By a Newsnet reporter
A claim by UK Treasury Chief Danny Alexander that mortgage costs would rise in an independent Scotland has been dismissed as “economic illiteracy” by the SNP.
The Lib Dem MP prompted the criticism after claiming that a newly independent Scotland would face higher payments on its national debt than if it remained in the UK.
Mr Alexander claimed that a rise of just 1% in interest rates would add roughly £1 billion to Scots’ mortgages.
He asked: “What would be the arrangements for borrowing and finance under an independent Scotland?
“How would an independent Scotland go about raising money on the markets?
“How would it command confidence in the financial markets? What would an independent Scotland’s credit rating be?”
He added: “Countries with new institutions take time to establish credibility and obviously the question of what the interest rate would be on Scotland’s debt is a very important question.
“If interest rates went up by 1% that would cost families right across the UK about £10bn in extra mortgage costs.
“So it’s likely the same 1% rise would cost families in Scotland up to an extra £1bn on a roughly proportionate share in terms of extra mortgage costs in Scotland.
Mr Alexander’s comments come on the eve of the anti-independence campaign launch and despite calls for an end to “silly season” scare stories.
Ridiculing the briefing given to the Sunday media, a spokesperson for Finance Secretary John Swinney said:
“This is economic illiteracy from Danny Alexander, which is deeply worrying considering his position in the Tory-led coalition – he has just demonstrated that he doesn’t know the difference between mortgage availability in the private sector, and government bond issues.
“Banks base their mortgages on the interest rate set independently by the Bank of England, which in a sterling zone would be exactly the same for Scotland as for England. The other issue affecting mortgage rates is the ability of banks as commercial businesses to borrow on the markets – and as we have just seen with the downgrade of 15 global banks and financial institutions, that has nothing to do with the country they are based in.
The spokesman claimed the latest scare meant that the positive No campaign was over before it had even started, and accused anti-independence parties of “unremitting and ridiculous negativity about Scotland”.
“On the entirely separate issue of an independent Scotland’s economic strength, Scotland has better public finances than the UK as a whole – and lower public sector debt than the UK, the EU, and the G7 average.
“And Scotland has a strong track record in political and financial terms – we have been self-governing in domestic policy for 13 years, and this administration has balanced the budget in each and every year since 2007, in the circumstances of severe spending cuts from UK governments – in stark contrast to Westminster racking up a trillion pounds of debt.
“An independent Scotland will be the sixth-wealthiest country in the developed world in terms of GDP per head, compared to the UK’s sixteenth place.
“Scotland has a £1.5 trillion asset base in the North Sea, with over half of the oil and gas value still to be extracted – on Danny Alexander’s illiterate economics, mortgages could go up in the rest of the UK because they would struggle as a new country without the benefit of Scottish resources. The reality is that both Scotland and the rest of the UK will be successful independent countries.”
The Government Expenditure and Revenue Scotland (GERS) report shows that, including a geographical share of UK North Sea oil and gas revenues, Scotland contributed 9.6 per cent of UK public sector revenue in 2010/11 and received 9.3 per cent of total UK public sector expenditure. Scotland’s population is 8.4 per cent of the UK total.
Over the five-year period from 2006/7 to 2010/11, Scotland was in a stronger financial position relative to the UK as a whole by a total of £8.6 billion – over £1,600 pounds for every man, woman and child in Scotland.
Based on internationally comparable figures published by the IMF, UK public sector debt at the end of 2009 was approximately 76 per cent of GDP. If Scotland was assigned a per capita share, it would be approximately 66 per cent of GDP. At the end of 2010, general government debt across the EU-27 as a whole was 80 per cent of GDP, and among the G7 it was 114 per cent.