An independent Scotland would find it “difficult and expensive” to provide protection for savers and maintain its own pension protection scheme, according to new analysis by the UK Treasury.
A paper on the impact of independence on financial services and banking says Scotland could have “significant difficulties” providing protection which would match schemes such as the UK’s Financial Services Compensation Scheme (FSCS), which protects deposits in UK banks up to £85,000.
It also says members of defined benefit pension schemes would not be covered by the Pension Protection Fund (PPF), with an independent Scotland required to provide such protection through a similar guarantee fund under EU rules.
The paper, being launched by Scottish Secretary Michael Moore in Edinburgh today, is the third in a series of reports assessing the impact of a yes vote in 2014.
It argues the UK can afford to compensate savers if banks get into difficulties, as they did during the 2008 collapse but an independent Scotland would be required to set up its own deposit guarantee scheme, rather than share existing UK schemes.
The paper says: “The UK Government lent around £20 billion to the FSCS during the recent financial crisis.
“Under European law an independent Scottish state would not be able to ‘share’ the UK’s deposit guarantee scheme, such that it covered firms authorised in both Scotland and the continuing UK.
“The retail deposit market in a separate Scotland would be dominated by only two large banks (RBS and BoS) and if one of these were to fail, the costs for compensating the depositors would fall almost entirely on the one remaining bank.”
It adds: “If Scotland were to be become independent, it could create particular difficulties for the FSCS.
“In an independent Scottish state, FSCS-eligible deposits held by Scottish firms (and which would therefore be covered by the Scottish compensation scheme) would be over 100% of Scotland’s Gdp, representing a significant liability of the state.”
Meanwhile, the large number of defined benefit pension schemes in the UK makes it easier to fund the UK-wide PPF by spreading the risks across a much larger number of levy-paying schemes, according to the paper.
It says: “It would be difficult for an independent Scotland to maintain an effective standalone scheme.”
The Scottish Government has already dismissed the paper as “far-fetched” and “flimsy”.