Outside glass view of RPC building.

Preparing for the devolution revolution

16 July 2015

For me – and I think for all business people – the two biggest spectres cast by this year's Queen's Speech were proposed increases in national and regional devolution within the UK and the certainty of an in/out referendum on the UK's membership of the EU.

As we'll touch on in my next blog, while the referendum question is simple, the implications are nowhere near as clear cut as some commentators might have you believe – and there is a potential, and quite personal, "sting in the tail" if your company is likely to take any kind of public stance about it. But, for now, I'm going to focus on devolution, what that could mean for your business, and how you could be prepping your board.

I was at a gathering of eminent GCs last September when the result of the Scottish referendum on its membership of the UK was announced. Over breakfast that morning, there seemed to be a palpable sense of relief that the Scots had voted to stay. Whether that relief was driven by a feeling of sisterhood with our Scottish neighbours, or the fact that it postponed what could be some very tricky business decisions was unclear. We got on with the rest of the day, and nothing more was said on the subject.

But with David Cameron and the other main political leaders in Westminster acceding, by accepting the Smith Commission Agreement, to the Scots' pre-election demands for more autonomy over their own governance, and following Nicola Sturgeon's stunning blitzkrieg of the Scottish political landscape, the issue of how to do business with Scotland is once again high up the corporate agenda. And if it's high up the corporate agenda it should be high up the GC's agenda, too. The Scotland Bill is making rapid passage through Parliament at present and many of the powers in it are likely to come into force within the next 12 months, and so probably within the period for which your business and departmental budgets have already been set.  

It's not just Scotland, though; there are the "regions", too. The prospect of Metro Mayors in Manchester and other major cities is increasingly likely. And George Osborne has been vocal in his party's support of creating a Northern Powerhouse.

So, what does this all mean for in house lawyers?

Well, as Robert Baden-Powell might once have said: be prepared.

You need to look at your two, three, and five year business plans and think "what's coming down the track?"; "how will those plans be impacted by devolution?"; "what can I do to advise my board in advance?"; and "what budget, team resource and legal advice am I going to need, very soon, in order to be able to give the board that advice and to act on the decisions that they make as a result?"

Do you, for example, have operations in Manchester? If so, with the Metro Mayor potentially having greater power over setting business rates what might that mean directly for your business? And if you decide to relocate your operations as a result, what kinds of break clause do you have in your lease agreement? If your lease agreement is coming up for renewal now, you might want to consider the terms of that agreement in light of this prevailing uncertainty – you probably don't want to be tying yourself into long-term commitments while the future's uncertain, for example.

The same goes for any outsourcing agreements you have: are the charges that you pay fixed even if the operating costs of your supplier increase? Who carries the cost if you break the contract? Does devolution or new legislation made regionally as a result of it qualify as a force majeure event?

Similarly, in Scotland Nicola Sturgeon's government will soon enjoy significantly greater autonomy over the setting of income tax and benefits. If your company has a branch office or shops or warehouses north of Hadrian's Wall and the Scottish government votes to raise the basic rate of income tax by 2% that's going to have an appreciable impact on your bottom line as staff costs increase. So what should you do? How should you advise your board? When should you advise your board? Probably not just after you have let a relevant contract or lease break point pass by…

I don't pretend to have the answers as the situation will be radically different from one business to the next, but these are the kinds of question in house lawyers should be asking themselves now. You need to analyse the commitments you've got and the commitments you might be about to make and see how they might be impacted by these changes.

And all of this could come sooner than you might think. The next election in Scotland is in May next year, and that could well see another push for a vote on independence. In England, if the Conservatives get their way in the next month over their proposed fix to the "West Lothian question" (using parliamentary procedures) then we could have English votes for English Laws (EVEL) by the autumn (following an attempt to railroad it through in just two weeks which was backed down from last week) and the Tories would get much more of what they want much more quickly – in England and Wales at least – as what is currently a very slim majority of 12 would be massively boosted to over 100 by the absence of Scottish and Welsh votes.

However, just this week Ms Sturgeon appears to have shot Mr Cameron's fox on the topic of how many English hounds can flush out an English fox so there is a lot more uncertainty to come – but the one thing that is for certain is that the two "Scottish fish" Sturgeon and Salmon(d) are, going to continue to have a very substantial effect on where and when the whole UK political shoal goes over the next five years.

So, the message is to start planning now, and to start monitoring and thinking now, as it is all starting to come at us "thick and fast". Look at your contracts and your business plans and your own legal team resources in the expectation of these new measures being enacted, and start preparing your business to react.