ALEX Salmond’s timing has been impeccable since he came back to lead the SNP. His can-do approach has measured up well against a tiring UK Labour administration and the coalition government at Westminster.
But the timing of the party’s date with independence isn’t so great. As one economist put it last year, the early Eighties and early Noughties would have been a good time to hold a referendum, not now. In large part, that is due to the debt. In 2016, when Salmond hopes to be crossing the Ts with London on the division of the UK’s spoils, the UK’s national debt (still growing, despite austerity) will have soared to the princely sum of £1,580 billion. If Scotland had become independent in 2006, pre-crash, its population share of debt would have been about £50bn. Last week’s SNP’s white paper is now talking of a figure of £130bn. It is like a wife filing for divorce right at the very moment her husband has sold off the last of the family silver.
The question of what to do about this toxic inheritance will be the key issue for Scotland’s negotiators in the event of a Yes vote. Debate in Edinburgh and in Whitehall on how to do so is already under way. Cleaving off a chunk of UK debt and handing it to Scotland like a piece of cheese is deemed impossible. How, for example, could London tell a foreign pension fund that the £100 million it loaned the UK a couple of years ago was now going to be paid back by a new country 400 miles away?
Furthermore, faced with such huge sums, the SNP has ruled out paying London off, and taking on its own £130bn mortgage. Rather, last week’s white paper proposed a deal under which the rest of the UK (rUK) would keep the whole UK debt on its books with Scotland agreeing gradually to pay off its own share.
This would be good for Scotland, notes Professor David Bell of Stirling University, as it would end up paying less interest to the UK on the debt than it would if forced to find the cash on the open market.
The £130bn question is why would London agree? At a conference at the weekend, academics warned that the “IOU” option would increase the rUK’s debt from about 90 per cent of GDP to nearly 100 per cent overnight. And, the National Institute of Economic and Social Research concluded, the UK would bear “the risk that Scotland might defer, or in extreme conditions, even not repay its obligation”. It added: “This is obviously not in the interest of UK taxpayers, and would surely attract the attention of the credit rating agencies.”
It doesn’t sound very appetising. Yet Whitehall sources hint that an IOU deal could nonetheless have to happen, perhaps because other options about what to do with £1.5 trillion of owed money aren’t that appetising either. The terms of such a deal might limit the extent of Scottish independence. But both Scotland and the UK are constrained by the shadow of the debt mountain hanging over them.