Scottish Independence: Country Faces £1bn in Extra Debt and Tax Hike

An independent Scotland would be £1bn more in debt while Scots face a hike in income tax rates as severing the 307-year old union with England would lead to higher borrowing costs.

According to research by campaign group Balance the Books, Scottish government bonds would yield 3.07% under current conditions, compared to 2.54% for UK.

It is expected that a 53 basis point spread above UK gilts would push Scotland's overall budget deficit to 8.7% while an additional funding gap would emerge.

The group says this is equivalent to 5p on Scotland's basic rate of income tax or doubling alcohol duty.

"Borrowing under independence would be pricier. It's vital to the fabric of our democracy that this is understood. Scotland would eventually stabilise after emerging from a split. However, a smaller country would always pay more to borrow – even after uncertainty has long blown away," said Adam Kirby, director of Balance the Books.

"The alternative, as part of the UK, is cheaper loan repayments on both public and private debts. That means lower taxes, cheaper mortgages, and better public services. Solidarity can provide where the magic bullet of independence can't – because it makes sense to share our borrowing facilities."

Scottish people will vote in an independence referendum on 18 September, 2014, and will be asked the straight "yes/no" question: "Should Scotland be an independent country?"

Balance the Books' research follows closely in line with the Institute of Fiscal Studies that show Scotland's budget deficit would be 8.3% before the extra effects of higher borrowing costs.

Due to paying more to service debt, after independence Scotland's budget deficit would in fact increase by 0.44 percentage points as a proportion of GDP, without any new spending, said Balance the Books.

"Scotland already spends far more than it takes in tax, even if you include a geographic share of oil. Remaining in the UK would prevent an extra £1bn in austerity," said Kirby.

"But by contrast, ending the Union would actually make the squeeze worse. And that would require some even tougher decisions.

"As a political entity the United Kingdom is not perfect. But as a machine for negotiating better economies of scale, a united Britain is enormously more effective than a divided island."