Academics indicate that dumping a share of the UK’s debt is better for the independent Scotland’s North Sea oil.
In reference to Glasgow University’s Centre for Public Policy for Regions (CPPR), a low or zero share of the UK debt will significantly improve Scotland’s fiscal balance following its current poor economic outlook by reducing population share of debt if Scotland becomes independent.
Different debates are rising for Scotland if it assumes smaller share of the debt in the event that the Westminster fails to agree on a single currency union, Scotland’s “theoretical surplus” from 1980, and trade off in post-referendum negotiations, especially in nuclear energy weapons, according to CPPR.
However, the CPPR said that the “flawed” threat to dump the debt if it can’t share sterling can cause cross-border hostility and affect international markets, resulting to ‘retaliatory’ borrowing costs and hurt Scotland’s economic image.
According to CPPR economist John McLaren, the current share of Scotland’s debt servicing is two times more than the expected oil revenues in the future.
The report indicates there are a variety of arguments that can be raised as to why a lower population share, or even no share, of UK debt might be worth.
These are quid pro quo for Scotland denied permission to share a currency and formal monetary union with the UK, Scotland’s “theoretical surplus” since 1980 with no accumulated debts, and as a part of detailed discussions after a Yes vote. This is according to the CPPR report.
The report also added that the £5.5bn improvement expected in Scotland in 2016-17 fiscal balance to service existing debt is two times as much as the contribution from North Sea tax revenues in that year, which is £2.7bn in reference to geographic share of latest OBR forecast.
The report pinpoints a number of uncertainties clouding the positive picture.
First, there is what the credit rating will be attached to the issuance of Scottish debts in the future. Its government will need to build up a credit record to allow borrowing when there’s need.
Luckily, Scotland debt to GDP ratio could be very low, a factor that determines credit ratings. Nevertheless, it will have no track record in, and reputation for, to manage the full arrays of economic powers.
CPPR noted that the Scottish government’s current rationale to assume zero UK debt if the UK insists not to have a currency union is “flawed”, arguing that the sterling is more a symbol than an asset, standing for the UK’s economic and fiscal reputation to pay its debts obligations.
John Swinney, Scottish finance Secretary said the report shows exactly how strong a hand Scotland will have in negotiations following a vote for independence, adding that it is an indication of how it will be in the overwhelming economic interests of the UK to have fair and open negotiations.
“The UK Treasury has already made clear that, in the event of independence, it will remain legally liable for the entirety of UK national debt.” John Said.
He however stated that the Scottish Government will take fair, reasonable, and responsible view that an independent Scotland gets a fair share of the debt – which must include liabilities and fair share of the assets of the current UK and the pound.
Alex Salmond, a Better Together spokesman is the only one suggesting that Scotland would default on their share of the debt if they leave the UK.
He argues that people are aware of what happens if they don’t pay their debts – bad credit ratings and everything becomes costly.
Noting that this a risk they don’t need to take, Salmond said they can have the best of both worlds and that more decisions should be taken in the parliament, security and stability of being part of the UK.