INDEPENDENCE could save Scotland more than £2 billion per year – or earn it a severance package from the rest of the UK, a think tank claims.
A new report revealed exclusively to The National shows the country could save anywhere from £800 million to more than £2bn per year through “clever” negotiations and refinancing in the event of a Yes vote.
The paper breaks down four economic options, including one which may leave Scotland owed cash by the rest of the UK.
Commissioned by the Common Weal think tank, it includes “conservative estimates” and says exact figures are impossible to come by – because the last UK register of assets is almost a decade out of date.
The inventory was last carried out under Labour in 2007 around the time the SNP came to power in Holyrood. It was due to be repeated in 2013, but was cancelled under David Cameron’s premiership in 2010.
What remains is said to be plagued with inconsistencies as individual government departments were left to estimate the value of assets based on their own criteria. However, the report says it is “difficult to hypothesise a scenario” in which Scotland would be worse off.
During the indyref campaign, it was commonly held that the country would take on a population share of UK national debt, which stands at around £1.6 trillion, in return for a per capita share of assets.
However, Common Weal director Robin McAlpine said: “The issue of Scotland’s share of UK debt in the event of independence is sometimes talked about as if it is a law of nature like gravity. It is not.
“It is the legacy of a messy series of financial arrangements negotiated by a succession of different governments over a period of decades.
“If, rather than just accepting the simplistic arguments put forward by those who oppose independence, you actually delve into the legal and financial position and explore the options, you quickly realise that the simplistic headlines are wrong.
“Assuming that Scotland negotiates cleverly and refinances national debt sensibly, the smallest saving we should be looking for is £800m. That would take a very substantial chunk off the difference in the fiscal position of Scotland and England, according to GERS.
“It would be a very significant contribution to the financial health of a newly independent Scotland.”
In 2014 the National Institute for Economics and Social Research claimed an independent Scotland would have to make an immediate debt repayment of £23bn to the UK Treasury, borrowing that sum in the first year of the “new” state.
The figure – disputed by the Scottish Government – was based on the SNP administration’s plan to repay its share of UK debt, which was said to amount to a total of £143bn.
In its White Paper, the Alex Salmond-led government said Scotland’s share would be agreed through talks and could be based on population or Scotland’s historical contribution to the Exchequer. UK assets were set at an estimated £1.267bn, with the door open to offset part of that asset share against any debt burden.
The blueprint said: “Either way, our share of the UK’s debt is projected to be smaller as a proportion of our economic output than for the UK as a whole, which means Scotland is better placed for the future.”
The new analysis, written by Dr Craig Dalzell – who also authored the think tank’s recent report on currency options – also concludes that the country cannot lose.
The claim is based on comparisons with precedents set on the breakup of the Soviet Union and Czechoslovakia, as well as on four different ways of handling the split. However, Dalzell says a new register of assets must be drawn up for more precise analysis.
He said: “The only model of separation openly discussed in the 2014 independence campaign was one in which Scotland either assumed a full percentage share of the UK’s assets and debts or assumed absolutely nothing.
“The reality of the situation is that Scotland has far more nuanced options available to it including only taking on a level of debt equal in value to the assets which Scotland actually requires to begin life as an independent country.
“It should be noted that for these negotiations to be successful, we must first know exactly what is already within Scotland’s possession and what we may need but currently lack. For this reason, it is vital that a full Register of Assets be commissioned either by the UK or Scottish government.”
The options
The subtractive case with refinancing
Scotland takes on a per capita share of UK national debt, with this share reduced by the value of any assets “withheld” by the rest of the UK. Based on Scotland taking on £136bn of debts after “smooth, amicable” talks, the country issues bonds with an annual yield averaging around 1.5 per cent at a total cost of £2.04b per year, saving an annual £800m based on the current situation.
The additive case with no refinancing
The rest of the UK claims all debts and assets in order to claim status as the continuing state to the former UK, leaving Scotland without a share of either. Scotland then claims £50bn of these assets and takes on an equivalent share of debt, paying this back at the current UK average rate of 2.2 per cent per year for 45 years. This makes for annual repayments of £1.1b and a saving of £1.7b on the debt interest payments currently assigned in GERS.
The zero option case
The rest of the UK does not want to share or sell assets, or those assets are unsuitable for Scotland’s needs, leaving the country to buy what it wants from where it wants. Leaders buy £50bn worth of assets at a Scottish bond yield of 1.5 per cent, implying an annual cost of £750m and a saving of more than £2bn per year on the present scenario.
The historical net contribution case
Scotland’s net contributions to the rest of the UK are considered. Scottish Government estimates from 2013 stating £222bn has been paid into the rest of the UK since 1980 are valid and the population share of UK net is subtracted, making Scotland’s net contribution £86bn, potentially leaving Westminster to negotiate a repayment schedule to settle money now owed to Holyrood.
The comparisons
The Soviet Union
Russia claimed all Soviet foreign debt and military assets in order to become the successor state. Mobile military assets were transferred on a territorial basis and talks on Baikonur Cosmodrome, the world’s first and largest space launch facility, resulted in Kazakhstan retaining sovereignty and Russia leasing operational control.
Czechoslovakia
Immovable assets were transferred territorially after amicable talks, with moveable assets split by population share.
Ben Wray, head of policy at Common Weal, said: “Whatever bluster the UK Government comes out with beforehand, they are perfectly well aware that in the event of a Yes vote they will have to negotiate a share of assets and liabilities with an independent Scotland. This report outlines a number of options for the Scottish side of that negotiation, all of which would be highly beneficial in improving Scotland’s fiscal position.
“The historical precedents clearly show that whatever move the UK Government seek to make in the negotiations, Scotland will be able to counter it, and will hold a crucial upper hand – whereas the UK Government must honour all existing debts to creditors, including many where the rate of interest is far higher than currently, an independent Scottish Government would be creating new debt at current historically low interest rates. Therefore whichever negotiating position is arrived at, Scotland’s refinanced debts will likely be much cheaper than the UK’s, and cheaper than that currently attributed to it in GERS.”
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