Nobody To Love Sigma
Dumping a share of the UK's debt would be worth twice as much to an independent Scotland as North Sea oil, according to academics.
A low or zero share of the UK debt would 'substantially improve Scotland's fiscal balance' from the otherwise 'poor' economic outlook it faces if it takes a population share of debt in the event of independence, Glasgow University's Centre for Public Policy for Regions (CPPR) said.
There are a range of arguments for Scotland assuming a smaller share of the debt including Westminster's refusal to agree to a currency union, Scotland's 'theoretical surplus' since 1980 and as a trade off in post-referendum negotiations, particularly over nuclear weapons, CPPR said. But the SNP's 'flawed' threat to dump the debt if it cannot share sterling could lead to cross-border acrimony and disturb international markets, leading to 'punitive' borrowing costs and a dent in Scotland's economic reputation, it added.
CPPR economist John McLaren said: "Scotland's share of current debt servicing costs is twice the size of projected future oil revenues. "However, any benefit arising to an independent Scotland from starting with zero historic debt would be heavily influenced by whether this was achieved via amicable negotiations or through Scotland's refusal to accept what the remainder of the UK (rUK) consider to be an appropriate share.''
The report states: "There are a variety of arguments that can be put forward as to why a lower than population share, or even no share, of UK debt might be appropriate.
"These include a quid pro quo for Scotland not being allowed to share a formal monetary and currency union with rUK; Scotland having had a 'theoretical surplus' since 1980 and so has not accumulated debt since that time; and as part of a wider set of negotiations post a Yes vote.''
It added: "The £5.5 billion improvement seen in Scotland's 2016-17 fiscal balance through not having to service existing debt is worth twice as much as the contribution from North Sea tax revenues in that year (£2.7 billion, using a geographic share of OBR's latest forecast).
"However, this apparently very positive picture is clouded by a number of uncertainties.
"Principal amongst these is what credit rating would be attached to the issuance of any future Scottish debt. The Scottish Government would want to build up a credit record to facilitate access to borrowing as and when circumstances arose.
"On the positive side, Scotland could have a very low debt to GDP ratio, one of a number of key determinants that underpin such credit ratings.
"On the other hand, Scotland would have no track record in, and reputation for, managing the full array of fiscal powers.
"In addition, whilst the Scottish Government may negotiate in good faith a zero share of historic debt, this position may also arise following an acrimonious dispute with the rest of the UK.
"The latter outcome may then trigger the application of a punitive rate of interest, which would have a detrimental impact on Scotland's businesses, local authorities and borrowers in general.''
CPPR said the Scottish Government's current rationale for potentially assuming zero UK debt if the UK persists in its refusal of a currency union is 'flawed', arguing that "sterling is more a symbol than an asset, symbolising the UK's economic and fiscal reputation to pay its debt obligations''.
It said: "At present we have a rather unrealistic current stand-off between the Scottish and UK governments over debt and a shared currency union.
"The reality remains that wider negotiations could result in Scotland receiving its population share of debt, as happened in most past examples of nations splitting up, or it could end up with none, if rUK decides that there are wider, largely international and defence-related, strategic priorities that mean such a compromise is worthwhile.''
A Better Together spokesman said: "Only Alex Salmond is suggesting that Scotland would default on our share of the debt if we leave the UK.
"People know what happens if you don't pay your debts - you end up with a bad credit rating and everything is more expensive.
"That would mean far higher mortgage repayments, higher credit card bills and higher costs for families.
"This is a risk we don't need to take. We can have the best of both worlds in Scotland. More decisions taken in our Parliament and the strength, security and stability of being part of the UK.''