Breaking up Britain would not make the country’s huge national debt disappear.
Quite the opposite: it could make that debt more expensive to finance. The reason is simple.
Governments borrow money by selling bonds — effectively IOUs to investors. The riskier investors think a government is, the higher the interest rate they demand.
Today, there is one UK Treasury, one tax base and one government standing behind roughly £3 trillion of public debt.
Break up the United Kingdom and that single financial backstop disappears. England, Scotland, Wales and Northern Ireland would have to negotiate how the existing debt was divided between them — and who was ultimately responsible for it.
That uncertainty matters enormously to bond investors.
They would have to ask: Who owes what? Who guarantees the debt? And can each new country raise enough tax revenue to pay it?
A smaller country with a smaller economy could look considerably less secure to investors than the United Kingdom as a whole.
The result could be higher bond yields — in other words, higher interest rates on government borrowing.
Even if the four new countries eventually paid every penny they owed, investors could demand extra compensation for the uncertainty and increased perceived risk.
And once borrowing costs rise, governments have to devote more of their tax revenue to paying interest rather than funding public services.
So the danger is not that Britain’s debt suddenly gets bigger. It is that Britain loses the financial strength of being one large sovereign borrower.
The debt gets carved up, the guarantees become less certain, and investors may charge more.
For governments already carrying heavy debts, even a small increase in yields can translate into billions more in interest payments.
More to come