The UK Treasury has confirmed it will take on the full responsibility for government debt if Scotland votes for independence in September. This is an attempt to minimize market turmoil ahead of the Scottish referendum.
"In the event of Scottish independence from the United Kingdom, the continuing UK government would in all circumstances honour the contractual terms of the debt issued by the UK government," the Treasury said in a statement.
The move is expected to shake off investor fears that some part of the UK’s debt will be transferred to a newly independent Scotland with no credit history.
While some experts believe London’s decision may undermine its negotiating stance, a Treasury insider told the Financial Times (FT) the move wouldn’t “weaken our hand”.
“If Scotland reneged on what it owed the rest of the UK, it would be an international pariah in the markets. The UK has a strong hand here,” the FT source said.
The Treasury expects an independent Scotland would settle its share of government debt, as well as directly reimburse the rest of the UK, This which will have to be negotiated with a new Edinburgh government.
Scotland, in turn, has repeatedly said its desire to pay off a part of the UK’s liabilities would depend on whether it would gain a share of UK assets.
An independent Scotland is expected to have less debt per person than the rest of the UK, with the borrowing costs being about 1.7 percentage points higher, according to a report last year by the National Institute of Economic and Social Research.