Scotland would adopt whatever position the UK adopts, so if the UK opted to be outside the EU Customs Union then Scotland would also be outside, the aim being to retain the existing UK customs union and that goods and services can continue to be traded freely within the UK and without the need for “hard” borders.

Free Movement – there would be free movement between Scotland and other parts of the Single Market. Scotland would also remain in the Common Travel Area which allows free movement within the UK, the Isle of Man, the Channel Islands and the Republic of Ireland. There is no proposal for Scotland to join the Schengen Area.

The papers suggests that the prospect of people from other European countries with the right to live and work in Scotland seeking to use Scotland as an access route to living and working in the rest of the UK could be dealt with through immigration rules applied in the rest of UK. No firm proposals are made with regard to immigration rules for Scotland but the paper suggests that the Scottish Government would be looking to adopt a distinctive approach no matter what the UK’s future relationship with the Single Market turns out to be.

It is clear that to implement these arrangements there would need to the additional devolution of powers from Westminster to the Scottish Parliament not just in more obvious areas such as immigration but also around business and trade regulation.

Possible Impact of Brexit on Scottish Devolution Arrangements

During the EU Referendum campaign those supporting Leave made a number of statements that suggested that exit from the EU would result in the repatriation to the Scottish Parliament of powers in a number of areas. While in a debate in the House of Commons in October 2016, David Mundell, Secretary of State for Scotland, acknowledged the prospect that there would be changes, there has not been any formal confirmation from the UK Government that this would indeed be the outcome.

There are three broad categories of powers that may be relevant to any further expansion of the remit of the Scottish Parliament on Brexit;

Tall brexit info

Any such transfers of powers may have a profound effect on the Scottish devolution settlement and necessitate further monies being released by Westminster as part of an adjustment to the agreed Fiscal Framework with additional budget being required by Holyrood.

One other aspect of any new Scottish Devolution arrangements could be to devolve VAT to the Scottish Parliament. This was something considered by the Smith Commission which was set up after the 2014 Scottish Independence Referendum to shape further Scottish Devolution. With the UK in the EU this would not be permitted under EU law but could be looked at again when the UK leaves the EU.

Legislative Consent of the Scottish Parliament to UK Brexit

While it has been suggested that the Scottish Parliament could exercise a “veto” over the UK leaving the EU there is no formal right of veto. The crux of the matter is a clause in the Scotland Act of 1998 under which the Scottish Parliament was established, and which provides that the Scottish Parliament cannot contravene EU law.

In order for the UK to leave the EU “cleanly”, it will be necessary for legislation to be passed in Westminster removing that provision of the Scotland Act. Under the “Sewell Convention” any amendment to the powers of the Scottish Parliament requires the consent in the form of a legislative consent motion (LCM) of the Scottish Parliament. There is therefore scope for such consent to be withheld by the Scottish Parliament and it seems unlikely that at present the Scottish Parliament would approve such an LCM. This does not, however, amount to a right of veto as the UK Government could proceed without amending the provision of the Scotland Act, at least in the short term.

Secondly and more importantly as the term suggests, the “Sewel Convention”, as a constitutional convention, takes the form of a political as opposed to a legally binding undertaking. However, Section 2 of the Scotland Act 2016 inserted a new subsection (8) into Section 28 Scotland Act 1998. This gave statutory recognition to the Convention by stating: “But it is recognised that the Parliament of the United Kingdom will not normally legislate with regard to devolved matters without the consent of the Scottish Parliament.” While the inclusion of the word “normally” allows an obvious way for the UK Government to ignore the Convention without necessarily breaching the Scotland Act, given that the circumstances of Brexit may be considered exceptional, it is clear nevertheless that this would give rise to political and constitutional issues which may be hard for the UK Government to ignore, particularly if it seen to undermine the Scottish devolution settlement and becomes an additional pretext for an Independence Referendum.

The Scottish Government was allowed to intervene in the appeal by the UK Government to the Supreme Court in the case of Miller and Dos Santos regarding Brexit that was heard in December. Much of the substance of that intervention was around the precise status and impact of the Sewel Convention and we can look forward to the judgment expected later this month to provide some further legal and constitutional clarity in the context of Brexit and more generally.

Impact of the Great Repeal Act

Theresa May has announced a “Great Repeal Act” as part of the UK Government’s Brexit strategy with a view to repealing the European Communities Act 1972 whilst retaining in UK law in the short term much of the substance of EU law. Particular issues arise in the context of Scotland as a large part of EU law relates to competences that have been devolved including agriculture, fishing, public procurement and environmental law.

