Independent Scotland 'might not be able to guarantee savers' deposits'

 

An independent Scotland might find itself unable to guarantee the deposits of savers in the event of another financial crisis, the Treasury warns today.

In highly provocative document officials liken the Scottish financial sector to that of Cyprus – which was bigger than the capacity of the state to bail it out.

And it also suggests that an independent Scotland might be unable to afford to protect pensioners whose employers become insolvent – because of the high number of defined contribution schemes in Scotland.

The document, to be published today, is the latest of three studies by the British government to sway opinion in Scotland ahead of next year’s referendum on independence.

Last month the British government suggested that an independent Scotland would not be able to keep the pound and would have to either adopt its own currency or embrace the euro.

The new study, warns that an independent Scottish banking sector, would rely almost exclusively on Bank of Scotland and Royal Bank of Scotland and that the Government would be unlikely to have the resources to bail them out if one of them were to fail.

“A serious banking crisis in an independent Scotland could pose a significant risk to Scottish taxpayers,” it concludes.

“Banking sector contingent liabilities for the UK in September 2012 were around 100 per cent of the whole UK GDP – or around £30,000 per capita. This would be more than double in an independent Scotland at £65,000 per capita.”

It adds that consequently a Scottish might not be able to guarantee bank deposits as it does in the UK.

“An independent Scotland could have significant difficulties providing standalone Scottish protection to match schemes such as the UK’s Financial Services Compensation Scheme (FSCS) which protect deposits in UK banks up to £85,000,” it concludes.

In a section which will cause intense irritation to nationalists the paper also compares an independent Scotland to counties like Iceland and Cyprus that had disproportionately large financial sectors.

It points out the value of the financial sector in Scotland stands at 1,254 per cent of Scotland’s gross domestic product, compared with banking assets in Britain worth 492 per cent of GDP.

“By way of comparison, before the crisis that hit Cyprus in March 2013, its banks had amassed assets equivalent to around 700 per cent of its G.D.P. — a major contributor to the cause and impact of the financial crisis in Cyprus and the ability of the Cypriot authorities to prevent the systemic effects when it hit,” the study says.

The document adds that by the end of 2007 Icelandic banks had amassed consolidated assets equivalent to 880 per cent of Icelandic G.D.P.

It cites the verdict of the Organization for Economic Cooperation and Development, which said that “the banks grew to be too big for the Iceland government to rescue.

“Banking in these circumstances became very dangerous when the global financial crisis deepened,” it says.

But John Swinney, finance secretary of the Scottish government, which supports independence, dismissed that document as “a discredited, feeble attempt to undermine confidence in Scotland’s ability to be a successful independent country” adding that “it will not work.”

Mr Swinney added that much of the paper seemed to be based on a “flawed, outdated view of the world which takes no account of the substantial banking reforms which have been on-going across Europe since 2008.”

Start your day with The Independent, sign up for daily news emails
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
2015 General Election
May2015

Poll of Polls

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Recruitment Genius: Experienced Bookkeeper - German Speaking - Part Time

£23000 - £25000 per annum: Recruitment Genius: This firm of accountants based ...

Recruitment Genius: Operations Manager

£30000 - £38000 per annum: Recruitment Genius: They are a financial services c...

Ashdown Group: Field Service Engineer

£30000 - £32000 per annum + car allowance and on call: Ashdown Group: A succes...

Recruitment Genius: Sales & Marketing Co-Ordinator

£15000 - £17000 per annum: Recruitment Genius: Well established small company ...

Day In a Page

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

Not even the 'putrid throat' could stop the Ross Poldark swoon-fest'

How a costume drama became a Sunday night staple
Miliband promises no stamp duty for first-time buyers as he pushes Tories on housing

Miliband promises no stamp duty for first-time buyers

Labour leader pushes Tories on housing
Aviation history is littered with grand failures - from the the Bristol Brabazon to Concorde - but what went wrong with the SuperJumbo?

Aviation history is littered with grand failures

But what went wrong with the SuperJumbo?
Fear of Putin, Islamists and immigration is giving rise to a new generation of Soviet-style 'iron curtains' right across Europe

Fortress Europe?

Fear of Putin, Islamists and immigration is giving rise to a new generation of 'iron curtains'
Never mind what you're wearing, it's what you're reclining on

Never mind what you're wearing

It's what you're reclining on that matters
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence