An independent Scotland will be a double edged sword for the IT market

Derek du Preez Profile picture for user ddpreez September 11, 2014
Summary:
Some recent research from TechMarketView analyses how although the market software and IT services market north of the border will grow, it could also cause huge problems elsewhere.

[sws_grey_box box_size="690"]SUMMARY - A yes vote for independence will be bring both good and bad news for the software and IT services market in the UK. More money but also more pain. [/sws_grey_box]

Next week, on the 18th September, voters in Scotland will head to the polls to decide whether or not they want to become independent from the rest of the

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United Kingdom.

This follows years of planning and campaigning from the Scottish National Party and its leader Alex Salmond, both of which claim that Scotland can be a thriving economy on its own and would be better off without having to rely on a Westminster government – allowing it to break free from the “shackles” of London.

The SNP's main argument is that the 300-year old Union is no longer appropriate and that Scotland, supported by its abundance of oil, could be one of the richest countries in the world. The UK government disagrees and all political party leaders south of the border have been fiercely campaigning to keep the Union together.

The arguments are complex and, as expected, much of the debate has actually focused on the personalities involved, rather than the consequences of a vote for independence next week. Salmond argues that Scotland could generate billions in revenue from tapping into the country's oil resources (without having to share), whilst Prime Minister David Cameron has created problems for the SNP by ruling out letting Scotland keep the pound if it goes it alone – an important issue for the Scottish population and the economy.

However, little attention has been paid to what a Yes vote would mean for the UK's software and IT services industry. The business community has been pretty vocal, with some supporting a split, whilst others have claimed that they would move their Scottish-based businesses down to London if independence became a reality. But not much from the IT community as of yet.

salmond
Scottish National Party leader Alex Salmond

I spent this week trying to coax some views out of the world's top technology companies that have a base in Scotland – which includes the likes of Amazon, CGI, Microsoft, HP, Salesforce and Oracle. However, pretty much all of them refused to comment and it seems like they are keeping their cards close to their chests until a result is known. The only comment I actually got back was from Fujitsu, which basically said it would support the decision of the Scottish people.

Not much help for me really, but understandable I guess.

Luckily, some research landed in my inbox this week from the very helpful lot over at TechMarketView entitled 'Scottish & UK Public Sector: Impact of Independence?'. It's a very interesting read and brings to the fore many of the issues that the Scottish government would be unwilling to highlight as it promotes an independent Scotland.

It's not all bad news for the software and IT services market – there could be money to be made – but if Scotland does choose to break free, we are also in for a rough ride.

However, let's deal with the prospective benefits first. Author of the report, Georgina O'Toole, rightly highlights that if the Yes campaign wins, there will be “significant opportunities” for suppliers north of the border. Scotland's plans for independence include putting in place its own suite of government systems and processes to deliver services to the public by 2018, taking away the responsibility from Whitehall – these are the usual government systems that you would expect to see, including tax, benefits, employment services, passports, vehicle/driver licensing, post office, coastguard, defence, etc.

The Scottish government has said that investment in these new systems would only be a small part of Scotland's total budget and could actually generate savings for the country. However, any increased independence and break away from systems in London will be an attractive prospect for IT suppliers, which would be keen to tap into Scotland's already growing software and IT services market.

I got the chance to have a chat with O'Toole about her research. She said:

My view would be that it looks a very attractive option when you consider that the Scottish Government will have to put in place its own systems for things like collecting taxes, handing out benefits, etc. If you look at it from that perspective, software and IT services companies will be rubbing their hands in glee – all of a sudden the Scottish ICT market increases in size drastically.

However, despite this, O'Toole argues that the level of disruption caused by the separation of systems, if independence is going to happen, shouldn't be underestimated. For example, Scotland has said that it would halt the rollout of the UK's welfare reform programme, Universal Credit, north of the border– but what hasn't been made clear is exactly how it plans get out of its part in those contracts.

Equally, any IT and outsourcing contracts signed with the UK government at present will no doubt decrease in volume as Scotland transitions away from the systems in Whitehall – how will the UK government deal with this? O'Toole expects that this would result in a period of turmoil for procurement officers as they embark on intense negotiations with suppliers.

In addition, questions haven't been answered about whether or not suppliers north of the border that are working on sensitive contracts, such as those with

g-cloud-big-ben-government-westminster-crop
the Ministry of Defence, would be allowed to continue to do so. Would new security clearances be required? This hasn't been thought through.

My colleague Stuart also highlighted to me, and is something I haven't seen discussed elsewhere, that some high profile technology companies currently have their EU data centres based in Scotland. If Scotland goes independent, it will be outside of the EU (at least for a while), so what does this mean for those all important EU data centres?

O'Toole said:

I am nervous about the implication in the short to medium term as the Scottish Government tries to negotiate with Whitehall on the transition phase and how they are going to utilise existing Whitehall systems in the interim period as they try and become independent. That will be a lot of distraction, potentially a lot of contract renegotiations, because obviously a lot of contracts have been set up to cater for Scotland as well as the rest of the UK.

And when they do get to the point of trying to put these systems in place north of the border, it's not going to be as necessarily as easy as the yes campaign would like us to think. The reason why it's really hard to change systems around things like benefits and revenue, is because they are crucial, mission critical systems – the Cabinet Office has said that it would love to switch off some of its old systems, but it is hard to do and will probably take a decade or more to achieve. Yet Scotland is going to essentially try and switch over to new systems by 2018 and it just concerns me that disruption will ensue.

The Yes campaign's response to a lot of these questions is that it will need to be negotiate with Whitehall. But that requires someone that is willing to cooperate in Whitehall – and why would they? It worries me.

Verdict

We wait...

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