Independent Scotland triple-A rating would be safe says Scottish Government

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By G.A.Ponsonby
 
The Scottish Government has hit back at newspaper claims an independent Scotland would not be able to sustain a top credit rating.
 
A spokesman for the SNP administration said that Scotland is currently in a stronger fiscal position than the rest of the UK and that independence would ensure that the nation’s assets were properly managed to ensure a top rating would be maintained.

By G.A.Ponsonby
 
The Scottish Government has hit back at newspaper claims an independent Scotland would not be able to sustain a top credit rating.
 
A spokesman for the SNP administration said that Scotland is currently in a stronger fiscal position than the rest of the UK and that independence would ensure that the nation’s assets were properly managed to ensure a top rating would be maintained.

The response follows articles in the Herald and Scotsman newspapers, both claiming that an independent Scotland would struggle to hold on to a triple-A credit rating.

The articles were based on a blog article by Jim Leaviss, head of retail fixed interest at M&G Investments.

In the blog, he said: “Happy Hogmanay – an independent Scotland looks AAA on the back of an envelope (as long as it gets all of the oil and none of the banks!), but would probably get rated lower.  UK to get downgraded on uncertainty?”

Mr Leaviss admitted that Scotland’s debt ratio, even after it takes a share of the UK’s massive debt burden, is “nice” when oil revenue is taken into account.  However he also claimed that oil revenue is about to fall “aggressively” – something that is at odds with recent estimates that suggest there is at least fifty years of oil left to be exploited.

A Scottish Government spokesperson hit back at newspaper portrayals of the blog saying:

“There is now agreement – including in Mr Leaviss’s note – that Scotland is in a far stronger position than the UK in terms of our fiscal position.  On that sound basis, Scotland would responsibly manage the nation’s finances and assets under independence in order to ensure a top credit rating – we are entirely confident of that position, which is supported by Scotland’s significantly stronger public finances compared to the UK as a whole.”

Mr Leaviss also suggested an independent Scotland could invest, like Norway, in a Sovereign Wealth Fund and attacked the UK government’s failure to do the same and claimed that the £270 billion of north sea revenues had been handed out to people “which they used to buy avocado coloured plastic bathroom suites”

The Scottish Government spokesman added:

“Some 40 per cent of reserves remain in the North Sea, with over half of the value still to be extracted – representing an asset base with a wholesale value of one trillion pounds.  While this is no more than equivalent to the scale of the UK’s national debt, it is over ten times a pro-rata Scottish share of UK debt – reflecting Scotland’s stronger asset base and bankability.

“The UK’s deteriorating growth outlook has led the credit ratings agencies to question the UK’s triple A status – which is one reason why Scotland needs full access to the economic and financial levers of government so that we can boost growth, recovery and jobs. 

“The latest figures actually show that Scotland is the only area of the UK outside London to record growth in our Gross Value Added economic output between 2007 and 2010.  And among the 12 nations and regions of the UK, Scotland is the third most prosperous in terms of output per head – behind only London and the South East of England.

“Taking all Scottish revenues and all spending in Scotland into account – including the financial sector interventions – the official GERS statistics show that Scotland has run a current budget surplus in four of the five years to 2009/10, while the UK was in current budget deficit in each of these years, and hasn’t run a current budget surplus since 2001/02.

“In terms of North Sea tax revenues, they are in fact set to generate £54 billion in the six years up to 2016/17 – as much wealth as in the previous six years – and Scotland needs access to our own resources with independence and financial responsibility in order to boost growth, recovery, and jobs.”

Triple-A ratings are awarded based on a nation’s ability to repay debt, rather than the size of the country.  A number of small countries currently have triple-A status – Denmark, Finland and Norway – whereas the United States, for example, does not.