Cost of independence pits Scotland against London as battle intensifies

EDINBURGH Tue May 27, 2014 7:01pm EDT

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EDINBURGH May 28 (Reuters) - Each side of the Scottish independence debate will set out on Wednesday very different versions of how the country's finances will look if it breaks away from the United Kingdom.

Scottish First Minister Alex Salmond will issue a paper showing Scotland's public finances over the past five years and forecasts for Scotland if it were to become independent in 2016.

An hour later, and also in Edinburgh, Britain's deputy finance minister, Danny Alexander, will present a breakdown of the UK government's estimates of the costs of Scottish independence and Scotland's budget deficit.

The economy is a pivotal factor in the debate over independence which will be decided at a referendum on Sept. 18.

Alexander has indicated that he will show that Salmond's Scottish National Party has not fully budgeted for setting up a new administration that could cost Scottish taxpayers over 1.5 billion pounds ($2.52 billion).

But Salmond has rubbished the Treasury estimates, accusing the ministry of misrepresenting research by the London School of Economics and calling for the figures to be withdrawn.

"The Treasury have been caught red-handed trying to cook the books. This leaves the Treasury claims about Scotland's finances without a shred of credibility," he said in a statement.

"The reality is Scotland is one of the wealthiest countries in the world, more prosperous per head than the UK, France and Japan, but we need the powers of independence to ensure that that wealth properly benefits everyone in our society."

Alexander has said an independent Scotland would face a higher tax burden than the rest of Britain, due to an ageing population, lower immigration and steep forecast declines in tax revenue from the North Sea as oil becomes costlier to extract.

Differences in oil receipt forecasts explain much of the gap between Westminster and Edinburgh's figures.

Last month, Westminster said Scotland would have a fiscal deficit equivalent to 5.5 percent of GDP in the 2016-17 tax year when independence would be likely to take effect, more than 2 percentage points higher than Edinburgh's estimate.

But nationalists argue that independence would give Scotland the power to decide how and where it spends its own money and not be directed by lawmakers based in distant London.

Breaking Scotland's 307-year-old union with England would reduce the United Kingdom's gross domestic product by around 10 percent, weaken British diplomatic clout and raise questions over its permanent seat on the U.N. Security Council.

Polls so far show Scots are unlikely to vote for separation but the proportion of those supporting independence has increased this year and many remain undecided. ($1 = 0.5952 British Pounds) (Writing by Belinda Goldsmith; Editing by Robin Pomeroy)

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