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Bonds that seek to tie, with strings

So Danny Alexander has announced that the Scottish Government is to have the power to issue its own bonds.

What are voters to make of that?

The Chief Secretary to the Treasury, echoed by the Chancellor, has claimed the announcement underlines the UK Government's commitment to maximising the benefits of the Union and, at first sight, it appears to be a positive endorsement of devolution in the midst of what has become an increasingly bitter and negative battle of wits between the pro-independence and pro-Union camps.

That impression does not hold up to scrutiny, however. The fact that the UK Government has declined to increase the Scottish Government's overall borrowing ceiling of £2.2 billion shows that this is no lavish endorsement of greater devolution.

By emphasising the higher costs Scotland would likely face going directly to the capital markets rather than through the National Loans Fund (which allows the Scottish Government to benefit from the UK's low cost of borrowing), the announcement is revealed as another tactical act. It is designed to emphasise the economic risks of independence.

If anyone were in any doubt on that point, the Chief Secretary added that the tax powers in the Scotland Act would provide "an independent source of revenue to support borrowing costs", a provocative hint that, to pay interest on its debt, the Scottish Government (under devolution or independence) would have to raise taxes.

Hence the mirage of positivity shimmers away to nothing. The announcement is an attempt by the UK Government to drive home its advantage over Mr Salmond, who has been wrong-footed over his plans for currency union, rejected by the Conservatives, Liberal Democrats and Labour last week. That skirmish, the most important of the campaign so far, has increased the sense of uncertainty over the economics of independence.

That Scotland would face higher borrowing costs than the UK Government is hard to refute, since Scotland, never having had the power to borrow directly from the capital markets before, would have no track record of credit worthiness to draw upon. If it would be expensive for a devolved Scotland to borrow, the UK Government is warning, imagine the cost under independence. It would reassure the markets somewhat if Scotland were guaranteed to be part of a UK currency union, but that is now looking highly unlikely.

The subtext of this announcement is negative and distasteful in talking down Scotland as a capital risk. Yet, for all that, the key point - that an independent Scotland would likely face higher borrowing costs - has validity and UK ministers cannot be expected to stay mute on that point, given the best-case-scenario version of independence economics frequently put forward by the First Minister.

This debate has rarely been friendly, constructive or positive of late, but it has had the advantage of putting under scrutiny key planks of the independence project. Uncomfortable as that may be, it is necessary.

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