AN INDEPENDENT Scotland could be saddled with a "terrifying" £110 billion national debt, leaving the country's finances on a par with Greece and Portugal, a leading economic think tank has warned.
The Institute of Economic Affairs (IEA) said Scottish ministers could have to carry out a stringent programme of cuts to manage the debt, which is on about the same scale as Scottish GDP.
Scotland Office minister David Mundell said the figures showed the "enormous cost" to Scotland of breaking away for the UK.
But a spokesman for First Minister Alex Salmond branded the figures "flawed" and insisted North Sea oil and gas wealth was a 1 trillion asset, worth ten times Scotland's share of UK debt.
Britain's national debt topped 1tr for the first time last year and Scotland would have to take its share of this if it left the Union.
UK debt is expected to increase up to 2015, which means Scotland share could be significantly higher than the IEA's figure at the time of an independence referendum.
Dr Richard Wellings, deputy editorial director of the IEA, has calculated that Scotland's cut, based on its share of public spending, would be about 110 billion.
"I think it's actually pretty terrifying, because as well as that issue you've North Sea oil, which is likely to diminish rapidly over the next decade, so you're going to get a massive hit in tax revenues," he said.
"Then there's this rather high debt, which is pretty comparable to Portugal's government debt, so there's a danger you'd end up like Greece or Portugal.
"The Scottish Government would have to take pretty urgent action to make cuts. If they did that, they would be OK, but they would have to make cuts, definitely."
Public spending is higher in Scotland than in the UK as a whole, but lower than Wales and Northern Ireland.
Dr Wellings said: "The other issue Scotland would have is that because North Sea oil would be such a huge chunk of tax revenues, and that fluctuates wildly from year to year, the tax revenues would be very unstable.
"The reserves are running out and it's been made worse, first by Gordon Brown and now George Osborne's tax changes that have discriminated against new developments. That's just made matters worse.
"It's very worrying, and I'd be very worried about it."
The IEA figure does not take into account UK tax revenues generated in Scotland, which Dr Wellings says is subject to "significant fluctuations" in North Sea receipts from year to year.
But neither does it include the public sector pensions liabilities that an independent Scotland would face, which could reach some 350 billion, about a tenth of the current UK bill.
A spokesman for Mr Salmond dismissed the figures.
• Leader: Scotland must be prepared on crucial question of debt share
• David Bell: Working out how to split financial burden would be no easy task
He said: "The premise of this is entirely flawed, because there is no precedent or example in the world of dividing assets or liabilities according to spending figures, which in any event do not include major areas where Scotland gets less than our share.
"On that basis, you would have to factor in the whole spending and revenue picture - and the Government Expenditure and Revenue Scotland figures show that when the last UK government was racking up debt, Scotland had a current budget surplus of 3.5bn from 2005-6 to 2008-9, compared to a UK deficit of 72.3bn over this same period.
"In other words, Scotland is and would be better off than the rest of the UK."
A separate IEA estimate on a straight cut of Scotland's share of the debt on the basis of population size would be about 93bn, and Mr Salmond's spokesman said this would be a more "reasonable" methodology. He went on: "In the real world, non-geographic assets and liabilities are divided on a GDP or population-share basis, but the more crucial point is the bankability of a country.
"As well as running a budget surplus compared to the UK as a whole, Scotland's oil and gas resources represent a trillion pound asset base - worth more than ten times Scotland's share of a UK debt built up by successive Westminster governments. At UK level, this huge asset is no more than the equivalent of the national debt.
"Under an SNP government, Scotland has run a balanced budget every single year - and the idea that Westminster's economic incompetence in racking up record debt is an argument against Scottish independence is clearly a very silly one."
The coalition government at Westminster has embarked on a cost-cutting drive to reduce the UK's annual deficit of about 140bn, but there is no immediate prospect of this eating into the overall debt.
Professor David Bell of Stirling University today indicates in an article for The Scotsman (opposite) that this could top 1.5tr by the likely time of the independence referendum, in 2015-16.
