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Treasury promises to honour UK debts up to date of Scottish independence Treasury promises to honour UK debts up to date of Scottish independence
(about 1 hour later)
The Treasury has pledged to honour all UK debts up to the date of Scotland's independence in an effort to reassure investors and stop interest rates rising.The Treasury has pledged to honour all UK debts up to the date of Scotland's independence in an effort to reassure investors and stop interest rates rising.
The Treasury statement, issued on Monday morning, is designed to head off anxieties about the risks that an independent Scotland could refuse to pay all or part its share of the UK's £1.4tn debt mountain in a quarrel over sharing sterling. The Treasury statement, issued on Monday, is designed to head off concerns about the risks that an independent Scotland could refuse to pay all or part its share of the UK's £1.4 trillion debt in a quarrel over sharing sterling.
Alex Salmond, the first minister, has repeatedly linked post-referendum negotiations on sharing the UK's debt with his demands for a new sterling currency union, warning that without a deal on sterling Scotland might refuse to pay its share of historic UK debt. Alex Salmond, the first minister, has linked post-referendum negotiations on sharing the UK's debt with his demands for a new currency union, saying that without a deal on sterling Scotland might refuse to pay its share of historic UK debt.
The Treasury statement said the UK government would "in all circumstances honour" the terms of all its debts agreed before the referendum, regardless of whether it and a future Scottish government reached a deal on how to repay Scotland's share.The Treasury statement said the UK government would "in all circumstances honour" the terms of all its debts agreed before the referendum, regardless of whether it and a future Scottish government reached a deal on how to repay Scotland's share.
The Treasury clarified earlier reports which tied the debt promise to referendum day this September, confirming that the pledge applied until Scotland was legally declared an independent state – mooted as March 2016 by Scottish ministers – but refused to discuss any deal on how to divide up the UK's debt before the referendum. The Treasury clarified earlier reports which tied the debt promise to referendum day this September, confirming that the pledge applied until Scotland was legally declared an independent state – mooted as March 2016 by Scottish ministers. But the Treasury refused to discuss any deal on how to divide up the UK's debt before the referendum.
A deal to divide it based on Scotland's population could add tens of billions to the bill compared with a formula based on the historic value of North Sea oil revenues to the UK, which would boost Scotland's payments into the national accounts. A deal to divide it based on Scotland's population could add tens of billions to the bill compared with a formula based on the historic value of North Sea oil revenues to the UK, which would boost Scottish payments into the national accounts.
In a significant move, the Treasury revealed that rather than transferring Scotland's share of the UK's debt after independence to a new Scottish exchequer, it would continue to control and service all its current debts, including Scotland's share after independence. The Treasury also revealed that rather than transferring Scotland's share of the UK's debt after independence to a new Scottish exchequer, it would continue to control and service all its current debts, including Scotland's share after independence.
Instead, Scotland would be expected to reimburse the Treasury for its share of the debt and "would need to raise funds" to do so – a gambit designed to raise new questions about the higher interest rates and deeper public spending cuts an independent Scotland would be expected to face.Instead, Scotland would be expected to reimburse the Treasury for its share of the debt and "would need to raise funds" to do so – a gambit designed to raise new questions about the higher interest rates and deeper public spending cuts an independent Scotland would be expected to face.
Speaking as the Treasury statement was released, the first minister said it was simply common sense, since the UK government was legally bound to honour the terms of its outstanding debts. His government's economic advisers had already suggested this arrangement. Speaking as the Treasury statement was released, Salmond said that option was common sense, since the UK government was legally bound to honour the terms of its outstanding debts. His government's economic advisers had already suggested this arrangement.
But Salmond again stated that a deal on debt was linked to a deal to share sterling.But Salmond again stated that a deal on debt was linked to a deal to share sterling.
"We remain prepared to negotiate taking responsibility for financing a fair share of the debts of the UK provided, of course, Scotland secures a fair share of the assets, including the monetary assets," the first minister said. "We remain prepared to negotiate taking responsibility for financing a fair share of the debts of the UK provided, of course, Scotland secures a fair share of the assets, including the monetary assets," he said.
Salmond added that the Treasury position strengthened his government's hand on a currency pact, since it made far greater economic sense for both economies to have close monetary ties.Salmond added that the Treasury position strengthened his government's hand on a currency pact, since it made far greater economic sense for both economies to have close monetary ties.
