AAA downgrade a blow to unionist campaign say SNP

THE SNP has claimed the UK Government’s case against Scottish independence has been overtaken by events after leaked Treasury papers showed that officials were basing their case for the UK on Britain’s “AAA credit rating”.

The paper, passed to The Scotsman, warns that if the country were to become independent, it would be at risk of losing “the AAA credit rating it currently enjoys” by being part of the UK.

But that claim has now been made redundant after Moody’s last week announced it would be downgrading the UK’s previously unblemished credit status.

Treasury officials pointed out last night that the paper was not an official policy document. They also stood by the underlying case in the paper that it would be “highly unlikely” for an independent Scotland to be able to borrow at the same low rates enjoyed at present by the UK as a whole.

But the SNP has seized on the findings to claim that, in the light of the Moody’s decision, the UK Government was now shown to be basing the case against independence on “assertion not fact”.

The paper, entitled “Financial services regulation in an independent Scotland”, is a background paper by the Treasury. It comes as the UK Government prepares to unveil a major public document on the economics of independence as part of its Scotland Analysis programme.

The paper is described as “not a statement of Government policy, but is intended to assist with working level discussions with industry as part of the Scotland Analysis programme.”

As part of that exercise, the government is setting out an official view on the likely macro-economic landscape that would be faced by an independent Scotland.

A section on Scotland’s credit rating declares: “In general, wholesale funding costs for firms are linked to the credit rating of the sovereign. The expectation is that an independent Scotland would not have a AAA credit rating it currently enjoys and would most likely have a lower rating than the rest of the UK post independence.”

Downgrade

That Triple A status has been used frequently over the last year by UK Ministers to bolster the pro-UK arguments. But Moody’s last week cut the UK back to Aa1, putting Britain on a par with France and the USA, both of whom have also lost their status as a result of the countries’ massive debt burdens and slow growth.

Officials in London confirmed that, in the forthcoming UK Government papers on independence under preparation, there will be no references to Britain’s AAA status

An SNP spokesperson said: “The UK’s triple-A status was a key anti-independence argument of the Tory-led Westminster Government and No campaign, and it has backfired badly - this Treasury document is going to have to be re-written before it sees the light of day. What this episode demonstrates is that the case against independence is based on assertion rather than fact.”

However, UK Government sources say their position on the relative credit worthiness of the two countries after independence as not changed, despite Moody’s downgrade.

In the forthcoming papers, they will point to the verdict of economists who have warned that, as a smaller nation with no previous credit history, Scotland would have to pay a higher cost for the price of its debt, with that cost passed onto banks.

A Treasury spokesman responded: “Whether an independent Scotland would command the same investor confidence as the UK, and what this would mean for households and businesses, is an issue that must be considered as part of the independence debate. As other commentators have noted, it is highly unlikely that an independent Scotland would be able to borrow at the same low rates as the UK does now on Scotland’s behalf. This is in part because an independent Scotland would be a new state, with no track record for issuing debt.”