AN INDEPENDENT Scotland would find it difficult to guarantee savers deposits in banks, the Treasury has claimed in a new report out today, leaving bank and building society customers vulnerable.
Currently depositors are guaranteed up to £85,000, with the government bailing out savers in a failed bank and the rest of the industry paying that debt back over the following years – as in the case of failed Icelandic banks and Bradford and Bingley.
But the government today argues that such a guarantee would be difficult to put in place in Scotland.
As the sector is dominated by RBS and the Bank of Scotland, any failure would place a huge burden on the remaining bank, which the Treasury argues would be unable to cope.
“In an independent Scottish state, Financial Services Compensation Scheme-eligible deposits held by Scottish firms (and which would therefore be covered by the Scottish compensation scheme) would be over 100 per cent of Scotland’s GDP, representing a significant contingent liability of the state – and a much more significant proportion than in the UK as a whole,” the report says. “As was clear from the 2008 financial crisis, where there are doubts about the ability of the sector to meet claims through the compensation scheme, it can be necessary for governments to step in to guarantee deposits in order to prevent deposit flight.”
The report also claims pensioners would be put at risk as a new pension protection fund for the state would need to be set up to bail out pensioners whose former employers collapse.
Currently 360,000 pensioners receive their income though the UK’s scheme as their employers’ schemes failed and could not provide the income.
“It would be difficult for an independent Scotland to maintain an effective standalone scheme. The UK has a large number of defined benefit schemes, meaning that the risk is spread,” the report says.
“In an independent Scottish state there would be a much smaller number of providers (a rough estimate, based on the number of providers whose billing address is in Scotland, puts the figure at around seven per cent of the total number of schemes).”
But pro-independence groups said the paper fails to grasp the situation in Scotland and should be more positive about the country’s financial sector.
“The Treasury paper is a feeble attempt to attack an independent Scotland’s abilities,” said a spokesperson from the Scottish National Party.
“Instead of speculating and talking down Scotland’s financial sector, the UK Government should agree to the Fiscal Commission’s suggestion and engage in some proper discussions – which is also what more than two-thirds if Scots also want.”