Anti-independence camp accused of credit rating U turn

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  By Bob Duncan

The threat to the UK’s ‘Triple-A’ credit rating has left the anti-independence camp open to accusations of hypocrisy, according to the SNP.

As beleaguered UK Treasury ministers and anti-indepedence campaign leaders plead that the UK losing its AAA credit rating “isn’t an issue”, recent scaremongering over the credit rating of an independent Scotland is “coming back to haunt them” SNP MSP Kenneth Gibson has said.

The accusation follows reports that the UK is facing a downgrade to its credit rating due to the economic policies being pursued by the coalition government. 

However, despite claiming an independent Scotland would forfeit the UK’s prized credit rating leading to higher borrowing costs, senior figures in the UK government are now expressing the view that maintaining a Triple-A is unimportant and that a downgrade would not affect the mortgages and borrowing costs paid by individuals.

SNP MSP Kenneth Gibson has responded by questioning the No campaign’s arguments over the rating an independent Scotland would receive.

The Chancellor this week admitted he will miss his target to reduce Britain’s debts by 2015/16 and have to borrow billions more than expected, following which, the ratings agency Fitch, suggested that Britain could be downgraded.

Mr Osborne has previously suggested that retaining Britain’s AAA rating – the highest possible – is a key measure of economic success but this week the Chancellor changed his tone and attempted to minimise the importance of a downgrade, which some economists now regard as inevitable.

“It wouldn’t be a good thing, but the credit rating is one of a number of ways which people look at countries,” Mr Osborne said.

Danny Alexander, the Lib Dem Chief Secretary to the Treasury, has also played down the importance of a downgrade this week, saying the credit rating was “not the be all and end all”.

Embarrassingly for the No campaign and the UK Government, these comments downplaying the importance of the UK’s triple-A rating come just weeks after Mr Alexander attempted to whip up fears over what credit rating an independent Scotland would have.

As recently as October, the Scottish Lib Dem MP claimed the cost of borrowing in an independent Scotland would shoot up soon after it broke away from the UK.

The chief secretary to the Treasury said Edinburgh would have the same debt problems as the rest of Britain but would struggle to raise money in international bond markets on the same terms.

“At the moment we are able to borrow at record low levels,” Mr Alexander told the Lords economic committee. “There is a very good question about what view the credit rating agencies take on a newly established country without any established fiscal track record and what rates would be paid on its new debt.”
 
According to Mr Alexander, having to pay higher interest rates would have a significant impact on the fiscal sustainability of the new country, forcing it to make some very difficult choices.  Also claimed as a weakness in achieving a Triple-A rating was Scotland’s relatively small population size.

However, almost two-thirds of the countries that currently hold triple-A status have populations of less than ten million, including Finland, Sweden, Denmark, and Norway.

Scotland has stronger public finances than the rest of the UK, with the most recent GERS figures showing that Scotland contributes 9.6% of public revenues but receives 9.3% of public spending.

The SNP Government has argued that a low rating would be achievable given that John Swinney has balanced Scotland’s budget in every single year since 2007 while the oil & gas sector boosted the UK’s balance of trade by £40 billion. On an internationally comparable basis Scotland’s share of UK debt in 2010 would have been 64% of GDP, compared to the UK’s 76%, the EU’s 80% and the G7’s 114%.

SNP MSP Kenneth Gibson said:

“The ill-judged comments that anti-independence politicians have readily engaged in are really coming back to haunt them now.

“The UK government has failed to learn the lessons of economic history, and has taken the wrong approach to the recession.  First we heard how important it was to cut the deficit and pay off debt to avoid a downgrade.  Now – with austerity in the UK projected to last at least six more years – we are told that ratings are unimportant.

“The No campaign can’t have it both ways – the scaremongering simply doesn’t stack up and is unravelling.  Not only is there no reason why Scotland – with a stronger financial position than the rest of the UK and a clear record of strong fiscal management – wouldn’t secure the highest rating, but they now expect us to believe it doesn’t matter for the UK.

“The record of our neighbours shows that small, well managed independent countries can have every expectation of enjoying the highest credit rating and more importantly favourable bond yields.

“Scotland is in a stronger financial position than the rest of the UK, and that is a positive starting point from which to grow and develop the economy of an independent Scotland.”