Lloyds suggests Scotland independence would drive up its costs

Scottish yes vote could have 'material impact' on borrowing, tax and procedures under two regulatory systems, says bank group

By Severin Carrell, Scotland correspondent

Lloyds has set up working groups to investigate the impact if the Scotland vote was in favour of the country's independence. Photograph: Luke Macgregor/Reuters

Lloyds Banking group has issued guarded advice that Scottish independence could have a "material impact" on its costs and borrowing, potentially driving costs up for its businesses and customers.

In its annual report, Lloyds said the impact of a yes vote in September's referendum was uncertain, but that it could have a direct impact on its borrowing costs, tax position and costs of working under two different regulatory systems.

Its cautionary notes are more muted than the explicit statements from RBS and the finance group Standard Life last month concerning their fears of independence having a "significant impact" on their business.

However, it emerged that senior Lloyds executives believe they would have to move their group-registered office from Edinburgh to London under an EU directive which states that insurers and banks must have their head offices and registered offices in the same member state.

Opposition parties in the Scottish parliament claimed that these developments showed a growing number of large employers were worried about the referendum, while Scotland's government insisted that many of the fears would be dealt with if the UK government agreed to a formal currency and banking union.

Iain Gray, Labour's Scottish finance spokesman, said: "The SNP can no longer continue to just put their fingers in their ears and claim that they do not really mean it. To simply dismiss these warnings is to treat the fears of Scottish workers in these companies with contempt."

Last month, the new TSB bank, hived off from Lloyds to increase competition in retail banking, was established with its headquarters in London, despite being founded in Scotland.

The BBC's business editor, Robert Peston, said sources at Lloyds, and City regulators, had disclosed that they were taking legal advice about the 1995 EU directive on insurance, investment and credit providers, which so far remained untested in the courts and had no case law linked to it.

Although only a small number of jobs are tied to Lloyds' registered office in Edinburgh, bank executives believe there is a clear logic to the directive's policy, since Scotland and the UK would be separate states after independence, with Scotland's future status as a new EU member state still unclear.

Lloyds has set up working groups to investigate the possible impacts of independence; these are run by its Scottish executive committee at its small, largely symbolic, registered office at the Mound in Edinburgh, overseen by the banking executive Philip Grant.

Lloyds said its "key mitigating actions" were to investigate "the potential impact on the group's business and impact on customers of a vote in favour of Scottish independence".

Lloyds is taking a more cautious approach than Edinburgh-based RBS, which said last month that a yes vote could "significantly impact the group's credit ratings and could also impact the fiscal, monetary, legal and regulatory landscape to which the group is subject".

It is understood Lloyds would wait until there was a yes vote this September before making more explicit statements about its fears or interests post-independence, given that there would be at least 18 months of negotiations before Scotland became a separate state.

The bank is not expected to follow Standard Life, which is one of Scotland's largest employers but does 90% of its business in the rest of the UK. Standard Life said last week it could move large chunks of its operations to England if independence left it facing greater costs and problems with a currency and finance sector regulation.