By Martin Kelly
The Better Together campaign against Scottish independence has suffered a blow this evening after it emerged that the UK’s credit rating has been placed on a negative outlook.
Leading credit agency Standard & Poor’s have warned that any further drop in the UK’s fiscal position could result in a loss of the coveted AAA rating.
In a statement today, S&P said: “The outlook revision reflects our view that we could lower the ratings on the UK within the next two years if fiscal performance weakens beyond our current expectations,
“We believe this could occur in particular as a result of a delayed and uneven economic recovery, or a weakening of political commitment to consolidation,” it added.
The warning, which follows similar negative revisions from agencies Moody’s and Fitch, will be embarrassing for UK Chancellor George Osborne whose stewardship of the economy has come in for fierce criticism amid fears that Britain is heading for a triple-dip recession.
In the recent Autumn Statement, the Chancellor bowed to pressure from the Scottish government and others by targeting more funds at infrastructure.
Any lowering of the UK’s credit rating would see borrowing costs rise with probable knock on effects leading to higher mortgages.
Mr Osborne has previously suggested that retaining Britain’s AAA rating – the highest possible – is a key measure of economic success. However the Chancellor seemed to change his view with the gloomy economic news that accompanied his Autumn Statement, “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.
Anti-independence campaigners have previously highlighted the UK’s triple-A rating as one of the benefits of the Union.
Speaking in October, Lib Dem MP and Chief Secretary to the Treasury, Danny Alexander said independence would see Edinburgh have the same debt problems as the rest of Britain but struggling 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 a 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.”
Reacting to the news that Standard and Poor’s have put the UK’s AAA credit rating on “negative outlook”, the SNP questioned the No campaign’s arguments over the rating an independent Scotland would receive.
Commenting, 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.”
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 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%.