HOMEOWNERS would face higher mortgage costs of £5200 per year, on average, if an independent Scotland refused to accept a share of UK debts, Danny Alexander has warned.
The Chief Secretary to the Treasury told MSPs yesterday he did not believe Alex Salmond's threat to walk away from a slice of the national debt because of the "huge effect" it would have on mortgages, business borrowing and the country's international reputation.
As the war of words over Scotland's currency options raged on, Mr Alexander highlighted an analysis by investment bank Jefferies which warned an independent Scottish Government would face a rise in its own borrowing costs of five percentage points if it refused to take its share of UK debt.
Higher borrowing costs passed on to the real economy would then push up repayments on the average £184,000 Scottish mortgage by £5200 per year, he claimed.
The same analysis suggested a smaller annual rise of £1700 in mortgate repayments if an independent Scotland accepted its share of national debt, estimated at £140billion.
However, Finance Secretary John Swinney hit back, warning income tax would have to rise by 1p in the rest of the UK if an independent Scotland did not take on a share of the debt.
Mr Alexander said the threat was "utterly extraordinary" given its likely consequences.
Giving evidence to Holyrood's economy committee, he added: "It would be cutting off Scotland's nose to spite its face.
"I simply don't believe the threat that Scotland would not take a fair, reasonable, negotiated share of the debt if independence was to happen."
The LibDem cabinet minister admitted there were "uncertainties" over the mortgage rise figure but said: "It gives people a flavour of what a default-type option would be."
Jefferies, who produced the report in December, said an independent Scotland defaulting on its share of UK debt would not be allowed to join the EU.
Mr Alexander was appearing before the Scottish Parliament's economy committee.
It came a week after the Coalition Government and the Opposition ruled out Mr Salmond's proposal for an independent Scotland to share the pound within a formal monetary union with the rest of the UK.
Mr Salmond has claimed the move is a bluff - but has warned an independent Scotland would not accept its share of UK liabilities if his plan was rejected.
Mr Alexander said it was "fantasy" to claim the Government was bluffing.
In a categoric statement to MSPs he said: "People should treat the words that have been said in respect of a currency union as definitive.
"No one should be in any doubt, a currency union is not going to happen."
He warned: "A currency union would not work for an independent Scotland or the rest of the UK so there is no point pretending it is something that could be agreed."
In a challenge to Mr Salmond he added: "I think it would be extremely helpful for people in Scotland to understand what is the Plan B.
"Otherwise we are being asked to follow a proposal for independence with no route- map, with no idea what the destination is."
He said an independent Scotland either using a new currency or keeping the pound unilaterally would suffer economically, warning: "I think we would be poorer as a country.
"Over time the Scottish economy would be damaged by independence."
He dismissed SNP plans to create an oil fund as a "pipe dream," arguing it would be bad economic management to cut spending or raise taxes now to save money for future investments.
And he said the financial situation faced by an independent Scottish Government would be a "tea party" compared with the cuts the Treasury had imposed in the past few years.
Finance Secretary Mr Swinney said the UK Treasury would have to pay up to £5.5billion more in interest per year if an independent Scotland did not take on a share of debt, adding 1p to income tax.
Mr Swinney said: "Under the proposition we have put forward, an independent Scotland would be quite happy to pay, as part of negotiated arrangements which would include participation in a sterling zone."
Deputy First Minister Nicola Sturgeon said there was "not a scrap of evidence" mortgage payments would rise under independence.
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