THE Treasury's statement on the country's national debt has thrown up claim and counter-claim about what would happen in an independent Scotland, and who would have the upper hand in the inter-governmental negotiations.

Didn't we already know the UK Government would stand behind the UK national debt?


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So what's all the fuss about?

During the past few weeks, Treasury sources said that investors who have bought UK Government debt have expressed concerns on whether they would get their money back in the event of independence, given that a breakaway Scotland, which would be responsible for some of it, has no economic track record. There are warnings, too, of a £6 billion black hole.

How does the Coalition statement change things?

It is meant to provide these jittery investors with certainty, making clear that in all circumstances the UK Government would honour all of its debt obligations. It is also designed to remove fears in the Treasury that investors would seek to price in a "separation surcharge" ahead of the referendum vote on September 18, thus pushing up the UK Government's own borrowing costs.

Does that mean an independent Scotland would not have to pay anything?

Not quite. While there would not be a physical splitting of the debt, now an eye-watering £1.4 trillion, an independent Scotland would be expected to finance its "fair and proportionate share" - currently estimated at around £120bn - by paying money to the UK Treasury.

Has Alex Salmond agreed to this?

Yes and no. The First Minister has made clear that an independent Scotland would be prepared to negotiate a fair deal, but has pointed out that if it took a share of the liabilities, it would also look to receiving a share of the assets, including the "monetary assets".

What does he mean by that?

A currency union in a sterling zone between an independent Scotland and the rest of the UK.

What's wrong with that?

The Treasury has said this is "highly unlikely" as it would not work for an independent Scotland nor the rest of the UK. Not quite a red line, but deep orange.

Does the statement give Mr Salmond the upper hand in any post-independence negotiations?

Listening to the First Minister, you would think so. Mr Salmond said the SNP Government would be in an extremely strong negotiating position to secure a fair deal. But the Treasury insists it is "extremely relaxed" because it says Mr Salmond and his colleagues will know how the markets would react if an independent Scotland were ever to renege on its debt obligations.

How would they?

The Treasury says investors would regard the government of a newly independent nation not willing to act responsibly - for example, not take its fair share of debt payments - as a highly risky proposition. This would produce a domino effect of higher borrowing costs for the SNP Government leading to spending cuts and tax rises, which would feed into higher mortgage rates for Scottish households and higher loan charges for Scottish businesses.

The stakes are very high then?

Yes they are, whoever you believe.