Richard Murphy: Everything you've been told about Scotland and national debt is wrong

Ahead of the UK Budget, political economist Professor Richard Murphy takes a look at the national debt and what it means for Scotland.

WESTMINSTER politics has been obsessed with deficits for more than a decade. That obsession will feature prominently in tomorrow's UK budget. Over-excited journalists will claim the UK is headed for bankruptcy.

Politicians will suggest that something must be done about the debt, but not just yet. And, in Scotland, Unionists will suggest that debt is a reason why the country can never be independent.

The reality is that almost every single thing said about the UK national debt is wrong. And I include in that the claim that this prevents Scotland being independent. That, however, requires some explanation.

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First, all but £42 billion of government borrowing has been accumulated since 1945. In the last 75 years the UK Government borrowed in 63 years, and repaid debt in 12, the last of which was in 2001. Total borrowing will have been £2,174bn. Repayments have been £38bn. So, for every £1 borrowed just 1.7p has been repaid. For all the obsession about debt repayment it is something that is not done.

Except that is, for one thing. That is that since 2009 the UK Government has been buying back its own debt from the financial markets. Around £800bn has been repurchased now. This is done using money that the Bank of England creates for the Treasury, most of which money has actually been used to keep London’s banks afloat during two financial crises. So, the real debt is not £2200bn. It’s more like £1400bn.

And even that’s not true. Because that figure includes a bit over £200bn of savings held with NS&I. That’s things like Premium Bonds. They don’t need repaying. Nor could that be Scotland’s problem. So when that’s taken off £1200bn of debt is left.

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And that debt is pretty popular. About £400bn is owned by foreign governments. Most of the rest is owned by pension funds and life assurance companies, plus a bit by banks. The reason why these organisations own this debt is that it represents the private wealth that keeps the City of London revolving.

There are three things to note. First, the UK can’t repay the debt that the Government has already repurchased using quantitative easing. That debt has already been cancelled, in effect.

And the UK can’t try to tax the money that was used to buy that debt out of existence unless it wants to crash the economy and the banking system, neither of which seems wise.

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As for the rest of the debt, no one seems that keen to sell it. So, repayment might actually be hard, unless the UK wants to force pensions, life assurance companies and banks into risky investments that bthey (and we) would really rather they did not have.

What does this mean for Scotland? First, the debt to argue over is not £2200bn. The debt repurchased by QE and the NS&I savings balances have to be taken off first. That leaves £1200bn to discuss.

On this the interest cost is, on average, about 0.35% per annum right now, or about £4.2bn in total a year.

And the amount that might be repaid by the UK over the next 75 years looks to be almost nothing at all, based on current performance.

So, how much might Scotland owe for this debt, almost all of which is used by the London money markets? It could be argued that maybe 8% of the interest, fixed at the rate at the time of impendence, might be Scotland’s to pay.

That would be £350m a year. And on the capital sum outstanding the offer should be that if and when the UK ever repays any real debt, rather than via quantitative easing, then Scotland will chip in its share at that time. I suspect that means nothing will be owing, ever, at current rates.

So, is the UK national debt a problem for the UK itself? Actually, no it isn’t. It’s well under control.

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And is the £350m a year maximum cost I can come up with for Scotland with regard to that debt any problem either? No, not at all. That may be about one half a penny for every pound the Scottish Government spends after indepedence. And that makes this a non-issue, however you look at it.

So, if a Unionist raises this issue, rather politely tell them where they can stick it. That’s in the City of London, of course.