Abandoning UK debt would ‘strengthen’ Scotland, says report

Edinburgh says a report on the fiscal benefits of independent Scots walking away from UK state debt shows that London would have to negotiate a fair division of assets.

How much of the UK’s £1.2tn debt would be funded by Scotland would be a central question if Scots vote in September to leave the union.

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Future of the union

Scotland will decide in a referendum to be held on September 18 2014 whether or not to end the 306-year-old union with England

The Treasury has said it would retain full legal responsibility for the debt, a position that stems from UK government’s insistence that it alone would be the “continuing state” after separation.

London would expect Scotland to reimburse it directly for its share of the debt.

But Scottish ministers have repeatedly threatened to walk away if London refuses to agree to a formal currency union allowing shared use of the pound – an arrangement that the main Westminster parties have ruled out.

In a report published on Tuesday, the Glasgow-based Centre for Public Policy for Regions think-tank, said the Scottish government argument was “flawed”, given that the pound is a means of payment rather than an asset to be offset against state liabilities.

But taking a low or zero share of UK debt “could substantially improve Scotland’s fiscal balance and so strengthen its longer term fiscal prospects” said the report, which argued that the remaining UK might agree to Scotland taking a smaller share of the debt in exchange for concessions on other issues.

John Swinney, Scotland’s finance secretary, said: “This report shows exactly how strong a hand Scotland will have in negotiations following a vote for independence

“[It] also shows exactly why it will be in the overwhelming economic interests of the rest of the UK to negotiate fairly and openly.”

Mr Swinney said the Scottish government believed it should pay for a “fair share” of UK debt but any agreement “must also include a fair share of the assets of the current UK and the pound”.

The CPPR said walking away from UK debt would save Scotland £5.5bn in servicing costs in 2016-17 twice the sum expected from North Sea tax revenues.

Pro-union campaigners warn that unilaterally walking away from the UK’s debts would be tantamount to a default, destroying Scotland’s credibility with financial markets and poisoning relations with the rest of the UK.