What UK debts are Scotland's?

Referendum guide

This morning's statement from the Treasury that the UK will stand behind all its sovereign debts, whether or not Scotland's people vote for independence, is in a way a statement of the bleedin' obvious.

That debt, all £1.4 trillion of it, is an obligation of the National Loans Fund.

And nothing can change that - whether Scotland were to decide to secede (or, to pick an unlikely corollary, in the event that the People's Liberation Army of West Sussex, miffed about fracking, were to declare UDI).

So why has the Treasury chosen to say that the UK will honour its debts, whatever Scotland does?

Well, it is because investors - whom we may think of as sophisticated and informed (ahem) - have been increasingly asking the Treasury and the Debt Management Office for clarification of the status of the UK's financial obligations in the event of a fracturing of the United Kingdom.


For example officials have been asked whether UK government bonds, or gilts, would be split into Scottish bonds and Rest of UK bonds.

And what would be the coupon or interest rate on these two new classes of bonds, were that to happen?

No kind of restructuring of the debt, of that sort or any other, is going to happen, the Treasury has now made explicit.

It felt it had to do so because it feared that at some juncture the uncertainty could increase the perceived risk of lending to the UK government - and that could in turn increase the cost for the government of borrowing.

Better therefore to be blunt and clear, that the full £1.4tn would stay as a liability of England, Wales and Northern Ireland - and that there would be no legal requirement on Scottish people to pay any of it.

Start Quote

Bankers tell me that markets would probably force Scotland to pay up to 1.5 percentage points more to borrow, initially at least, than the UK currently pays”

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UK government bonds and Treasury bills (short-term debt) would not be split or changed in any way. They would remain as the debts of all us.

That's a bit nice for the Scots, you might think.

Who would not vote for independence if an autonomous, separate Scotland would be set free from the burden of UK debts currently equivalent to 76% of GDP or national income (on the latest estimates by the Office for Budget Responsibility)?

Except that even Alex Salmond and the Scot Nats don't believe that an independent Scotland could, in practice, walk away from its fair share of the UK's debts - even if they would have the legal ability to do so.

Why would it be rational for a Scottish government to take on some of those debts?


Well because Salmond also wants to negotiate ownership of certain assets (North Sea oil springs to mind). And he wants an agreement on being part of a formal sterling zone, in which Scotland would retain the pound and have some kind of influence over the Bank England's approach to monetary policy.

Perhaps even more importantly, if Scotland were seen to be repudiating all UK debts, investors might be very reluctant to lend even a brass farthing to it as an independent state.

Which is why the Scottish government's White Paper on all this makes it absolutely clear that an independent Scotland would be liable for some of the current national debt.

In the event of independence, Salmond would negotiate for Scotland to service - pay the interest and principal - of a certain portion of the UK's debts.


Or to put it another way, Scotland would become a debtor of the rest of the UK, or of the Treasury in London.

And when you put it that way, you can perhaps see why any eventual talks on this would be pretty fraught and difficult.

The following issues would have to be resolved:

1) What share of the debt could fairly be ascribed to Scotland?

2) What interest rate should Scotland pay to the Treasury?

3) Over what time period would the Scottish government be required to repay all its debts to the rest of the UK?

Taking the last first, the time period to repay all the debt, presumably that should mirror the debt profile of UK's current debts - which has an average maturity of 14.5 years.

For the first issue, Salmond's White Paper argues that the share of debts assumed by Scotland could be calculated by reference to the population or the net central government money (fiscal transfers) received by Scotland since 1980.


On both these measures, Scottish debt as a percentage of national income would be below that for the rest of the UK.

But even if that argument were to fly with the Treasury, the chancellor could argue that Scotland should pay a higher interest rate than that paid by the British government - because Scotland, as a smaller economy with no fiscal track record, would be seen as a riskier borrower than the Rest of the UK.

Bankers tell me that markets would probably force Scotland to pay up to 1.5 percentage points more to borrow, initially at least, than the UK currently pays.

A British Chancellor could therefore argue, perhaps, that Scotland should pay that market rate to him too.

And, by the way, this issue - of what investors would charge Scotland for funds - is likely to be a pretty hot one in the referendum campaigns, since it will have a material impact on the country's prosperity in general (the interest rate paid by a government is the benchmark for the rate paid by all borrowers in a country) and Scotland's ability to fund public services in particular.

Robert Peston Article written by Robert Peston Robert Peston Economics editor

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  • rate this

    Comment number 76.

    ir35survivor believe me it's not because we haven't asked for the answers to be laid out, it's just Westminster won't tell us.
    joyanblu the UK Govt did not give £300m they only gave the guarantee- didn't actually put their hands in our pockets.
    Hew-and-cry look at the demo in Balbao (for human rights)then tell me how accurate the reporting by our media is? You didn't see that covered, did you?

  • rate this

    Comment number 75.

    So the EU has "allow" Scotland to join the Euro.

