EVEN if Scotland left the UK, the Bank of England would remain guarantor of the Scottish financial system, Capital Economics predicted yesterday.
First Minister Alex Salmond plans to keep Scotland on pound sterling even if the country left the union, meaning that it would be likely to negotiate a deal maintaining the Bank’s backstop position, the economics consultancy said. This would leave taxpayers in the rest of the UK on the hook in case of problems in the Scottish financial sector.
This disadvantage would outbalance any benefit the rest of the union enjoyed in reducing the burden of maintaining the costly Scottish state, author Martin Beck said. In making this argument Beck shot down claims that North Sea oil revenues effectively paid for the disproportionately high public spending in Scotland.
“With its high levels of public spending, Scotland is perceived by many to be something of a drain on the UK economy,” Beck wrote. “But, in practice, Scotland’s departure from the union is unlikely to benefit the rest of the UK,” he added, because non-Scottish taxpayers would ultimately be liable in the case of Scottish financial trauma.
He raised the possibility that these problems could be evaded by some sort of agreement establishing oversight of Scottish budgetary management through fiscal rules, but concluded that it could not be determined how well such measures would work in practice.