He added that this proposal had majority support among English, Welsh and Northern Irish voters in an SNP-commissioned opinion poll published over Christmas. He added that this proposal had majority support among English, Welsh and Northern Irish voters in an SNP-commissioned opinion poll published during Christmas.
"That position is now beyond argument and today's announcement makes clear that Scotland would be in an extremely strong negotiating position to secure that fair deal," Salmond said. "That position is now beyond argument and today's announcement makes clear that Scotland would be in an extremely strong negotiating position to secure that fair deal," Salmond said. "The UK government, and the no campaign, would be well advised to stop all the bluff and bluster around these matters and accept our offer of sensible discussions."
"The UK government, and the no campaign, would be well advised to stop all the bluff and bluster around these matters and accept our offer of sensible discussions." Treasury ministers fear Salmond's threats on debt could make the UK's borrowing before the referendum more expensive, and that could, said Alistair Darling, a former Labour chancellor, force up interest rates, mortgages and borrowing for businesses and consumers.
Treasury ministers fear Salmond's threats on debt could make the UK's borrowing before the referendum more expensive, and Alistair Darling, the former Labour chancellor, said on Monday that could force up interest rates, mortgages and borrowing for businesses and consumers.
The markets are not showing signs of significant anxieties about September's vote, because opinion polls are consistently showing support for independence at about a third of Scottish voters.The markets are not showing signs of significant anxieties about September's vote, because opinion polls are consistently showing support for independence at about a third of Scottish voters.
But Treasury officials said they and the UK's Debt Management Office had been approached by investors seeking reassurances about the status of UK gilts because of the referendum. But Treasury officials said they and the UK Debt Management Office had been approached by investors seeking reassurances about the status of UK gilts because of the referendum.
Its decision to offer a "cast-iron" guarantee could be seen to weaken the Treasury's hand in post-referendum negotiations, by appearing to cushion Scottish ministers from the risk of defaulting on their share of the debt. The Treasury's decision to offer a "cast-iron" guarantee could be seen to weaken its hand in post-referendum negotiations, by appearing to cushion Scottish ministers from the risk of defaulting on Scotland's share of the debt.
But the Treasury insists its pledge strengthens the UK government's hand by showing it is taking a responsible position, regardless of the outcome of post-referendum talks. That puts the onus on Salmond to take a mature position on Scotland's debts. But the Treasury says its pledge strengthens the UK government's hand by showing it is taking a responsible position, regardless of the outcome of post-referendum talks. That puts the onus on Salmond to take a mature position on Scotland's debts.
Treasury ministers and Darling reject Salmond's claims that sterling is a physical asset that can be shared or split up; they say sharing a currency is a political decision that requires public consent.Treasury ministers and Darling reject Salmond's claims that sterling is a physical asset that can be shared or split up; they say sharing a currency is a political decision that requires public consent.
Danny Alexander, the chief secretary to the Treasury, said it tested Salmond's credibility on debt and a currency pact: threatening to default on Scotland's share of debt would be "absolutely disastrous" to its credibility among lenders. Danny Alexander, the chief secretary to the Treasury, said it tested Salmond's credibility on debt and a currency pact: threatening to default on Scotland's share of debt would be "absolutely disastrous" for the Scottish government's credibility among lenders.
"[Scotland] would need to raise a lot of money in the markets to retain its financial independence and credibility and the worst thing in the world would be to start its life as a new state with a default on its debt obligations; that would be terrible for an independent Scotland," Alexander said."[Scotland] would need to raise a lot of money in the markets to retain its financial independence and credibility and the worst thing in the world would be to start its life as a new state with a default on its debt obligations; that would be terrible for an independent Scotland," Alexander said.
Prof David Bell, an economist at the University of Stirling doing detailed work on the economics of independence, said Scotland would face additional costs after independence because lenders would charge a new, smaller state more for its borrowing.Prof David Bell, an economist at the University of Stirling doing detailed work on the economics of independence, said Scotland would face additional costs after independence because lenders would charge a new, smaller state more for its borrowing.
While the UK's borrowing costs would also rise after independence, because of the costs of doing a deal with Scotland, lenders would also expect tough controls on Scotland's state spending. Any threat not to repay its debt would damage its standing.While the UK's borrowing costs would also rise after independence, because of the costs of doing a deal with Scotland, lenders would also expect tough controls on Scotland's state spending. Any threat not to repay its debt would damage its standing.
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