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Treasury raises fears of higher mortgages after Yes vote

Treasury Chief Danny Alexander has warned that Scots households would see mortgage payments "ramped up" after independence if the Scottish Government were to refuse to pay its fair share of the UK's £1.4 trillion national debt.

His claim came as Downing Street said that while the UK Government would guarantee all national debt, to ease market jitters and avoid a "separation surcharge" on UK finances ahead of the referendum, it would not underwrite the banks of an independent Scotland; they would be Edinburgh's responsibility.

The First Minister stressed an independent Scotland would be prepared to finance a "fair share of the debts of the UK provided Scotland secures a fair share of the assets, including the monetary assets" - meaning a currency union, something which Chancellor George Osborne has all but ruled out.

On the back of investors' mounting concerns about what would happen in the event of a Yes vote, the Treasury announced the UK Government would in all circumstances honour all of its debt obligations.

But it said that if Scots voted for independence on September 18, then Scotland would become responsible for a "fair and proportionate share" of the UK's current liabilities. This does not mean part of the debt would transfer to Edinburgh but rather the SNP administration would pay an amount of money to service a portion of the debt - the level to be determined by negotiation.

Alex Salmond insisted the Treasury was "coming to terms with reality" and its position, now explicitly stated, was "common sense". Mr Salmond wants a currency union between an independent Scotland and the rest of the UK. He has previously said Scotland would be entitled to decline to take on a share of debt should the UK refuse to form a sterling zone with Scotland.

Mr Salmond also said any market uncertainty had been caused not by the possibility of independence but by the Coalition's refusal to discuss terms ahead of September 18 - the UK ­

Government's position is no pre-negotiation. He added that the Treasury's announcement meant the SNP Government would be "in an extremely strong negotiating position to secure that fair deal".

However, this was forcefully disputed by the Treasury. A senior source said it was "incredibly relaxed" its announcement would not affect the UK Government's negotiating position, and Salmond "claims a lot of things, which are based on rhetoric and wishful thinking".

The source said investor jitters meant a clarifying statement on debt was needed. He claimed investors do not want to end up being owed money by another country which has no economic track record, a smaller economy than the UK's, relies on a declining oil resource and a fiscal black hole, suggested by the Institute for Fiscal Studies.

"All of that would lead to an independent Scotland having high interest rates on its government debt. There was a danger, however, that could have been priced in ahead of the referendum: a separation surcharge."

He added any reneging on its debt obligations, because of a failure to get a currency union with the UK, would be "catastrophic" as it would collapse market confidence and push Scottish borrowing costs through the roof.

Mr Alexander said: "Whatever happens, the markets expect an independent Scotland to have higher borrowing than the UK. That means higher interest payments, which would mean further spending cuts or tax rises in an independent Scotland."

He added: "If Mr Salmond carried out his threat to default on debt payments to the UK Government, then he would load Scottish households with extra tax bills to pay the price for higher interest rates, which would ramp up mortgages and business loans in an independent Scotland."

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