Debt and poor growth likely if Scotland seizes chance of independence, investment firm warns

An independent Scotland faces high debt and weak economic growth but fears of an exodus of banks and nationalist anti-business sentiment are unlikely, according to an investment firm.

BlackRock said independence “would bring major uncertainties, costs and risks – mostly for Scotland, but also for the remaining UK”, in a report entitled Investment and Independence.

A currency union looks “unfeasible” leaving Scotland with the choice of joining the euro, which “does not appear to be a near term option”, or launching its own currency pegged to sterling or its other main trading partners and to the price of oil, it said.

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The report is “deliberately apolitical” but gives BlackRock’s views on some of the disputed claims about independence.

It states: “Kilt-edged securities would sell at higher yields. Scotland would have to pay more to borrow than the UK and accept shorter maturities.

“The country’s likely high debt, fiscal deficit, weak economic growth, lack of institutional frameworks and low foreign exchange reserves suggest a higher-than-normal debut sovereign yield spread. This would add to Scotland’s fiscal stress.

“Oil and gas are critical to Scotland’s finances. North Sea revenues are volatile as they depend on energy prices, production volumes, costs and tax incentives.

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“Banks and insurers would face pressure to move headquarters to a stronger fiscal state with a more certain regulatory backdrop. Yet a wholesale exodus of staff and operations would be unlikely, given Scotland’s cost advantage over London and other locations.

“Utilities doing business in Scotland would likely see financial returns fall as the country would be torn between ambitious targets for renewable power and popular pressure to keep electricity rates low.

“Independence would raise regulatory costs and uncertainties for companies. Pension sponsors and trustees would have to change scheme designs and operations.

“Fears an independent Scotland would become a bastion of anti-business sentiment are unfounded, in our view.”