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Uk To Make Debt Pledge Ahead Of Scotland Referendum

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http://uk.reuters.com/article/2014/01/13/uk-britain-scotland-debt-idUKBREA0B0N820140113

The British government will announce on Monday that it will take responsibility for all British government debt should Scotland vote to leave the United Kingdom this year, a person familiar with the situation said on Sunday.

"Essentially we would be the counterparty on any debt that was owed," the person said.

The UK government would seek a bilateral arrangement with the Scottish government about its share of the UK debt in the event of a vote for independence in September's referendum, the person said.

The person declined to be named ahead of publication of the notice by the Treasury on Monday.

Scotland will vote in September on whether to keep the 306-year union intact. Scottish nationalists say independence will free it from decades of economic mismanagement. The British government is campaigning to keep Scotland part of Britain.

Some investors had been seeking clarification from the Treasury about what would happen to UK debt if Scotland votes for independence, the person said.

The Scottish government has said it would pick up its share of the UK debt in negotiations after a yes vote and the Treasury's announcement would not weaken London's hand in any such talks, the person added.

Ah yes economic mismanagement that the Scottish Nationalists will undoubtedly improve on....

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http://uk.reuters.com/article/2014/01/13/uk-britain-scotland-debt-idUKBREA0B0N820140113

Ah yes economic mismanagement that the Scottish Nationalists will undoubtedly improve on....

This is interesting enough to discuss without snarky comments, surely?

What is in it for the Westminster government? What do they get out of it?

Is it to soothe nervous bond buyers to avert a bond strike?

Is it as a bargaining chip, take all the debt and also claim an equivalent amount of shared assets?

Is it because they know the debt is worthless so it is not actually a liability to take it all on?

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This is interesting enough to discuss without snarky comments, surely?

What is in it for the Westminster government? What do they get out of it?

Is it to soothe nervous bond buyers to avert a bond strike?

Is it as a bargaining chip, take all the debt and also claim an equivalent amount of shared assets?

Is it because they know the debt is worthless so it is not actually a liability to take it all on?

If the opinion polls started to converge between now and the referendum UK debt (as a whole) would suffer a markup to account for the divergence if and when it came.

Who would know whose debt would be assigned to which nation. Scotland after divergence would possibly be a much worse bet than the rest of the UK.

No name on the announcement and I would assume the guarantee (if it can be called that) would only apply up to divergence. Once Scotland went their own way any debt they take on after that is there own problem.

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This is interesting enough to discuss without snarky comments, surely?

What is in it for the Westminster government? What do they get out of it?

Is it to soothe nervous bond buyers to avert a bond strike?

Is it as a bargaining chip, take all the debt and also claim an equivalent amount of shared assets?

Is it because they know the debt is worthless so it is not actually a liability to take it all on?

Perhaps the UK Govt have no option- they issued the debt and it is their responsibility to repay it, whatever the composition of 'the UK' that is backing it. I guess plenty of UK debt is backing pensions paid to Scottish retirees though, so how practical a refusal to take UK debt would be in the circumstances I'm not sure.

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The SNP seem to have devalued the battle for independence into a tory vs labour type spat.

Farage is guilty of the same thing. Degenerating into a social conservative when his single issue anti-EUSSR party was a lot more appealingly.

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Wasn't unification necessary because Scotland was bankrupt in the first place? Perhaps we should ask for repayment of that debt as the starting point with 300 years of interest?

All the debtors are dead and their estate was liquidated.

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So if the currently outstanding Gilts would remain payable by Westminster, maybe the idea is that an independent Scotland would give Westminster a block of Scottish bonds of a value equal to its share of the national debt upon gaining independence, and then Westminster could decide whether to hold onto these or sell them to third parties.

Could be a nice little accounting trick there for whoever is Chancellor of the Exchequer in Westminster at the time. Get handed £120bn worth of Scottish bonds, sell them for cash, use the money to fund current spending or tax cuts rather than paying off the Westminster national debt.

