Scotland’s banking giants would face “considerable market pressures” to leave their Edinburgh headquarters after independence and base themselves elsewhere in the UK, a former Bank of England deputy governor has warned.
Royal Bank of Scotland and the Bank of Scotland would find it harder to finance their operations, according to Sir John Gieve, undermining Scotland’s position as a global finance centre.
The financial services sector, largely based in Edinburgh, is one of Scotland’s key industries. But Sir John warned an independent Scotland could not prop up the industry in the same way the UK Treasury did after the banking crash in 2008.
Sir John argued this would mean higher borrowing costs for Scottish banks as international lenders would be fearful of the risks involved.
The warning comes as Alex Salmond and Nicola Sturgeon prepare set out the economic case for Scotland leaving the UK with the launch of major report this morning.
In a concerted effort to regain the political initiative, they today argue that powers for Holyrood would allow the Scottish government to boost the economy by billions of pounds and create tens of thousands of jobs,.
But last night Sir John told The Scotsman that the experience of economic meltdowns in Ireland and Iceland would leave international markets uneasy about the ability of an independent Scottish Government in Edinburgh to fund a bailout in the event of another financial crash. That would drive up the cost of Scottish banks raising money, he said.
He explained that, in extreme situations, people look to the state to fund banks, adding: “I don’t think that would be credible for Scotland.
“That would mean that the Scottish banks would end up paying a premium on their borrowing rates.”
Asked if they would have to relocate their headquarters to London, which would bring them under the Bank of England’s auspices, he said: “London or somewhere else – I would have thought that would be very likely.”
In 2008, the UK government pumped £45 billion into Royal Bank of Scotland to keep it solvent and gave it an additional £275bn of guarantees to save it from collapse. This was about 211 per cent of Scottish GDP that year.
Meanwhile, in an attempt to regain the momentum in the debate, Mr Salmond and Ms Sturgeon will set out their economic case for independence in a flagship paper, saying a Yes vote “can unleash growth” in Scotland.
As well as highlighting “economic strengths” in sectors such as renewable energy and sciences, they will argue the economic policies pursued by the UK government “are not in Scotland’s best interests”.
The authors of the report will say Scotland “is being held back by the lack of key economic decision-making powers” at Holyrood. The document will state examples of what SNP ministers claim is Westminster’s damaging economic approach to Scotland, such as the failure to establish an oil fund which could be used to help fund public services.
Mr Salmond and Ms Sturgeon will also a claim an independent Scotland would have the powers to reverse UK government cuts to capital spending, that SNP ministers say would support an additional 19,000 jobs. They insist that UK ministers have allowed “income inequality to grow dramatically”, making Britain the fourth-most unequal society in the developed world.
Ms Sturgeon said: “The evidence is clear. The UK government’s economic policies have been holding Scotland back for generations. Only with the powers of independence can Scotland meet its full potential.”
But last night, leading Scottish economist Professor John McLaren called on the pair to set out “what policies they would put in place” to ensure economic growth and reverse job cuts.
Prof McLaren, of the Centre for Public Policy for Regions, said: “The examples given of what Westminster does that holds Scotland back are being made, but there’s a question of what would they [the SNP] do themselves. There’s talk about addressing income inequality but how would the Scottish government do that?”