Why the SNP shouldn't be celebrating the UK's pledge to guarantee Scotland's debt

The move reflects the justified belief among investors that Scotland's debt position would be weaker than that of the UK.

The SNP is busy spinning today's pledge by the Treasury to guarantee all UK debt in the event of Scottish independence in its favour. Deputy First Minister Nicola Sturgeon tweeted: "UKG debt announcement today marks the moment that common sense & mutual self interest begins to trump #projectfear", while Alex Salmond declared that the move meant Scotland would be in "an extremely strong positon to negotiate a fair deal." 

The announcement means that rather than transferring a proportionate share of UK gilts to Scotland following independence, the British government will continue to guarantee them and expect the Scottish government to reimburse it accordingly. Here's the key passage from the Treasury paper: 

1.1 In the event of Scottish independence from the United Kingdom (UK), the continuing UK Government would in all circumstances honour the contractual terms of the debt issued by the UK Government. An independent Scottish state would become responsible for a fair and proportionate share of the UK’s current liabilities, but a share of the outstanding stock of debt instruments that have been issued by the UK would not be transferred to Scotland. For example, there would be no change in counterparty for holders of UK gilts. Instead, an independent Scotland would need to raise funds in order to reimburse the continuing UK for this share. 
1.2 An entirely separate contract between the continuing UK Government and an independent Scottish state’s Government would need to be established. The respective shares of debt and the terms of repayment would be subject to negotiation. 

The reason for this move, as Danny Alexander has just explained on Sky News, is the danger that the UK's borrowing costs could rise in advance of the referendum as investors demand a "risk premium" on the basis that an independent Scotland would be less creditworthy than the UK (even after the loss of the latter's AAA rating). 

Owing to Scotland's weaker fiscal position, investors would demand higher returns on debt held by its government, which is precisely why the SNP was wrong to greet the announcement as a vindication. As the IFS (which has no stake in the race) recently noted, Scotland's lower birth rate and lower immigration rate means it automatically incurs a larger "fiscal gap" (the difference between spending and revenue) of 1.9%, compared with 0.8% for the UK. Even in the most optimistic scenario, Scotland would need to raise taxes or cut spending by an additional £2bn (such as through a 8p rise in the basic rate of income tax or an increase in VAT to 27%, or a 6% reduction in public spending) to achieve a sustainable debt level. Should oil revenues prove less buoyant and borrowing less cheap than the SNP anticipates, this figure could rise to £9.4bn (the equivalent of an 18p rise in the basic rate or a VAT rate of 36%), a scale of austerity that makes George Osborne look like a Keynesian. This doesn't mean that an independent Scotland wouldn't be economically viable, but it does mean that most voters would be worse off. 

The real significance of today's announcement is that investors rightly believe that Scotland's debt position would be weaker than that of the UK - and that is nothing for the SNP to celebrate. 

Alex Salmond and Nicola Sturgeon present the White Paper for Scottish independance at the Science Museum Glasgow on November 26, 2013 in Glasgow. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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It's Gary Lineker 1, the Sun 0

The football hero has found himself at the heart of a Twitter storm over the refugee children debate.

The Mole wonders what sort of topsy-turvy universe we now live in where Gary Lineker is suddenly being called a “political activist” by a Conservative MP? Our favourite big-eared football pundit has found himself in a war of words with the Sun newspaper after wading into the controversy over the age of the refugee children granted entry into Britain from Calais.

Pictures published earlier this week in the right-wing press prompted speculation over the migrants' “true age”, and a Tory MP even went as far as suggesting that these children should have their age verified by dental X-rays. All of which leaves your poor Mole with a deeply furrowed brow. But luckily the British Dental Association was on hand to condemn the idea as unethical, inaccurate and inappropriate. Phew. Thank God for dentists.

Back to old Big Ears, sorry, Saint Gary, who on Wednesday tweeted his outrage over the Murdoch-owned newspaper’s scaremongering coverage of the story. He smacked down the ex-English Defence League leader, Tommy Robinson, in a single tweet, calling him a “racist idiot”, and went on to defend his right to express his opinions freely on his feed.

The Sun hit back in traditional form, calling for Lineker to be ousted from his job as host of the BBC’s Match of the Day. The headline they chose? “Out on his ears”, of course, referring to the sporting hero’s most notable assets. In the article, the tabloid lays into Lineker, branding him a “leftie luvvie” and “jug-eared”. The article attacked him for describing those querying the age of the young migrants as “hideously racist” and suggested he had breached BBC guidelines on impartiality.

All of which has prompted calls for a boycott of the Sun and an outpouring of support for Lineker on Twitter. His fellow football hero Stan Collymore waded in, tweeting that he was on “Team Lineker”. Leading the charge against the Murdoch-owned title was the close ally of Labour leader Jeremy Corbyn and former Channel 4 News economics editor, Paul Mason, who tweeted:

Lineker, who is not accustomed to finding himself at the centre of such highly politicised arguments on social media, responded with typical good humour, saying he had received a bit of a “spanking”.

All of which leaves the Mole with renewed respect for Lineker and an uncharacteristic desire to watch this weekend’s Match of the Day to see if any trace of his new activist persona might surface.


I'm a mole, innit.