To the extent the Great Repeal Act relates to the translation of EU law in devolved areas its implementation would amount to legislation in those areas. Under Section 28(7) of Scotland Act 1998, the UK Parliament, as a sovereign legislature, retains the power to make or unmake any law for Scotland. However, under the “Sewel convention” (as mentioned above) an LCM would be needed when Westminster legislation touches on devolved matters. While the exceptional circumstances of Brexit may mean that the UK Government can ignore the convention without necessarily breaching the Scotland Act, it is clear nevertheless that this would give rise to difficult political and constitutional issues.

Separate from these issues, it has also been suggested that following Great Repeal Act many laws affecting devolved issues could be unilaterally scrapped by Westminster as a consequence of Brexit. This is because secondary legislation could be used to revise or revoke former EU laws and such secondary legislation does not require an LCM. This also has the potential to cause both political and constitutional contention and may necessitate further review of how Scottish devolution operates post Brexit. There is also the option of the Scottish Parliament deciding to implement EU legislation in devolved areas by “tracking” EU legal developments in its areas of responsibilities.

The prospect of a differential Brexit arrangements for Scotland to retain it in the Single market would also have an impact on the scope of any alteration of the Scotland Act and on any Great Repeal Act as it would apply to Scotland as in that event in many key areas the legal position in Scotland would need to remain aligned with EU law.

There is also the potential difficulty that any Great Repeal Act will not fully recognise the distinctiveness of Scots law and there is a danger that, as has happened previously, Westminster legislation could create unintentional difficulties if it does not fully take into account the consequences of repeal legislation in Scotland.

Scottish Independence within the EU

The stated preference in the Scottish Government’s "Scotland's Place in Europe" paper is firstly to persuade the UK Government to stay in the Single Market or alternatively that there is a differential arrangement that keeps Scotland in the Single Market. However, the Scottish Government has published a draft Referendum Bill for consultation so that the option of a referendum on independence will be available if it concludes that Scotland's interests "cannot be protected by other means”. Scottish Independence holds open the prospect of Scotland retaining membership of the Single Market, most likely through seeking membership of the EU (rather than through the EEA) as an independent state.

There are conceptually a number of ways that an independent Scotland could seek membership of the EU and in particular it could apply as a new applicant or (if the timing of any Brexit allowed) for Scotland to be the continuing as member of the EU in place of the UK. Both of these options have some challenges and required the detailed agreement and/or co-operation of the UK and EU governments.

In either event the constitutional precedent in Scotland would be that independence would require an affirmative vote in a referendum in Scotland along the lines held in September 2014 (at which time the vote was 55/45 against independence). In order to get to this point not only would the Scottish Parliament require to approve legislation, there would almost certainly also need to be a delegation of powers by the UK Government given that the constitution is matter reserved to Westminster. This is what happened in relation to the 2014 Scottish Independence Referendum. There is, however, a view in some quarters that the approval of the UK Government is not necessarily required and this point has not been tested.

The timing of any referendum would depend on a number of factors but the stated aim of the Scottish Government has been that if there is a referendum this is held within the 2 year period between the triggering of Article 50 by the UK and the UK formally leaving the EU. Politically it would also be preferable that at the time any referendum is held that there is a level of clarity on the terms of the UK’s departure and the basis of any continued EU membership for Scotland. This would suggest that any referendum is likely to be held in latter half of 2018 at the earliest.

Conclusion

The recent publication of the "Scotland's Place in Europe" paper gives some clarity as to the Scottish Government’s position in the event of Brexit. The emphasis of the paper is maintenance of Single Market membership. The stated first preference is for this to arise at a UK level through a “soft” Brexit. However, if that is not possible, then the next best option of the Scottish Government is for there to be a Brexit deal for Scotland to remain in the Single market while staying within the UK. The immediate prospect of a second Referendum on Scottish Independence appears only to arise if continuing Single Market membership on either basis cannot be negotiated.

The position set out by the Scottish Government has to be set against the fact that the UK Government has not yet indicated what it is seeking from Brexit negotiations and that the process for negotiation of Brexit and the future relationship with the EU is likely to be lengthy and difficult. Any differential arrangement for Scotland would add an additional element of complexity to the negotiations.
Whatever the outcome of Brexit negotiations and whether or not there is any differential arrangement for Scotland, there will be a need to consider the implications under the existing Scottish devolution arrangements. Furthermore, there will require to be consideration given to how Brexit will lead to a reshaping of the intra-UK constitutional arrangements and on Scottish devolution in particular.

Ahead of us we have a Brexit process which is likely to be lengthy and the outcome of which is both constitutionally and politically uncertain. A clear Scottish dimension has developed with negotiations to be had on the eventual outcome in Scotland against the potential backdrop of a Second Scottish Independence Referendum. While it is clear is that Brexit will impact on Scotland as well as the rest of the UK at a constitutional as well as economic level, the extent of this impact remains to be seen.

January 2017