Scottish independence would add 9pc to UK debt burden, says NIESR

In a hard-hitting report, the NIESR has warned that Scottish independence could push up the rest of the UK’s debt to GDP ratio by as much as 9pc. The extra burden is “likely to catch the attention of credit rating agencies,” the economic think tank has warned.

The NIESR has calculated that Scotland’s share of the UK’s £1.7trillion gross debt pile forecast for 2015/16 is likely to be £143bn, or 86pc of its GDP. The economists reckon the total would be reduced to £102bn if it were paid immediately, rather than accruing years of interest charges.

If Edinburgh receives 84pc of the tax yield from North Sea oil and gas, as divided along geographic lines, it can expect to receive a £47bn cash injection. However, the NIESR points out that this is “about one third of the value of debt an independent Scotland would inherit.”

In its report NIESR says: “However, under the ‘IOU’ option the UK bears the risk that Scotland might defer or, in extreme conditions, even not repay its obligation... This is obviously not in the interest of UK taxpayers, and would surely attract the attention of the credit rating agencies.”

Meanwhile, in order to meet its obligations, Scotland would have to commit to far tougher austerity than it has faced in recent years.

“We estimate that Scotland would need to run primary surpluses of 3.1% annually order to achieve a Maastricht defined debt to GDP ratio of 60% after 10 years of independence,” NIESR’s report said. “This would be more restrictive than the fiscal tightening over the last four years.”

The economists have also poured more water on Alex Salmond’s plans to continue to share the pound with the rest of the UK. The NIESR argued that sterling is “inalienable to the UK government in the sense that it is part of its history and depends upon the ongoing support of the UK government”. The report adds: “Reputations are incomplete contracts because they can be partly shared but they cannot be transferred. It is simply not possible for the continuing UK government to transfer part of this reputational value to another government even if it were inclined to do so.”

more