Treasury paints bleak picture of independence

Some of the country’s biggest employers could move their headquarters from Scotland if voters back independence, the Treasury has claimed.

A new analysis paper from the UK Government claims there would be a “significant incentive” for large firms in the financial services sector to relocate if there is a Yes vote.

Moving away from Scotland would allow them to avoid the “funding and financial stability risks arising from independence”.

The paper also claims that separation would leave Scotland’s economy far too over-reliant on the banking sector, raising the prospect of an Iceland or Cyprus-style meltdown.

This bleak picture of Scotland’s economy under independence is completed with the conclusion that it would be “impossible” for the country to afford a bank bailout like the one which followed the 2008 financial crisis on its own.

SNP ministers, who will launch their own economy paper on Tuesday, last night dismissed the report as “scaremongering”.

The Treasury paper states: “If Scotland became independent it could cause significant difficulties for financial services firms, in particular around their cost of borrowing.

“There is a substantial area of uncertainty around the reaction of large firms to these risks.

“There would likely be significant incentives for large firms to make changes to their group structure in order to address the funding and financial stability risks arising from independence, most importantly moving their domicile from an independent Scottish state.”

The report concludes that countries which are overly reliant on banking are “significantly more vulnerable”.

Treasury officials point out that the scale of Scottish banking assets compared to GDP is 1,254%.

This is more than twice the ratio for the UK and a third bigger than that of Iceland’s before its economy collapsed in 2008.

The Treasury claims that the liabilities from the banking sector per head in an independent Scotland would be £65,000 compared to the current £30,000 per head in the UK.

Treasury officials conclude: “This means that, faced with a serious banking crisis, the possibility of bank failures would pose a very serious risk to taxpayers in an independent Scotland.”

The paper, being launched in Edinburgh tomorrow, dismisses any suggestion of a UK-wide approach to managing financial risk as unworkable.

But Finance Secretary John Swinney said: “Scotland is a wealthy country and this week we will publish a key document outlining the fundamental economic strengths of the Scottish economy and how they will prosper with independence.

“This Treasury paper, by contrast, is a discredited, feeble attempt to undermine confidence in Scotland’s ability to be a successful independent country and it will not work.

“The last time the Treasury came north to scaremonger, it was the Chancellor spreading implausible stories about Scottish banknotes.

“This time they have dispatched their ‘B’ team to make equally far-fetched claims.”

The impact that independence would have on your money comes sharply into focus this week.

Both sides of the referendum battle will unleash a barrage of statistics on the economy, but the figures that matter most are the ones you see on your bank statements. The effect on pensions, savings and mortgages on the basis of the UK Government’s analysis are grim, but then The Treasury was never likely to paint a rosy picture of a post-independence Scotland.

What’s most illuminating is the input senior figures in the financial services sector too timid to put their heads above the parapet so far have had in this paper. Their private and detailed technical fears about red-tape, regulation and borrowing costs are echoed in this paper, and this is a real headache for the SNP.

These companies employ tens of thousands of Scots, generate billions of pounds of tax revenue and are part of the country’s economic success story. Shaking the “scare story” stick at every claim in the Treasury paper will simply not cut it for these business leaders.

In truth, much of the uncertainty could be negotiated away in any post-referendum deal, but voters and the industry will need more detail from the SNP before they step into the polling booth.

Hearts, minds and bank balances are the key to this referendum.