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A yes vote for Scottish independence would make the recovery of the UK’s triple A rating a more distant prospect, the Fitch agency warned on Thursday.
Because London has promised to honour all existing British government debt and then seek a contribution from the new Scottish government, Fitch warned that the ratio of the UK’s debt to gross domestic product would rise.
The agency assumed that an independent Scotland would be responsible for a proportionate share of existing public debt in the form of a long-term bilateral loan – although the exact terms and time period would be dependent on negotiation – and that Scotland would gradually repay its loan to the UK.
“The UK’s gross debt ratio will need to be lower than its current level and steadily declining before any upgrade back to AAA, a prospect that would be delayed by such a debt shock,” Fitch said.
But a separate Treasury report argued that a yes vote would hit Scotland’s debt position as well, estimating that a newly independent Scotland would have the second-worst fiscal deficit of all advanced economies.
The new figures, based on an analysis of the latest forecasts from the International Monetary Fund and the Glasgow-based Centre for Public Policy for Regions (CPPR), estimate that Scotland’s deficit as a proportion of gross domestic product would hit 5.5 per cent in 2016-17.
In percentage terms, this would be second only to the US among advanced economies, and substantially higher than the IMF’s prediction of 2.9 per cent for the whole of the UK.
Danny Alexander, chief secretary to the Treasury, said in the event of independence, Scotland’s deficit would be more than £1,000 per person higher than for the UK as a whole.
“This would be a great risk to the Scottish economy and would mean higher tax bills and cuts to public services to balance the books,” he said.
Mr Alexander added: “A range of independent experts, including the IFS [Institute for Fiscal Studies], CPPR, Citigroup, and now Fitch all show that the broad shoulders of the UK mean lower tax bills and higher spending on public services in Scotland.”
The Scottish government said: “An independent Scotland would be the 14th wealthiest country in the OECD [Group of countries that aims to promote sustainable growth], compared to UK at 18th, and, according to the Financial Times, would be among the 20 wealthiest countries in the world. Standard & Poor’s [rating agency] have also said that even without North Sea oil and gas, an independent Scotland would qualify for its ‘highest economic assessment’.
“Independence will give Scotland the economic tools we need to grow the economy more quickly and improve the fiscal position.”
The Scottish National party’s hopes of a sterling currency union received a blow as a new survey by YouGov showed that the rest of the UK would reject such an arrangement by a factor of two to one.
Although the three main Westminster parties have all publicly ruled out such an arrangement, an unnamed government minister told The Guardian newspaper a fortnight ago that a deal could be done. Alistair Darling, head of the pro-union Better Together campaign, subsequently said that a separate referendum of the rest of the UK might be required for this to happen.
The YouGov findings suggested such a vote would be lost by the Scottish government, which says a shared pound would be by far the best arrangement under independence.
Recent polls suggest the momentum built up by the pro-independence side may have stalled. A Survation poll published on Tuesday showed a 10-point gap between the two sides, with the yes campaign on 36 per cent and no on 46 per cent.
That gap has widened one point since last month, reversing the recent trend seen by some pollsters of a small narrowing in the gap between the two sides.