Three Trillion Reasons for Scottish Independence

What really killed the canary at the bottom of the UK’s national debt pit is the staggering figure of £3 TRILLION owed.

The UK is skint—seriously skint.

Forget Rachel Reeves' £20bn black hole. The Labour Chancellor could easily fill it by reallocating the £20bn Ed Miliband plans to spend on risky carbon capture and storage technology, the £20bn the Energy Minister aims to blow on foreign climate crusades, or by limiting public sector pay rises.

No, what really killed the canary at the bottom of the UK’s national debt pit is the staggering figure of £3 TRILLION owed. Yes, that’s right—£3,000,000,000,000 in debt. That’s £50,000 per citizen or £85,000 per household. The debt is valued at more than all the goods and services produced domestically in the UK in one year (GDP).

UK Government borrowing in August alone was £13.7bn—the highest ever recorded in a single month. The annual debt service cost is £90bn, which is three times higher than the defence budget and nearly twice the annual budget of the Scottish Parliament. This means that 10% of all government expenditure is just blown away on debt interest payments alone.

But not all debt is equal. Borrow heavily from the local loan shark, and the terms will be less forgiving than, say, borrowing from a local bank in a downturn (unless you’re a small business facing the RBS Global Restructuring Group). Some debt is less risky than others. Japan can borrow more as a percentage of GDP because its debt is held by its citizens. Italy can also borrow a higher percentage without too much trouble, as it generally runs a primary budget surplus.

The UK, however, has not had a budget surplus in 20 years. One-third of its debt is now held by foreign investors, much of it is index-linked, and the average maturity date is just three years. As a result, debt markets are getting nervous, and the cost of funding UK debt is climbing. Government borrowing costs on 10-year gilts are at 4.2%—double what Germany pays to borrow.

If the UK economy were growing at the same rate as its debt mountain, things would look healthier, but it’s not. Before 2008, the UK economy used to double every 32 years; now, it’s stagnating, and growth may shrink further when Labour’s mad energy policies drive prices up.

So, what does all this mean for Scottish independence?

During independence negotiations, an agreement would be reached on the division of both the national debt and assets. This division would likely be based on a share of the population (per capita).

The UK population is 70 million, with Scotland making up 5.5 million. Therefore, Scotland’s share of the £3 trillion debt would be £236bn, or 8%. That remains a big number, especially considering that the annual interest on it would be £9.7bn at today’s rates. Tax receipts from North Sea oil would only cover that amount in a very, very good year. Therefore, Scotland needs to prepare for these negotiations well in advance to reduce this headline debt figure.

Here’s what needs to be done:

1. Build a team to track down every UK asset purchased with the £3 trillion debt. Scotland will have an 8% share of each asset that can be offset against the debt. This should be done in advance of any new referendum to reassure that we can cover debts as part of the economic plan. If the SNP government has the time and inclination to identify 24 genders, it has the capacity to classify those assets.

2. Make no concerted effort to increase the population until negotiations are concluded, since each new resident would increase our share of the UK debt mountain by £50,000. Instead, focus on boosting training, productivity and improving health outcomes to get those not working back into the job market.

3. Refuse responsibility for any debt incurred through Bank of England (BoE)/UK Treasury negligence. The BoE added £100bn to the national debt when it sold gilts at low interest rates and then bought them back at higher rates. Other countries were wiser. Additionally, Scotland should not be held responsible for the billions lost in Treasury loans to fraudsters during COVID. There are many more examples.

4. Start rejecting new Treasury expenditures that have no relevance to Scotland. Let the bond market know in advance that we are not responsible for costs like High Speed 2 or Hinkley Point C. Make the Treasury think twice before issuing debt in our name.

The big question is: would an independent Scotland be more effective at creating growth and managing its debts than the UK? I’ll cover the topic of economic growth in a future article, but I do believe we would be more responsible in managing our borrowing.

Look at any of the Holyrood project disasters: the trams, the ferries, or the Holyrood Parliament construction. These were slow-moving train wrecks that destroyed millions but could not be stopped by any amount of common sense once in motion. However, every penny lost was scrutinised and mourned in Scotland. In contrast, nobody talks about the UK’s £3 trillion debt mountain. It’s like Father Jack in the corner of the Father Ted sitcom: everyone can sense something is wrong, but nobody—not even during a Westminster election—can quite put a finger on it. The UK is drunk on debt, and we can be confident that Scotland would take a more sober approach, with lower borrowing rates as a consequence.

Much of the research in this article came from a House of Lords report by the Economic Affairs Committee. National debt: it’s time for tough decisions