Scottish independence: Clash over borrowing claims

Danny Alexander Chief Secretary to the treasury Danny Alexander said Scottish government plans to borrow more in the event of independence would result in a divergence in economic policy with the rest of the UK

The Treasury has claimed that Scottish government plans to increase borrowing under independence would be incompatible with retaining the pound.

Danny Alexander said boosting borrowing to fund higher spending would set Scotland on a different path from the rest of the UK.

The Treasury chief secretary expressed his concerns to Alex Salmond in a letter.

The first minister said initial borrowing would boost the economy.

He added that this would allow for a sustainable cut in the deficit.

He also said an independent Scotland would start out being more prosperous per head than the UK, France or Japan.

Start Quote

By adding yet more borrowing to that position you create a pretty precarious position”

End Quote Danny Alexander Chief secretary to the Treasury

Following a "Yes" vote in September's referendum, the Scottish government plans to increase public spending by 3% in each of the first three years after independence to drive economic growth. This contrasts with the 1% planned by the UK chancellor.

According to Finance Secretary John Swinney, this extra spending would be funded by borrowing.

But in his letter to Mr Salmond, Mr Alexander said this amounted to an admission that a currency union would not be created since the economic policies of the two states would "diverge".

Speaking in an interview with the BBC, Mr Alexander called on the Scottish government to be "transparent and open" about alternative currency plans.

He said: "John Swinney's plans for massive extra borrowing basically show that the Scottish government is now assuming that there won't be a currency union.

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Scotland will continue to use the pound, just as we do today because, in the words of Alistair Darling, that is the 'logical' and 'desirable' arrangement for an independent Scotland and the rest of the UK”

End Quote Scottish government

"One of the biggest reasons why I think a currency union wouldn't work, and have said no to it, is because inevitably policies would diverge between Scotland and the rest of the UK under independence."

He added: "The Scottish government, as we already know, would start off with a larger deficit than the rest of the UK, would face higher borrowing costs because of the setting up of a new country and the extra risks that involves.

"By adding yet more borrowing to that position you create a pretty precarious position, financially, for an independent Scotland.

"You can't have massive extra borrowing and claim that a currency union is going to take place."

However a spokeswoman for Mr Swinney described Mr Alexander's comments as "more misbriefing".

She said: "Scotland will continue to use the pound, just as we do today because, in the words of Alistair Darling, that is the 'logical' and 'desirable' arrangement for an independent Scotland and the rest of the UK.

"We have made clear that we oppose Westminster's austerity measures and believe the best way to reduce the deficit in the long term is to invest in public spending, to grow the economy and reduce the deficit in a sustainable way, ensuring there is less need to borrow in the future by boosting revenues in the long term."

She added: "Even with a 3% increase in spending growth, Scotland's deficit is forecast to fall to 2.2% of GDP in 2018-19, significantly below the current level of 8.3% and would ensure that the country's debt was falling as a share of GDP.

"Indeed, the Scotland Institute report, referred to by Mr Alexander, underlines Scotland's economic strength by highlighting that an independent Scotland stands to have 'a smaller debt to gross national product ratio than the remaining UK'."

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