Britain was formed 307 years ago when the bankrupt Scottish nobility, following an unsuccessful colonial venture, agreed to the Act of Union of 1707 with England which in return agreed to pay off Scotland’s debt.
The question of what will happen to Britain’s debt today should Scotland go independent is arguably the most important question, besides perhaps the future of Britain’s nuclear deterrent, surrounding the referendum.
Scotland’s share of the £1.3 trillion national debt, based upon their population size, is just over £100 billion. The increase in the national debt for the rest of the United Kingdom should Scotland refuse to take this share of the national debt would be over 5% of GDP.
The Scottish Nationalists have not said one way or the other whether they would accept their share of the national debt, preferring to retain this powerful bargaining chip in post-independence negotiations. They know that refusing to take their share would lead to a furious response from London and would outrage public opinion in England which would be undergoing years of austerity.
This would worsen the feeling of resentment which has been growing in England as Scotland has enjoyed higher public spending per head as part of the Barnett Formula devised in 1979. In 2006 public spending per head in England was £7,121 and in Scotland £8,623.
This has become more noticeable to the English as the devolution of power to Holyrood has led to populist policies such as free university (but not for English students) and free prescription drugs whereas before the difference in expenditure would have been harder to gauge.
A Scottish refusal to accept its share of “London’s” debt would be deeply unfair and also would go against the interests of a new Scottish nation.
As Scotland was a part of Great Britain during the time that it was incurring this debt, Scotland is partially responsible for it. Given that there has not been a majority in favour of independence (shown by opinion polls and the inability of the SNP to obtain a majority) at any time in generations, Scottish nationalists cannot claim Scotland had been held in the Union, during the time it was incurring massive debts, against its will.
Indeed, Scotland’s responsibility for the share of national debt, if not its ownership of it, is arguably much greater than the size of its population would suggest. A large chunk of this debt was wracked up by New Labour between 1997 and 2010. Scotland votes overwhelmingly Labour and indeed Labour would lose dozens of seats if Scotland left. Tony Blair and Gordon Brown both come from Scotland.
Really the only chip Scotland has in the negotiations is its refusal to accept its share of the debt (I argue elsewhere Scotland has no right or indeed ability to deny Britain access to Faslane). It is the nuclear option, and the nature of this negotiation will make it difficult for any give-and-take to occur. London has many chips of various sizes in the forms of carrots and sticks.
These range from an equitable distribution of assets (which for the UK are much less than liabilities, hence Scotland’s power in the negotiations) such as Royal Navy vessels to sharing the pound. Perhaps the biggest help London could give Scotland would simply be support during the difficult transition stage during which hundreds of millions, perhaps a billion or more, pounds will need to be spent setting up a wholly new state.
Because disruptions to, for instance, pensions or collecting taxes, could be disastrous, a helpful London in these early stages would be highly useful. If Scotland did not take its share of the debt, London could simply grant Scotland independence and wash its hands of it.
What is more, Britain (probably backed by Spain) would be able to veto Scotland’s entry into the EU. Despite what Salmond might say, Scotland will not automatically join the EU, as Manuel Barroso has confirmed. It could similarly do so with NATO and given its seat on the UNSC, possibly the UN as well.
In the medium-term, Britain is more than ten times the size of Scotland by population and economy. It is the only land border Scotland has. It is vital to the Scottish economy for trade; both with Britain and through it and onto the EU and world markets. If Scotland really did essentially add £100 billion to Britain’s national debt pile, Britain could make life very horrible indeed for Scotland.
However, I find highly implausible the argument that Scotland would tarnish its reputation on world markets if refused to accept a portion of Britain’s debt (admittedly British debt undertaken at a time Scotland was part of Britain). There would be no reason to assume Scotland would renege on purely Scottish obligations.
Its relationship with Britain is another matter though. This alone would be impacted so negatively that this would be reason enough for Scotland not to walk away from its share of the debt, given Britain’s position of power over a newly independent Scotland.
When Great Britain was formed England agreed to wipe clean the debts of Scotland. Now, should Great Britain be unformed, it would in no small part be for Scotland to yet again avoid paying her debts.
Having England assume Scottish debts today would be as much a mistake for Scotland as the Scottish Nationalists hold the last time England assumed Scottish debts was.