Bursting through the trillion-pound barrier - and still rising
UK GOVERNMENT debt reached a daunting milestone at the end of last year when it smashed the 1 trillion barrier for the first time - that's about 40,000 per household.
The news was met with widespread concern that future generations would be saddled with a debt millstone around their necks for decades to come.
The debt has doubled in the past six years, and this coincides with the high cost of the bailout of the financial sector.
Government debt in the UK was 400 billion in 2000 and rose by 91bn in the years to 2004. It began to accelerate in 2007 from 624.7bn. It increased by 130bn the following year to 753bn, finally hitting 1.1tr in 2010.
It is expected to top 1.5tr by the likely time of Scotland's independence referendum, in 2015-16.
The current debt level means Britain will pay interest of 43bn this year - about 120 million a day and more than the government spends on defence.
Many critics have blamed former prime minister Gordon Brown for the unprecedented levels of borrowing to pay for state spending.
Current Chancellor George Osborne, pictured right, plans to slash annual borrowing of 156bn under Labour to 35bn by 2014-15, through a controversial programme of spending cuts that will save more than 80bn, coupled with 30bn of tax rises.
However, the debt levels for the UK do not include items such as the cost of public sector pensions and the use of the private finance initiative (PFI) - or people's own mortgages, credit cards, overdrafts and personal loans.
Some independent analysts have estimated the UK debt to be well above the official figure.
The Taxpayers Alliance claimed in a report last year that the true level was closer to 7.9tr, taking into account pension liabilities, the cost of the bank bailouts and PFI debts.
The Institute of Economic Affairs (IEA) has calculated that the national debt is 4.8tr once state and public sector pension liabilities are included, or 78,000 for every person in the UK.
An IEA paper last year said "standard accounting practice" would see pension liabilities included in debt calculations.
It stated: "This debt is ignored in all official figures, yet pensions promises involve a very real obligation that is imposed on the following generation.
"It is so large that the recent levels of debt increases will appear almost insignificant by comparison."
He also warns it is not clear any "legal precedent" exists to take oil and gas revenues - worth about 130bn since 1981 - into account when negotiating Scotland's separation terms.
Mr Mundell said: "This data shows two things - the enormous debt left by the last Labour government and the huge cost of separation if the SNP had its way.
"Scotland is better off in Britain and we all benefit from sharing our assets and our resources."
Inverness-based consultant Tony MacKay, a former economics professor at Aberdeen University, said the IEA figures sounded like a "reasonable estimate" but the SNP were likely to argue that oil revenues would lower Scotland's share of the debt.
He said: "Once interest rates get back up to the normal level, we would be in a situation of using a large part of the GDP to pay off the interest on the debt.
"It would be very difficult and we would have to have a deficit-reduction programme like the UK government is having at the present time."
Professor John McLaren of the University of Glasgow's Centre for Public Policy for Regions, said independence negotiations might be carried out on the basis of population or GDP, or a number of other different measures. "There's not really a single definitive figure," he said. "It would be a negotiation between the two sides - or three or four sides if Northern Ireland were involved.
"It's an interesting addition to the debate, but I don't think its definitive."
Professor Brian Ashcroft, of the Fraser of Allander Institute at Strathclyde University, questioned how the debt would be transferred to Scotland, given that the UK government was the "guarantor" of the debt.
Instead, a system of repayments to the Treasury from Edinburgh may have to be set up post-independence.
"An independent Scotland might pay a proportion to the United Kingdom to pay off that portion of debt, and that's a negotiated political outcome, not wholly to do with economics," he said.
Labour finance spokesman Richard Baker said the figures "blow yet another hole" in the case for independence. He went on: "There remains so many unanswered questions about Scotland's economic prospects as a separate country that the Nationalists refuse to answer, such as whether there would be a separate currency, higher taxes, levels of public spending and the risk in relying on a volatile resource like oil. The SNP either don't know the answers or they are deliberately keeping them secret."