Fans of Mike the Knight and Granny Murray shall not have to worry. An independent Scotland will still screen children’s TV from the rump UK’s public broadcaster, says the Scottish government’s 667-page white paper on making a break-up happen. With that crucial detail cleared up – how about telling bondholders, who may own Scotland’s share of the UK’s £1.6tn debt, what terms to expect?
The white paper does not even say exactly how big that share would be. But it seems there are two scenarios for dividing up gilts which are, for now, blissfully political risk-free obligations of one sovereign.
Scotland might get its population share. This is how the Czechs and Slovaks rather amicably split their debt two decades ago. But here it is equivalent to £130bn, three-quarters of Scotland’s GDP – a large stock with which to kick off a new state that has no borrowing record. It is not much better than UK debt to GDP currently 86 per cent. The Scottish government is fonder of a “historical” share based on fiscal contribution to the UK, which would lower starting debt to half of GDP. Gilt investors could be forgiven for daydreaming about how negotiations would proceed. They have little else to go on. Still, it might not bother them too much: either way, nine-tenths of their holdings would remain rump UK bonds.