THE independence debate has been engulfed by a new row after UK ministers announced "historic" plans for the Scottish Government to issue its own bonds for borrowing.
The Coalition claimed the move was a great step forward for devolution, which "maximised the benefits of the Union." But it also said that evidence proved the Holyrood bonds would be priced "significantly above the UK's cost of borrowing".
The Treasury added that this "reflects the market's view of the Scottish Government as a worse credit risk than the UK as a whole".
The SNP Government described the move as "too little too late", adding that it had sought the UK Government's permission to borrow money from the financial market three years ago at the height of the recession.
Danny Alexander, the Chief Secretary to the Treasury, is due to take the pro-UK argument on Scotland's future to the Scottish Parliament's economy committee today. Nicola Sturgeon, the Deputy First Minister, and John Swinney, the Scottish Finance Secretary, are also scheduled to appear before the MSPs as they present the pro-independence case.
Last night the Scottish Government said full fiscal powers of independence were still needed.
A spokesman said: "Instead of having the powers to borrow that were needed during the recession, the UK Government is instead responsible for 26% cuts in capital spending. This is simply too little too late."
He added: "Without the full fiscal powers of independence the ability of any Scottish Government to borrow to boost investment in infrastructure will continue to be constrained by arbitrary limits imposed from outside Scotland. Under independence, we would take our own decisions on public finances that are best suited to Scottish circumstances and priorities."
Under the 2012 Scotland Act, the Scottish Government from 2015 will be able to borrow up to £2.2 billion via the National Loans Fund, "benefiting from the UK's exceptionally low borrowing costs", said the Treasury, or from commercial bank loans.
The announcement provides another means to borrow, but, crucially, still within the original £2.2bn ceiling set by the Exchequer.
Mr Alexander lauded the bonds announcement as groundbreaking, the first for any devolved administration, which, he explained, would enable the Holyrood administration to broaden its sources of financing for capital investment such as major transport projects, hospitals, schools and flood defences.
He insisted it showed "once again how Scotland could grow and prosper within the UK".
Chancellor George Osborne, who last week ruled out a currency union for an independent Scotland, added: "This is a historic moment for Scotland, a country where the economy is growing with the Government's long-term economic plan. Being able to issue its own bonds gives Scotland new powers and new responsibility within the security of the UK. Alongside the considerable new tax and spending powers we have already given in the Scotland Act, it is further evidence of why being part of the UK gives Scotland the best of both worlds."
The Treasury also referred to evidence given to a 2012 consultation on the bonds issue, noting that this had "suggested bond issuance would be unlikely to represent a cost-effective form of borrowing for the Scottish Government as the cost of issuing such bonds would be significantly above the UK's cost of borrowing". It added: "This expected higher cost of borrowing reflects the market's view of the Scottish Government as a worse credit risk than the UK as a whole and of the lower liquidity of Scottish Government debt."
The Treasury stressed how the Scottish Government would be "solely responsible for meeting its liabilities" with no UK Government guarantee.
It added: "In addition, the Scottish Government would need further approval from HM Treasury to issue in any currency other than sterling."
The row over bonds follows controversies over the feasibility of an independent Scotland becoming a member of the European Union; the suggestion that a Yes vote would not automatically lead to independence if intergovernmental talks stalled; and the rejection of a currency union by all three main Westminster parties.
Meantime, Ms Sturgeon said: "Scotland must become independent if we are to have secure public finances, the opportunity to grow our economy and the powers to tackle inequality."
She accused the UK Government of being disrespectful to Scots by repeatedly dodging questions about the consequences of a No vote.
She added: "It gives the impression they simply do not have any answers. Today, Mr Alexander has the opportunity to set the record straight."