(Bloomberg) — In the heart of Edinburgh, money managers, lawyers and accountants work away at their offices in grand townhouses from the late 18th century, tending to the pensions of millions across the U.K. They like things the way they are: a vast majority have rejected Scottish independence and supported keeping Britain in the European Union.
But the status quo is no longer an option.
And Scotland’s financial center could ultimately determine the outcome of a vote to create Europe’s newest state. It was here, from her residence as first minister, where nationalist leader Nicola Sturgeon announced a road map for another independence referendum as soon as next year.
“Most people would say if there was a referendum today, the result would probably be similar to last time” — in 2014 when an independence vote was defeated 55 percent to 45 percent — said Martin Davis, chief executive officer of Dutch insurer Aegon NV’s Kames Capital. The question is “whether or not that remains the case as we go through this lengthy process of working through the ramifications of Brexit,” he said.
For all the political momentum behind Sturgeon as she heads to her party conference this weekend, the challenge will be to persuade enough of Scotland’s great and good to back her. For Edinburgh’s fund companies, who together manage more than $600 billion, it’s less about what has changed over the past two years and more about what can change in the next two.
The question of independence — full control of the economy, oil and sovereignty — has been in play since the nationalists turned perennial losers into a seemingly unassailable political force during the past decade. Rather than dissipate after the 2014 vote, it grew stronger. Amid the turmoil of Britain’s vote to leave the EU, opportunity emerged.
Having been rebuffed by Prime Minister Theresa May, who on Thursday rejected another referendum until Brexit is settled, Sturgeon’s apparent strategy is to play off the looming loss of Europe against the promise of independence. Edinburgh overwhelmingly rejected leaving the U.K. but voted 74 percent to remain in the EU, even more than polyglot London.
People who support the power of the Scottish Parliament, but were squeamish about breaking up the three-centuries-old U.K. are among the key groups that could swing it, according to Nicola McEwen, a professor of politics at Edinburgh University. May’s response this week that “now is not the time” for another Scottish referendum plays into Sturgeon’s narrative that Scots are being refused the right to make their own choices, she said.
“One avenue will be convincing the elites,” said McEwen. “They have to win over that body of people who believe in devolution, but not independence.”
The battleground promises to be the economy as growth has trailed the rest of the U.K. An independent Scotland’s budget deficit would have swollen to above Greek levels after projected North Sea oil revenue of as much as 7.9 billion pounds ($9.6 billion) trickled into mere millions.
There’s the lingering question of currency — whether Scotland would introduce a new one, stick with the pound or sign up to the euro — and the response from European institutions. While two-thirds of Scotland’s trade is with the rest of the U.K., Sturgeon is pushing to keep Scotland in the EU’s single market, a red line that set her referendum plans in motion.
“If there was any kind of an olive branch from the EU, then that would make the case for independence substantially more viable,” said Haig Bathgate, joint CEO of Tcam, which manages about 1 billion pounds for wealthy individuals. As for the financial argument, “there’d have to be more disclosure on the data and more of a plan in terms of the economic position,” he said “Where is revenue going to come from?”
The 2014 independence campaign had little backing from major institutions in the Scottish capital, where one in 10 people works in financial services, and only one national newspaper — the Sunday Herald in Glasgow — officially came out in support.
Royal Bank of Scotland Group Plc raised the prospect of moving its legal domicile to England, while Standard Life Plc prepared to shift business. A spokesman for Standard Life, which is combining with Aberdeen Asset Management Plc to create Scotland’s largest money manager, said it would assess the implications of independence as it did in 2014.
That said, Aberdeen CEO Martin Gilbert has been more sanguine about independence, and told Bloomberg Television the company would adapt should Sturgeon gain the power to follow through with her plans.
“I don’t think she’ll go for a referendum unless she thinks she’s going to win it,” Gilbert said on March 10 after the deal with Standard Life. “She’s a pretty good politician and she’s not going to go through another referendum and lose.”
There’s been scant shift in opinion since 2014, with a poll published on Wednesday by Survation for the Scottish Daily Mail putting the pro-U.K. lead at six percentage points. Sturgeon will hope the U.K. government’s push-back on her referendum plans will only serve to galvanize more Scots to support her.
She will make her keynote address to the Scottish National Party faithful in the oil city of Aberdeen on Saturday, and the standing ovation may be a little longer for a leader who just put the chance of another shot on the horizon.
What she called “highly likely” following the Brexit vote in June was now looking “inevitable,” she told an audience of bankers, academics and industry group leaders at an event in Edinburgh on Feb. 28. She had even joked about naming a date.
Less than two weeks later, she stood in the chandeliered drawing room of Bute House on Charlotte Square to say she had no choice but to seek a vote by autumn 2018. Unless the U.K. changed its course on Brexit, she was determined to give the 5.4 million Scots another chance to decide their own future.
“Certainly if Brexit is seen as being badly handled, that would give more scope,” said Colin McLean, founder and CEO of SVM Asset Management in Edinburgh. He doesn’t expect Brexit to ultimately damage Britain, he said, but “the best result for the SNP would be that the whole U.K. economy was hit.”
— With assistance from Hayley Warren