  • rate this

    Comment number 74.

    in the words of ivor cutler...
    'i've worked my fingers to the bone for you..'
    i'm sure he would be wearing a sticker saying
    'let's not argue over £1.4trn'
    if the debt was divided procapita, it would be disastrous for rest of UK, only 8% (still a whopping £0.1trn) would revert to the ScotEx.
    What would you call a Scottish Chancellor of the Exchequer..
    Anything you like, there won't be one!

  • rate this

    Comment number 73.

    As rUK wants to be considered the 'continuing state' it is their only option as well as being common sense. Scotland would negotiate its share of debts depending on the assests each part of the former UK wants to keep (I imagine rUK will want Scotland's share of the aircraft carriers!) Keeping the debt together in such a way also makes a common currency, i.e. keeping the pound, inevitable.

  • rate this

    Comment number 72.

    If the Government and the Treasury agree that it is possible for Scotland to be fully independent while still remaining in the "Sterling Zone" How does that square with the Government position that,
    "If the U.K were in the Euro Zone we would have to give up our independence" ???

  • rate this

    Comment number 71.

    It is the debt split/share that is most worrying, due to evidence of such huge incompetence, negligence, or at worst corruption, due to many other deals government have completed, like underselling Royal mail & other privatised industrys & then theres the new insulting 1% revenue deal for fracking, when 10% is the worldwide norm & Olympics £3 billion came in at nearer £9 billion, etc

  • rate this

    Comment number 70.

    ..Spanish Govt are too worried by Catalan separatists so have said they would use their veto

    what veto, the Copenhagen criteria means the EU has to allow Scotland to join subject to signing the treaties & meeting the criteria, the only thing Spain can influence is the timescale & given Scotland's already been part of the EU, it would struggle to argue the criteria were not yet met

  • rate this

    Comment number 69.

    "UK govt bonds & Treasury bills would not be split or changed in any way. They would remain as the debts of all us."

    The definition of "all of us" meaning the tax payer?
    I can't help feeling that if there is a yes vote there will be something nasty which nobody has considered yet which will creep out of the woodwork. This will be swiftly followed by a "can we change our minds again please"?


  • rate this

    Comment number 68.

    @55 "have said they would use their veto"

    Really? Wow! I guess you know something nobody else does. When did they say that?



  • rate this

    Comment number 67.

    #23 Oh dear not this again.

    Every time someone quotes international law the obvious question is therefore can you please provide the source treaty on which you are relying. No one ever provides this because it does not exist.

    There is no such international law. Barclays took advantage of US Fed liquidity loans when the wholesale funding market collapsed which is different to a bail out

  • rate this

    Comment number 66.

    54. inacasino
    How can Scotland be over-represented? We have a predominantly Tory Govt and hardly any Scots vote Tory! Is that representation??
    representation and what party(s) form the government are 2 different things.You are represented by your Westminster MP ,just the same as anyone else is.

  • rate this

    Comment number 65.

    Bazza83 did you read the article ? The WP covers this as does Robert. "An Independent Scotland would be liable for some of the current national debt" -WP ( you know the one Alex Salmond presented)

  • rate this

    Comment number 64.

    Salmond doesn't want Trident but wants to build the navy ships at Glasgow. he doesn't want England govt but accepts £300M to bail out grangemouth. He wants independence but wants to keep the pound and now wants some control over the pound . If the Scots vote for it thats Ok, their choice but from that point I hope England will stand for England and not jgive into this megalomaniac man decides

  • rate this

    Comment number 63.

    Scotland out of the U.K. but still in the "sterling zone" !?!?!
    "It´s independence Robert, but not as we know it"

  • rate this

    Comment number 62.

    How can you have a referendum on this , when the exact terms have not been agreed buy all parties, including the English , the treasury saying what it is saying now does not mean that what is going to happen either.
    There are lots of people , in England , that are unhappy with the way the deate has been going without them being consulted.
    it appears that Cameron is to spinles 2 speak up for them

  • rate this

    Comment number 61.

    Reality strikes home, the UK needs Scotland's more than Scotland needs the UK.

    No rUK could survive the sole burden of current UK debt. The debt premiums would too high, the austerity would be too great. It truly would be turned into Wongaland.

  • rate this

    Comment number 60.

    @35 DEAR GOD!
    Do you lot not keep up to date with events? The RBS debt has been reducing over time. It's repaid the emergency loans, its out of the insurance option. Pretty much what remains is the ownership of shares. The losses on that will be about £15Bn on current values. Most of the debt accrued in LONDON, so it's mainly LONDON that will bear the cost.

  • rate this

    Comment number 59.

    Scottish debt is not enough to let Scotland keep the pound with or without influence over the Bank of England.

    There is no way the rUK will accept financial links to a new nation founded on promises of a spending binge well beyond its means funded by debt.

    Why would anybody accept this? The pound will remain British and those outside of the UK must get used to having the Euro.

  • rate this

    Comment number 58.

    I don't care if the Scots leave the union or not, but when I share a taxi I pay my share of the fare if I get out first.

    Take the total national debt and split it proportionately by head of population. All fair, all square.

  • rate this

    Comment number 57.

    @38 who or what is the federal reserve in the UK?
    The UK is not federal.


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