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All the debtors are dead and their estate was liquidated.

Meanwhile all the creditors are very much alive, public sector final salary schemes, state pensioners, those who have given up in midlife and have gone onto DLA, an aging population with free NHS insurance worth about £5,000 per year to the retired.

They can walk away from balance sheet debt but they cannot walk away from the unfunded off balance sheet debt.

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Meanwhile all the creditors are very much alive, public sector final salary schemes, state pensioners, those who have given up in midlife and have gone onto DLA, an aging population with free NHS insurance worth about £5,000 per year to the retired.

They can walk away from balance sheet debt but they cannot walk away from the unfunded off balance sheet debt.

Indeed we cannot, in the same way the rUK cannot. However, given the level's of Scottish life expectancy, our exposure seems to be a wee bit less, yes?

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http://uk.reuters.com/article/2014/01/13/uk-britain-scotland-debt-idUKBREA0B0N820140113

Ah yes economic mismanagement that the Scottish Nationalists will undoubtedly improve on....

The Scottish government has delivered on budget since it took over devolved areas of funding. It has no option of increasing, or decreasing , borrowing.

Can the same be said of the exchequer?

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The Scottish government has delivered on budget since it took over devolved areas of funding. It has no option of increasing, or decreasing , borrowing.

Can the same be said of the exchequer?

The parliament and the Edinburgh trams were certainly not delivered on time or on budget?

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Dividing the nations would be horrendously complicated. Imagine retired "Whitehall" civil servants. Who pays their pensions? If they worked in London and retired to somewhere in England then obviously London; if they worked their entire career in Scotland and retired to Scotland then obviously Edinburgh, but worked some in England some in Scotland some abroad (retired diplomat) and then retired abroad - who pays? If the whole burden falls on England the English won't be happy. Maybe there needs to be a pooled fund with cash supplied from England and Scotland pro rata population at time of division. But then what happens if (1) there is a massive population shift from Scotland to England, or (2) Scotland is unable to make payments.

Perhaps it will be "you are the nationality of where you were born" and the responsibility of that country - but then: UK citizens born abroad? Or born foreign and naturalised?

It's far too complicated. And all English goodwill will evaporate as soon as Scotland votes to leave.

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Dividing the nations would be horrendously complicated. Imagine retired "Whitehall" civil servants. Who pays their pensions? If they worked in London and retired to somewhere in England then obviously London; if they worked their entire career in Scotland and retired to Scotland then obviously Edinburgh, but worked some in England some in Scotland some abroad (retired diplomat) and then retired abroad - who pays? If the whole burden falls on England the English won't be happy. Maybe there needs to be a pooled fund with cash supplied from England and Scotland pro rata population at time of division. But then what happens if (1) there is a massive population shift from Scotland to England, or (2) Scotland is unable to make payments.

Perhaps it will be "you are the nationality of where you were born" and the responsibility of that country - but then: UK citizens born abroad? Or born foreign and naturalised?

It's far too complicated. And all English goodwill will evaporate as soon as Scotland votes to leave.

This really doesn't seem like such a big problem. There are about 460k civil servants in the entire UK of which 46k are based in Scotland, which is pretty close to the population ratios. There isn't some huge imbalance which would need correcting.

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Dividing the nations would be horrendously complicated. Imagine retired "Whitehall" civil servants. Who pays their pensions? If they worked in London and retired to somewhere in England then obviously London; if they worked their entire career in Scotland and retired to Scotland then obviously Edinburgh, but worked some in England some in Scotland some abroad (retired diplomat) and then retired abroad - who pays? If the whole burden falls on England the English won't be happy. Maybe there needs to be a pooled fund with cash supplied from England and Scotland pro rata population at time of division. But then what happens if (1) there is a massive population shift from Scotland to England, or (2) Scotland is unable to make payments.

Perhaps it will be "you are the nationality of where you were born" and the responsibility of that country - but then: UK citizens born abroad? Or born foreign and naturalised?

