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What credit rating would an independent Scotland have?

Countries of a comparable size to Scotland, such as Norway, Finland and Sweden, currently enjoy very low levels of borrowing costs through careful management of the public finances. We expect Scotland to have the top credit rating.

To manage debt and borrowing, Scotland will establish a debt management function.

Source: Scotland's Future, Scottish Government, November 2013.

What will the cost of government borrowing be in an independent Scotland?

The cost of government borrowing will reflect the underlying fundamentals of the economy. Scotland has a strong economy and is in a stronger fiscal position than the rest of the UK. For example, it is estimated that the total amount of tax raised per person in Scotland, including North Sea taxes, has been higher than the equivalent figure for the UK in every single year since 1980/81.

In order to keep borrowing costs low, a government must have clear and credible commitments to maintain sustainable levels of public sector debt. Scotland is well placed, therefore, to have a top credit rating and government borrowing will be undertaken in an affordable and sustainable manner.

Although the expectation would be that Scotland will receive the top credit rating, the example of the UK, which has lost its triple-A rating without a subsequent meaningful increase in borrowing costs, demonstrates that the most important factors are the fundamental strengths and assets of the Scottish economy.

Source: Scotland's Future, Scottish Government, November 2013.

How will an independent Scotland boost the economy when there are pressures on public finances?

Independence will allow Scotland to design policies on tax, spending and regulation for the particular needs of the Scottish economy, to support the growth and innovation that will deliver prosperity and jobs.

All developed economies need to address the challenges posed by changing social and economic circumstances. Scotland, with its strong asset base and skilled workforce, will be in a strong position to face these challenges.

Spending on social protection (on things like welfare benefits and pensions), as a share of GDP, has been lower in Scotland than in the UK in each of the past five years – and lower than in the majority of EU-15 countries during 2011.

Source: Scotland's Future, Scottish Government, November 2013.

What deficit will an independent Scotland inherit and how would this be managed?

Scotland’s deficit is forecast to fall to between 1.6 per cent and 2.4 per cent of GDP in 2016/17 with a historic share of UK debt and to be between 2.5 per cent and 3.2 per cent of GDP if we take on a population share of UK public sector debt. The Office of Budget Responsibility forecasts that the UK will run a deficit of 3.4 per cent of GDP in the same year. The IMF estimates that the average deficit across the G7 economies will be 3.2 per cent in 2016. Based on this approach, the net fiscal balance for an independent Scotland in 2016/17 is therefore forecast to be better than for the UK as a whole.

When assessing a country’s finances an important figure to consider is the current budget balance. This measures the degree to which current taxpayers meet the cost of paying for the public services they consume today and includes a contribution to debt interest payments. If a country is running near to a current budget balance or surplus it may still have to borrow to fund capital expenditure. However, such borrowing will be for long term investment which can be expected to increase the economy’s productive capacity in future years. Such borrowing can therefore be part of a sustainable approach to managing public finances.

Assuming a share of debt interest payments based upon Scotland’s historic contribution to the UK public finances, Scotland’s Current Budget Balance is estimated to be between 0.1 per cent (i.e. a surplus) and -0.7 per cent of GDP in 2016/17. Assuming a population share of debt interest payments, Scotland’s current budget balance in 2016/17 is projected to be between -0.8 per cent and -1.5 per cent of GDP. This compares to a forecast for the UK as a whole of -1.9 per cent.

Source: Scotland's Future, Scottish Government, November 2013.