I AM aware of much debate of late on the scale of the debt that Scotland would have to inherit if it became a country independent of England. The issue usually runs along the Unionist political divide. Unionists are usually those who were adamant that Scotland must take its share of the debt, and that it could not afford it. Others, more independence inclined, are not convinced. So let me offer some rational comment on this situation. To do so let me specify the issues to be decided upon here.

The first is whether Scotland might be liable for the debt.

The second is how much debt is there.

Third, the question is what part of that total might be attributable to Scotland.

Fourth is the question of when any repayment might be due?

Fifth is the question of what interest might be due if the debt is not repayable now.

I will deal with each of these in turn.

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Firstly, would Scotland be liable for English debt if it became independent?

It is an odd claim that is made by Unionists that Scotland is liable for debt due by the UK. The oddness comes from the fact that this recognises that Scotland’s sovereignty is real and divisible from the UK as a whole. It is therefore in existence now. If so, the point has been conceded that Scotland is already an economic as well as national entity separate from the UK, and has been during the existence of UK.

This then concedes a second argument, which is that English identity is also separate, divisible from the UK and continuing as well. This must be so. The very fact that there are two separate countries (of which England is the representative of one) that might assume this debt is, in that case, common ground.

There should also be common ground on another issue. And that is that there is actually already agreement that Scotland will have no liability for any of the debt of England, Wales or Northern Ireland (although for all practical purposes, this is English debt) if it chooses to become independent. We know this because the UK Government issued a publication on this in 2014 under the title UK Debt And The Scotland Independence Referendum

In this the UK Government, based in London, said: “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.”

They added: “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.”

In addition they said: “In the event of independence, the full spectrum of assets and liabilities – past, future and contingent – would need to be considered in negotiations between the continuing UK and Scottish Governments, on a case-by-case basis. This means that the negotiations would need to cover the arrangements for all forms of debt covered in this note, not just gilts and Treasury.”

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I think this really rather helpful because much of it summarises what appears to be legally, practically and politically both true, and necessary. In the process it resolves the first question. The UK Government has said Scotland will not be liable for debts managed by London before independence. Instead anything owing is entirely down to negotiation. The idea that in that case Scotland has some fixed share of UK debt that it must assume can be dismissed: this claim has no legal or factual basis.

The second question is this: how much debt is there?

I have noted what the UK Government has said about debt. It is also appropriate to note that by implication their note suggests that Treasury bills and gilts are not the only issues to be considered, but let’s assume that they are in the first instance as that is what is usually called “debt”. I will come back to the only other issues of significance later in this note.

It so happens that we have quite a good basis for determining how much UK debt there is. The government has just published its March 2019 Whole Of Government Accounts.

We’re told that UK debt now equates to GDP, although since both figures are represented by pretty poor estimates during the coronavirus crisis it’s hard to be sure what that means. Thankfully, the House of Commons Library says two things that provide some clarity to assist interpretation of this issue in a publication from June 2020 that referred to government debt as at March 2020. One was that the gross debt was £1806 billion at that date, and the second was that it increased by £56bn during the year then ended, implying it was £1750bn a year beforehand. Many would, in that case, be surprised to note that they say otherwise, since they suggest the debt to be £1773bn in March 2019. I will simply use the anomaly to note that this is a recurring issue when discussing national debt figures: they’re extraordinarily hard to pin down, let alone make sense of. Approximations are always the order of the day.

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What we can be sure of is that £1773bn is not the same as the £1240bn of gilts and Treasury bills reported as outstanding at March 31, 2019, as per the Whole Of Government Accounts (I have excluded the savings accounts balance at National Savings and Investments from consideration as part of debt, since it is clearly something quite different). There is an explanation though: the Whole Of Government Accounts are stated net of quantitative easing (QE), because those accounts correctly reflect the fact that a government cannot owe itself money and so debt that has been subject to government repurchase through the QE process has to be shown as cancelled. And if the UK Government hasn’t got that liability at this moment then nor has Scotland got any obligation with regard to it either. I sincerely hope that this is not a point of contention, since factually it is beyond debate.

This just needs the question to be asked as to what has happened since March 2019? Two things. The first is that there was a deficit if supposedly £56bn to March 2020. This was not covered by QE. So what is called debt bet of QE must have risen to near enough £1.3 trillion at March 31, 2020. And then there has been Covid-19. But what we do know is that every single penny of UK Government spending on coronavirus has so far been covered by QE. That means that the UK national debt has not risen as a result. In which case it is still at about £1.3tn for the purposes of this discussion. This then determines our start point. A share if £1.3tn is, at this moment, what we’re talking about. Any greater sum would be wholly inappropriate as a basis for negotiation.

The third question is how much debt might be attributable to Scotland?

That then brings me to the third issue, which is when things get more interesting. How much of this so-called debt is due by Scotland? Those of simple minds simply suggest that the liability be split on the basis of the respective populations of the countries. So if the UK has a population of about 66.8 million according to the Office for National Statistics at present, and Scotland makes up 5.46m of that total then those pursuing this argument would say Scotland owes £106bn. I do not agree.

My argument is that such a simple calculation would be wrong in almost any circumstance. The population could, and should, be weighted. That might be by age, for example. I would argue an older population should not be required to assume so much debt. It could be weighted by wealth as well: why should a poorer population be expected to assume as large a part of the debt as a richer one? Apportionment on the basis of average income would obviously be another factor since debt outstanding does represent tax uncollected despite government spending having arisen, and we supposedly have a progressive tax system, meaning that the richer country should be liable for more of the debt as a result. GDP could be another basis, excepting the fact that there is no reliable estimate for Scottish GDP. I am not doing those calculations here. I am just suggesting they could be done. I do not think there is the remotest chance that a simple apportionment could get accepted as fair.

Then there is the more important question as to whether Scotland has actually generated this debt. Let’s be blunt about what this question means. The question comes down to oil. Given the phenomenal contribution North Sea oil made to the UK as a whole, which it can reasonably be argued was squandered outside Scotland, does Scotland have any liability for the debt, come what may?

We will consider this in part two in tomorrow’s National, along with the question of when might any repayment be due and what interest rate would be owing.