By Martin Kelly
The UK Treasury is to assume responsibility for all debt accrued by the UK up to the date of the independence referendum, it has been confirmed.
The decision, which was revealed by the Financial Times, is in response to anticipated market jitters caused by the possibility of Scottish independence.
According to the FT, the decision has been taken after fears were raised that the UK could be forced to pay “a risk premium” in the coming months when a proportion of UK debt is transferred to the newly independent Scottish state if Scots vote Yes in September.
In the article, it states: “The Treasury will still expect Scotland to pay its share of the debt and to reimburse the rest of the UK directly, subject to a negotiation with a new independent government in Edinburgh.
“Scotland has already said it would take responsibility for servicing and refinancing a fair share of UK debt, without taking on direct legal liability for bonds already issued.”
The decision is certain to impact on the referendum debate with the issue of currency taking centre stage. The SNP has long argued that a currency agreement between the rest of the UK and an independent Scotland will ensure that there is consistency over the current UK debt repayments when the burden is eventually split between the two emerging bodies.
The Scottish government has argued that a newly independent Scotland will be entitled to a share of the UK’s current assets, which includes using the pound, as well as liabilities including debt.
The move by the UK Treasury will be viewed by some as a concession ahead of the independence referendum, and an indication it is already involved in some sort of pre-referendum negotiations – something the UK Government has steadfastly refused to commit to.
Speaking to the FT one Treasury insider said: “We don’t think it weakens our hand,” adding “If Scotland reneged on what it owed the rest of the UK, it would be an international pariah in the markets. The UK has a strong hand here.”
According to the FT, a person with knowledge of the Treasury said: “A number of parties have approached the government seeking clarification on the status of gilts in the event of a Yes vote. Providing investors with this cast-iron assurance ahead of the referendum is the responsible thing for a highly creditworthy sovereign such as the UK to do.”
The formal note to the markets will be published on the Treasury website on Monday, saying that the “continuing UK government” would “in all circumstances honour the contractual terms of the debt issued by the UK government”.