Scotland would take share of UK national debt

Alex Salmond, the first Minister for Scotland, has this week confirmed that an independent Scotland would take a share of the UK national debt equivalent to the share of the population. It is believed that this would leave Scotland with a debt equivalent to 65% of gross domestic product which the Scottish National Party suggests is less than the average amongst European Union countries and more than acceptable going forward.

Can Scotland survive as an independent country?

There is an ongoing dispute with regards to the UK government and Scottish government in relation to how much of the U.K.’s overall national debt an independent Scotland would be forced to take on. It is believed that the current debt ratio for the UK as a whole is 75% of GDP therefore the 65% of gross domestic product suggested by Alex Salmond would leave Scotland on the face of it better off than the rest of the UK.

However, these figures have been plucked from thin air by the Scottish National Party and David Cameron and the UK government have yet to confirm exactly what percentage of debt Scotland would be expected to transfer in the event that the ongoing independence referendum was successful. When you take into account that UK national debt is well over £1 trillion with potentially more debt from the public sector pension situation, this would be a massive drag on the Scottish economy.

Debt in Scotland

There is no doubt that the employment situation in Scotland has on the whole been worse than the rest of the UK over the last decade. We have seen the closure of shipyards, naval operations and indeed a whole host of foreign companies have left these shores. However, we have seen some new entrants to the Scottish economy although many of these have been subsidised by UK taxpayers which in itself creates yet another problem for the Scottish government.

There are also a number of public services which are free in Scotland as well as free university education, free prescriptions and other similar situations. However, as politicians have pointed out for many years now, there is no such thing as a free service in the current environment and as the cost of education continues to rise this will mean more money required from the Scottish budget. This will leave less money to be spent in other areas of the public sector and could lead to a reduction in employment numbers.

Financing Scotland’s debt

There is also an ongoing issue with regard to the credit rating which any Scottish government would have if independence was pushed through and voted for by the electorate. The SNP believes that Scotland would automatically assume the U.K.’s triple-A rating while many in the business arena are not so sure. So far the credit rating agencies have been reluctant to comment upon hypothetical situations and indeed it seems that we may only find out what would happen to the Scottish credit rating after independence.

It was ironic that this week we saw Alex Salmond comment upon the fact that the UK credit rating has been placed under watch by a leading credit rating agency at a time when he seems to be pairing Scotland with the UK. The crux of the independence argument seems to revolve around oil around the shores of Scotland which the SNP automatically assumes would come under Scottish control if independence was agreed. The truth of the matter is that the price of oil has been very volatile over the last 10 or 20 years and it is very difficult and very dangerous to base any long-term economic forecasts on such a variable. It is also worthwhile noting that oil is a depreciating asset and there have been warnings about low reserves in the North Sea. If it was to dry up in the future where would this leave Scotland?

Could Scotland survive another banking crisis?

While the headline figures with regards to the UK governments rescue deals for Lloyds bank and Royal Bank of Scotland are scary to say the least, they are actually much greater because of various guarantees and short-term loans in addition to the share purchases. Royal Bank of Scotland itself has a history which is based in Scotland and indeed there are many who believe it was this institution which led to a collapse of the UK banking system. So where would this leave Scotland if the banks crashed in the future?

There are serious concerns that an independent Scotland would struggle to support an ailing banking institution such as Royal Bank of Scotland if we saw a repeat of the credit crunch. The SNP is adamant that by retaining sterling they would effectively place the Bank of England as a lender of last resort and effectively force the bank to bail out any problems which the government was unable to tackle. This will not go down well with the Bank of England and there are serious concerns whether an independent Scotland would be able to retain the pound in the longer term.

Can Scotland afford independence?

When you take into account the ever-growing number of public-sector servants in Scotland, and indeed the rest of the UK, there are significant liabilities going forward for an independent Scottish government in the shape of salaries and pension liabilities. When you also take into account free prescriptions, free university education and other free services there are serious concerns about the ability to balance budgets.

That is before we even take into account a debt transfer which would run into hundreds of billions of pounds and take many years for the Scottish government to pay off. There would also need to be an increase in general taxes north of the border and there are serious concerns about defence, postal services, transport, immigration, passports and membership of groups such as the European Union and NATO for example.

There are questions to be answered with regards to whether Scotland can afford to be independent and it is hoped that we see a clear and fair battle in the months ahead with all information made available to the general public.

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