Scottish independence: Treasury claims savers would not be protected

The paper claims Scotland would find it difficult to provide protection for savers and pensioners

A UK Treasury analysis paper has claimed that an independent Scotland could have "significant difficulties" providing protection for savers.

The Treasury paper was launched by Scottish Secretary Michael Moore and economic secretary to the Treasury, Sajid Javid, in Edinburgh.

It said Scotland would find it "difficult and expensive" to provide protection for savers and pensioners.

The Scottish government dismissed the analysis as "far-fetched" and "flimsy".

Scotland's Finance Secretary John Swinney said the risk was no greater to Scotland than it was to the UK.

The Treasury report, the third in a series of UK government papers on Scottish independence, claims that schemes such as the Financial Services Compensation Scheme (FSCS) and the Pension Protection Fund (PPF) provide safeguards for deposits in UK banks and UK pension schemes.

UK Treasury paper

The issues it raises include:

  • Whether people in Scotland would continue to enjoy the same access to Individual Savings Accounts (ISAs)
  • Concerns about the future of mortgage products
  • Questions about what would happen to car insurance
  • The future of pension funds
  • And a question mark over the use of price comparison websites north of the border

It pledges that the UK can afford to compensate savers if banks get into difficulties, as they did in 2008 when the government stepped in to guarantee deposits at the time of the banking crisis.

Mr Moore said that 84% of mortgages supplied by Scottish firms were provided to people living in other parts of the UK and 70% of the pensions bought in Scotland were provided by firms based in England, Wales and Northern Ireland.

He added: "If you put a border in the middle of that market, if you introduce different tax and regulatory regimes, it's wishful thinking to think it's not going to have any effect on the range of products you and I can buy to protect our families and our futures."

Start Quote

The fact of the matter is that an independent Scotland will fully fulfil its obligations in terms of deposit protection”

End Quote Nicola Sturgeon Scotland's Deputy First Minister

Mr Moore said there would have to be separate regulators, with additional costs to the industry.

Banks and pensions companies would have to redesign pension products and "economies of scale" in the UK would be lost, he claimed.

Mr Moore said: "It's common sense that all of those things would increase costs for Scottish firms.

"You don't have to be a genius to work out that ultimately it would be you and me who bear those costs, whether it be in mortgages, pensions or in our insurance."

The Treasury argues that Scotland's retail banking sector is dominated by two large banks - RBS and HBoS.

It claims that if one of these were to fail, the costs for compensating the depositors would fall almost entirely on the one remaining bank.

Michael Moore and Sajid Javid Michael Moore and Sajid Javid outlined details of the Treasury paper

The paper says: "The principal benefit of the UK in this area is risk-pooling. When one deposit-taker fails, the others are liable to contribute to the cost of compensating eligible depositors."

However, Deputy First Minister Nicola Sturgeon hit back.

She said: "The fact of the matter is that an independent Scotland will fully fulfil its obligations in terms of deposit protection.

"We see other small European countries that right now have mortgage rates lower than people get here in Scotland and it is also the case that increasingly we are looking at global action, European wide and and global-wide action, to make sure that we never experience again what the banking sector experienced some years ago."

'Risk spread'

On pensions, the paper also claimed that UK-wide pension protection was easier to fund by spreading the risks across a much larger number of levy-paying schemes.

Start Quote

Directors of these banks [RBS and Bank of Scotland] are loathe to talk in public about their fears, because they don't want to be seen as influencing the highly charged debate on Scotland's future.”

End Quote

The paper says: "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."

It also states that an independent Scotland would be required to provide such protection through a similar guarantee fund under EU rules.

Mr Swinney said the Treasury's "creative accounting on behalf of the No campaign simply does not add up".

He said: "It does not reflect the reality of how financial services operate or stand up to expert scrutiny.

"Constructed on a AAA credit rating that has since been shredded, this is just the latest attempt to attack an independent Scotland's ability to be an economic success story."

Mr Swinney added: "Assertions and claims about Scotland's financial sector are entirely misleading - in terms of share of GDP, in fact, financial services are actually smaller for Scotland at 8.3% than the UK at 9.6%.

Denis Healey Lord Healey says oil was important to the independence debate in the 1970s

"So, if the argument is about risk, then the risk is with the UK."

Ahead of the paper's publication, MrMoore said the current set up was "best for all of us".

He told BBC Radio Scotland's Good Morning Scotland programme that the union, unlike independence, offered certainty and stability.

Mr Moore was also asked about an interview by former Labour chancellor Denis Healey, now Lord Healey of Riddlesden, who admitted that the value of oil to the UK was a prime motivation behind Westminster's opposition to independence now and in the 1970s.

Lord Healey told Holyrood magazine: "I think we did underplay the value of the oil to the country because of the threat of nationalism, but that was mainly down to Thatcher.

"We didn't actually see the rewards from oil in my period in office because we were investing in the infrastructure rather than getting the returns and really, Thatcher wouldn't have been able to carry out any of her policies without that additional 5% on GDP from oil."

Different era

In response, Mr Moore said today's era brings with it greater scrutiny than that seen in the 1970s.

He added: "I am very happy for anybody, from whatever perspective they take on this debate, to scrutinise this report we are putting out today.

"We are living in an era of greater scrutiny than 40 years ago. The spirit of that will be shown by this paper, like the two papers previously.

"We are setting out the arguments, we are setting out all the sources of our information.

"People can challenge that and engage with it. When they do, they will see that the overwhelming argument is we get the best of both worlds by being in the UK - a very strong financial sector and protection when things go wrong."

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