Ben Wray

An independent Scotland would have a number of negotiating options over the division of assets and debts that could lead to savings to the public purse totalling in the billions, a new report published by the Common Weal think-tank has argued.

The report, Claiming Scotland’s Assets: A discussion paper on the division of assets and debts to an independent Scotland, is authored by researcher Dr Craig Dalzell and can be accessed in full here.

The report is part of a series of work Common Weal is producing aiming to renew the case for Scottish independence. Last month Common Weal published it’s vision for a Scottish Currency.

Key points in Claiming Scotland’s Assets include:

The manner in which states separate is crucial for determining asset division. In particular, the rUK's likely desire to maintain “successor” or “continuing” status to the former UK will likely be largely determined by its willingness to guarantee the debts of the former state.

The assumption that the baseline for division should be on population can and should be challenged. Many state separations have negotiated settlements which place weight on territoriality as well as the historical contributions and beneficiaries of the former unions. It may be that Scotland has been a historical net contributor to the UK thus may have already more than paid its “share” of the national debt.

The previous independence campaign discussed the possibility of a subtractive model of asset separation whereby the value of any assets withheld from Scotland by rUK (for example, currency and foreign reserves) would be subtracted from debt liabilities accepted. This report suggests instead an additive model whereby Scotland begins with the assumption of accepting no debt but will accept debt up to the value of assets transferred, it may be that Scotland actually requires less from this transfer than the subtractive model would suggest.

For the additive model to be actionable, an up to date register of assets will be essential. With the last UK Government register of assets in 2007, the Scottish Government must press the UK Government to commission a new register or conduct a Scottish audit in the near future.

Additionally, the prospect of Scotland issuing its own bonds and buying what is required is explored (‘the zero option’). This model may have significant advantages with regard to being able to denote the debt in Scotland's own independent currency thus maintaining full control over debt management and significantly reducing the chances of a default.

The precedents and models outlined would likely all accrue varying levels of financial benefit to Scotland if utilised properly. A lack of up to date data makes precise figures impossible, but a conservative illustration of each model in the Scottish context would suggest a £800m per year financial gain from the subtractive model with refinancing; a £1.7 billion reduction in debt interest payments from the additive model without refinancing; a saving of over £2 billion per year from the zero option; and, in the case of historical net contribution, a possible financial contribution from rUK to Scotland.

Responding to the report, Common Weal Director Robin McAlpine stated: “The issue of Scotland’s share of UK debt in the event of independence is sometimes talked about as if it is a law of nature like gravity. It is not. It is the legacy of a messy series of financial arrangements negotiated by a succession of different governments over a period of decades. If rather than just accepting the simplistic arguments put forward by those who oppose independence you actually delve into the legal and financial position and explore the options, you quickly realise that the simplistic headlines are wrong. Assuming that Scotland negotiates cleverly and refinances national debt sensibly, the smallest saving we should be looking for is £800m. That would take a very substantial chunk off the difference in the fiscal position of Scotland and England according to GERS. It would be a very significant contribution to the financial health of a newly independent Scotland.”

“If rather than just accepting the simplistic arguments put forward by those who oppose independence you actually delve into the legal and financial position and explore the options, you quickly realise that the simplistic headlines are wrong.” Robin McAlpine

Author of the report, Dr Craig Dalzell, said: “Over the course of the late 20th century many newly independent countries have grappled with the consequences of their creation, including the separation of assets and debts between themselves and their partners within the former state. Whilst few historical examples will provide an exact parallel of negotiations between a newly independent Scotland and the rest of the former United Kingdom, their experiences may greatly inform and deepen the understanding of our own situation.

“The only model of separation openly discussed in the 2014 independence campaign was one in which Scotland either assumed a full percentage share of the UK's assets and debts or assuming absolutely nothing. The reality of the situation is that Scotland has far more nuanced options available to it including only taking on a level of debt equal in value to the assets which Scotland actually requires to begin life as an independent country.

“It should be noted that for these negotiations to be successful, we must first know exactly what is already within Scotland's possession and what we may need but currently lack. For this reason, it is vital that a full Register of Assets be commissioned either by the UK or Scottish Government."

“The reality of the situation is that Scotland has far more nuanced options available to it including only taking on a level of debt equal in value to the assets which Scotland actually requires to begin life as an independent country.” Dr Craig Dalzell

Ben Wray, Head of Policy & Research at Common Weal, said: “Whatever bluster the UK Government comes out with beforehand, they are perfectly well aware that in the event of a yes vote they will have to negotiate a share of assets and liabilities with an independent Scotland. This report outlines a number of options for the Scottish side of that negotiation, all of which would be highly beneficial in improving Scotland’s fiscal position.

“The historical precedents clearly show that whatever move the UK Government seek to make in the negotiations, Scotland will be able to counter it, and will hold a crucial upper hand – whereas the UK Government must honour all existing debts to creditors, including many where the rate of interest is far higher than currently, an independent Scottish Government would be creating new debt at current historically low interest rates. Therefore whichever negotiating position is arrived at, Scotland’s refinanced debts will likely be much cheaper than the UK’s, and cheaper than that currently attributed to it in GERS.”