The National Institute for Economics and Social Research (NIESR) said an independent Scotland would have to repay £143bn to the UK, following the Scottish government's promise that after independence it would repay its share of the UK's debt which is expected to hit £1.7tn by 2015-16.
Scotland’s first instalment to the UK Treasury would be £23bn plus interest. This is equivalent to more than a third of its entire spending, which came in at £65bn for 2012-2013.
But NIESR’s report warned that Scotland would not ‘have the resources to cover this obligation’. Whilst an independent Scotland would receive 84% of tax revenues from offshore oil and gas, bringing in £47bn between 2019 and 2041, the industries are notoriously volatile. Revenues from oil and gas fell by almost half between 2011-12 and 2012-13 to £5.3bn, equivalent to 3% of Scotland’s GDP, NIESR said.
This would leave Scotland struggling to repay the money it owes the UK. As a result, this would add an extra 9% to the UK’s debt to GDP ratio, which would come in at 102%. ‘This would be likely to catch the attention of credit rating agencies,’ the report warned.
The hard-hitting report may leave critics questioning whether an independent Scotland is economically viable. In September Scotland will hold a referendum on whether to cut its 307-year tie with England. Scottish nationalists argue that a split would give them greater economic freedom, but there are still questions about how a split would work in practice and whether it would need a separate currency.
Scottish leader Alex Salmond wants keep the pound, but coalition ministers have repeatedly said they would not accept monetary union in the wake of independence. Today the government also said Britain may choose not to buy electricity from an independent Scottish state if prices are higher than imports from other neighbours.
NIESR said that a formal monetary union would not be in the interests of the UK or an independent Scotland. ‘Scotland’s choice of currency must be appropriate for a small open economy with a high level of debt, volatile tax revenues and higher borrowing costs,’ it advised.
NIESR said that Scotland would need to make extra spending cuts above those planned by the UK government of nearly 1% of GDP, in order to meet EU targets of getting national debt down to 60% of GDP within 10 years.
It’s yet another damning report on why the Scotland can’t handle independence. But every time a warning like this comes along, it seems to have the opposite effect, with the number of Scots saying they’ll vote ‘yes’ increasing. Perhaps they don't like being lectured to any more than anyone else?
A Scottish Government spokeswoman told the Guardian that the NIESR's analysis was mistaken. The findings ‘misunderstand how government debt works and reflects short-term borrowing not long-term debt repayments,’ she said. ‘The people of Scotland already pay their share of UK debts through taxes every year and any debt repayments to be made by an independent Scotland will be agreed as part of a fair negotiation over assets and liabilities.’