TODAY the UK Government moved to protect the interests of Scottish, English, Welsh and Northern Irish taxpayers by setting out the details on Government debt in the event of Scottish independence.
We said that, in the event of Scottish separation, the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. As part of this arrangement, an independent Scotland would reimburse the UK for a fair and proportionate share of the national debt.
This is the reality, it is common sense. It is extraordinary that Alex Salmond is claiming that this strengthens his position, when in truth it is damning indictment of the case for separation.
We have taken this action to ensure that those who lend to us continue to do so at low interest rates – which is crucial for every business and mortgage-holder across the whole UK. Independent experts agree that as a new country with no track record in financial markets, an independent Scotland would not retain the same credibility in financial markets as the UK. Add to that the weaker fiscal position that an independent Scotland would face over the long term, as set out in stark detail by the IFS recently, and you can see why an independent Scotland would likely face significantly higher borrowing costs. That means big spending cuts or tax increases elsewhere to balance the books.
After independence, we Scots would pay more for our debt than the UK currently pays or the continuing UK would pay. That’s another reason why we are better together. But don’t take my word for it – NIESR has estimated that an independent Scotland’s interest rates could be up to 1.7 percentage points higher than the UK’s. This is the reason why investors want clarity about whether their debt would be transferred to an independent Scotland, which they view as a riskier proposition.
This decision doesn’t change either side’s position in negotiations one iota. But it does raise very important questions for Salmond: Why have the markets started to question this? Why is a separation surcharge a risk for the rest of the UK? Why are they worried about the creditworthiness of an independent Scotland?
The announcement today gives certainty to the markets on the UK’s position. But what of Alex Salmond’s position? Sensible Scots agree that a separate Scotland will still be expected to pay our fair share of the debt. In fact it’s unthinkable that we wouldn’t. Not for Alex Salmond though, who’s reckless threats that an independent Scotland might default on its debt obligations continue.
He ignores at Scotland’s peril the hard reality that an independent Scotland would need to have credibility on the financial markets to raise money. It would be catastrophic to start its life as a state by defaulting on its debt obligations to the rest of the UK. It would hit households, with higher interest rates, put jobs under threat and require higher taxes or more spending cuts to meet the increased cost of borrowing.
Of course, what the fair share is would be part of a negotiation in the event of Scotland voting for independence, but this announcement gives yet more positive reason to keep the UK together as our collective strength and credibility keeps interest rates low. Whatever way you look at it, the evidence is clear – we are better together.