City warns Scots against walking away from national debt

The City has warned that an independent Scotland would find funding itself harder if the state carried out an “irresponsible threat”to walk away from its share of UK national debt.

Alex Salmond, Scottish first minister, said this week that if the rest of the UK refused to form a currency union with Scotland, it would refuse to shoulder its part of Britain’s national debt, run up over many decades.

Alistair Darling, leader of the pro-union Better Together campaign, said the warning was irresponsible and international money markets would charge a premium to lend to Scotland, leading to higher interest rates.

“If Scotland became independent and our first message to the world was ‘we won’t pay our debts’, what would that do to our credit rating? What would the money markets make of it?” he said.

Sam Hill, senior UK economist at investment bank RBC capital, said it would not be “costless” for Scotland to walk away from its share of UK debt.

“There is a significant chance that they would find it more difficult to raise finance because of the perception that they had walked away from some of their existing commitments.”

Michael Saunders, an economist at Citi, said: “It would make it harder for them to finance themselves in future.”

Mr Salmond argues that the rest of the UK will agree to a currency union if Scotland votes for independence, so the situation will not arise. But if his country was refused the “assets” of the Bank of England, Scotland would walk away from its liabilities, he says.

In depth

Future of the union

Scotland will decide in a referendum to be held on September 18 2014 whether or not to end the 307-year-old union with England

Further reading

Mr Darling shared a pro-union platform in Dundee on Wednesday with Gordon Brown, former prime minister – the first time they have appeared together since the 2010 election.

Relations between the two were strained in the final years of the Labour government, but Mr Darling described the former premier as “my good colleague” and Mr Brown said it was a “real pleasure” to speak alongside his former chancellor.

David Cameron will tell a CBI Scotland conference on Thursday that Scottish business enjoys an “economy of opportunity” because of its membership of the UK – “one of the oldest and most successful single markets in the world”.

He believes the business community could be a decisive voice, making the case for the union, in the final weeks of the campaign. The prime minister is expected to make more visits to Scotland before polling day on September 18.

Mr Salmond will on Thursday set out the powers that an independent Scotland could use to create jobs, including control of business taxation and a 3 per cent cut in corporation tax.

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CBI diners face cut-price menu at Scottish event

Business leaders attending Thursday night’s CBI dinner in Scotland – to be addressed by David Cameron – are facing a cut-price menu to avoid falling foul of electoral spending rules covering the independence referendum, writes George Parker.

The CBI was told that since it was providing a platform for Mr Cameron to make the case against independence – and not offering a similar platform to the Yes side – it was not allowed to spend more than £10,000 on the annual event.

That meant that the dinner in Glasgow had to be scaled back, with a reduced menu and the scrapping of the usual fripperies, including flowers. “It will be a more modest affair,” said one CBI insider.

The number of guests was also capped at 230 to avoid topping the spending limit and breaching Electoral Commission rules. The CBI has spoken out against the risks of Scottish independence but is not registered as a campaigner in the referendum.

“We are of the view that the CBI’s dinner does constitute campaigning and as a result we have sought detailed assurances from them and their suppliers about the cost of this event,” the Electoral Commission said.

“As a result of the information we’ve received, we’re content that the CBI will not be spending more than the £10,000 limit that would require them to formally register as a campaigner at the referendum.”

The CBI said it had already provided detailed costings to the commission in advance of the event, to ensure that it is compliant, and would comply with the commission’s request to supply further post-event costings.