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Battle rages on as Westminster cabinet heads for Scotland

THE imminent arrival of David Cameron and his cabinet prompted a furious debate over the economics of independence last night, with both sides trying to grab the agenda.

Finance Secretary John Swinney issued a Scottish Government analysis of the consequences for the rest of the UK if it rejected a currency union after a Yes vote, predicting a "devastating impact" south of the Border.

The Tories said independence meant a VAT bombshell as the EU would insist on ending the zero-ratings currently applied to items such as food, children's clothes, books and newspapers.

Cameron will use tomorrow's Cabinet meeting in Aberdeen to argue the importance of the Union to the oil industry and job security. Last night, he insisted the Coalition's plan for the economy was working, with 1.3 million more people in work across the UK compared to 2010.

"For the past 300 years, Britain has led the way in finding new sources of energy," he said.

"I promise we will continue to use the UK's broad shoulders to invest in this vital industry, so we can attract businesses, create jobs, develop new skills in our young people and ensure we can compete in the global race."

With Alex Salmond also holding his cabinet in Portlethen in the north-east tomorrow, the SNP accused the Coalition of threatening rail links to the area after a paper produced by HS2 suggested cutting east-coast services north of Edinburgh to help pay for the high-speed rail project south of the Border.

Swinney said if the remainder UK chose to accept all of the UK's national debt - estimated to hit £1.6 trillion in 2016 - rather than split up assets and liabilities, it would mean rUK shouldering up to £130 billion extra debt.

That would leave rUK with an eye-watering debt-to-GDP ratio of 95% and mean an extra £4bn to £5.5bn in extra interest payments, equivalent to a 1p rise in basic income tax.

Swinney said: "This is just one of the reasons, alongside the costs that rejecting a currency area would impose on business in the rest of the UK, that the Treasury will drop this bluff and bluster the minute the campaign is over."

The Scotland Office said the dangers of currency union far outweighed extra costs.

Swinney also sparked a row by accusing the most senior Treasury mandarin of "crossing the line" on civil-service neutrality.

Swinney called Sir Nicholas Macpherson's official advice to the Chancellor to reject currency union an "extraordinary attack": "It's perfectly permissible for civil servants to provide advice to ministers on all sorts of questions," he said. "To enter the debate in the fashion that Sir Nicholas entered the debate, which was a partial entrance, I thought was entirely over the line."

The Treasury insisted Macpherson was "completely neutral".

Scots Tory leader Ruth Davidson claimed an independent Scotland would have to impose VAT on goods currently zero-rated in order to join the EU. Citing a letter from the head of the VAT unit at the European Commission, she said an independent Scotland could not keep the 54 VAT opt-outs currently applied in the UK, and would have to add at least 5% VAT, but more commonly 15%, to a host of items.

Among the goods zero-rated are newspapers, books, some foods, equipment for the disabled and children's clothes. Davidson said: "The European Commission has now confirmed that, as a new member, an independent Scotland would be forced to give up those hard-won tax breaks which help ordinary families every year.

"None of this has been spelled out by the SNP."

The SNP Government said Scotland would negotiate EU entry based on keeping the UK's obligations and rights, including those on VAT.

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