It's far too complicated. And all English goodwill will evaporate as soon as Scotland votes to leave.

Where do retired UK civil servants resident in Spain currently get their pensions from?

Those who choose Scottish nationality will be paid by Holyrood, those who choose UK nationality will expect to be paid by Westminster. As far as I'm aware, there are no plans to force UK subjects resident in Scotland to surrender their UK citizenship if they do not wish to do so.

Now that I come to think on it, UK expats paid by Westminster, spending in Scotland....... It's all good!

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Perhaps the UK Govt have no option- they issued the debt and it is their responsibility to repay it, whatever the composition of 'the UK' that is backing it. I guess plenty of UK debt is backing pensions paid to Scottish retirees though, so how practical a refusal to take UK debt would be in the circumstances I'm not sure.

It's pretty bloody obvious why they've made this statemet - They are absolutely terrified of yields (and hence, interest rates) being forced up (in this case, by uncertainty over Scottish share of national debt).

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It's pretty bloody obvious why they've made this statemet - They are absolutely terrified of yields (and hence, interest rates) being forced up (in this case, by uncertainty over Scottish share of national debt).

Yes, depending how polling goes, and how their statements are believed, we could get some nice spikes in yields all the way up to the vote?

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Yes, depending how polling goes, and how their statements are believed, we could get some nice spikes in yields all the way up to the vote?

The ratings agencies seem to think so. :)

http://www.telegraph.co.uk/finance/economics/10569415/Scottish-independence-UKs-credit-rating-could-be-threatened-as-Treasury-guarantees-Scotlands-debt.html

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Sounds like a Independence is a no-brainer. Debt free and able to hold to ransom the RUK on things like trident.

CS Pensions is easy - like the bonds, liability up to independence remains with RUK. Thereafter Scottish civil servants will be in the new Scottish scheme. RUK pension entitlement would be frozen at independence.

All the Counties and Wales should do it too.

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This is interesting enough to discuss without snarky comments, surely?

What is in it for the Westminster government? What do they get out of it?

Is it to soothe nervous bond buyers to avert a bond strike?

Is it as a bargaining chip, take all the debt and also claim an equivalent amount of shared assets?

Is it because they know the debt is worthless so it is not actually a liability to take it all on?

Mainly I think it's a practical move. Without it, the risk on UK debt goes up and therefore so do government borrowing costs. I note that the value of the pound dived moments after the announcement, which is interesting. It seems to suggest that people active in the currency markets at least think that the UK is likely to end up keeping the whole lot with no contribution from an independent Scotland.

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Sounds like a Independence is a no-brainer. Debt free and able to hold to ransom the RUK on things like trident.

CS Pensions is easy - like the bonds, liability up to independence remains with RUK. Thereafter Scottish civil servants will be in the new Scottish scheme. RUK pension entitlement would be frozen at independence.

All the Counties and Wales should do it too.

If the first thing that Scotland does on independence is, even if not legally speaking, default on its existing debts, I would think that the long term borrowing premium that they'd pay as a result would more than wipe out any initial savings.

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Sounds like a Independence is a no-brainer. Debt free and able to hold to ransom the RUK on things like trident.

Presumably the plan is for the rest of the UK to stand behind the existing bonds but then Scotland would issue the relevant amount of their own bonds directly to the UK treasury to account for their share of the debt.

That way the debt gets split fairly but they don't end up introducing a theoretical default risk up to the point of separation.

Of course where it could get interesting is if the Scots found they couldn't pay.

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If the first thing that Scotland does on independence is, even if not legally speaking, default on its existing debts, I would think that the long term borrowing premium that they'd pay as a result would more than wipe out any initial savings.

Would it though? How long before a fiscally sound Scotland (remembering we've been running a positive trade balance for some time) is 'forgiven'? What happens to the rUK trade deficit after independence, and what effect does that have on the rUK's ability to repay the deficit/debt?

What if a resource rich Scotland looked for a non-traditional 'lender of last resort'?

Edited by AThirdWay

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