September 12, 2014 / 3:15 PM / 5 years ago

Factbox: How UK and an independent Scotland might split up a nation

LONDON (Reuters) - Scotland’s referendum on independence on Thursday could break up the United Kingdom, more than three centuries after the union of England and its northern neighbor.

Polls currently put Scottish unionists a nose ahead but the vote is balanced on a knife edge.

Scottish nationalist leader Alex Salmond has proposed an 18-month transition period for the negotiations on how to split the two countries if he wins.

Below are some of the big issues that would have to be resolved between an independent Scotland and the remainder of the UK, if Scots vote ‘yes’ on Sept 18.

THE POUND – The biggest flashpoint of the campaign for independence is the plan by Scottish nationalists for a breakaway Scotland to share the pound – and the Bank of England - in a formal currency union with the rest of the United Kingdom. Britain’s three main political parties have all ruled out sharing sterling on the grounds a UK-Scotland currency union could suffer the same problems as the euro zone, which shares a currency but not a government. Salmond, the head of Scotland’s government and the Scottish National Party (SNP), says that position is a bluff. But if he is wrong, an independent Scotland would have to adopt sterling unilaterally or launch its own currency, both of which carry risks. Using the pound without agreement from the rest of the UK could leave Scotland without the protection of a central bank as a lender of last resort, something which has prompted banks in Scotland to say they would move their registered offices to England in the event of a vote for independence. Either option would require Scotland to build up a big stockpile of sterling reserves, something that could require a scaling back of the nationalists’ spending plans. Scotland could also seek to join the euro but it would almost certainly have to launch its own currency first. Salmond has said he does not favor joining the euro.

BRITAIN’S NATIONAL DEBT – Salmond has said an independent Scotland might refuse to take on its share of Britain’s national debt – which is forecast to hit 1.5 trillion pounds ($2.4 trillion) by 2016/17 - if it is not allowed to share the pound in a formal currency union. The UK government has reassured markets about the risk of a default, saying it would stand behind all UK debt and reclaim the money from Scotland, in the event of a split. Assuming that Salmond does not follow through on his threat to walk away from Scotland’s share of the debt, the nationalists say the amount that Scotland takes on should reflect its contributions over the years to Britain’s public finances which include huge tax revenues from North Sea oil. That would result in Scotland taking on only a relatively small share of the debt. The British government would prefer a method based on the size of Scotland’s population. If the rump UK ends up having to take on Scotland’s share of the national debt, it could delay the recovery of Britain’s AAA credit rating which it lost last year from Moody’s and Fitch. Britain’s government has said such a move would backfire, damaging Scotland’s reputation among investors and pushing up its cost of borrowing.

OIL REVENUES – Most of the UK’s North Sea oil and gas reserves are located off the Scottish coast. The Scottish government says about 90 percent of them lie in what would be Scottish waters, if they are apportioned on a geographic basis. Precisely how the split would work would be subject to broader negotiations. Projections of Scotland’s wealth by the UK Treasury have worked on the assumption that Scotland would be apportioned a geographic share of revenues, although they have said this does not represent the official government position. The Scottish government plans to use revenues to set up wealth funds similar to those of Norway to help fund its spending promises. Salmond, a former oil economist at Royal Bank of Scotland, has said North Sea reserves are worth 300,000 pounds for every inhabitant of Scotland. While Scotland says there are 24 billion barrels of oil left, opponents of independence disagree, citing an expert who said last month 15-16.5 billion barrels remain. The UK government says the industry needs Britain’s deep pockets to cover the cost of decommissioning exhausted oil and gas installations; the Scottish government says it will ask for contributions from the UK that reflect past revenues raised from the North Sea.

EU MEMBERSHIP – The SNP says it believes an independent Scotland would negotiate its entry into the European Union quickly, given it is has long observed EU rules as part of the UK. Top officials from the EU have suggested the process will not be so straightforward, not least because Spain and other countries in the bloc are worried about giving any encouragement to separatist movements within their borders. The man who was until July in charge of monetary affairs at the European Commission, Olli Rehn, says Scotland would struggle to get into the EU if it unilaterally adopted the pound because it would not be able to show that it could run its own economy sufficiently well for a country that would be expected to join the euro one day. The leadership of the EU is changing and SNP officials are hoping that if the vote goes their way on Sept. 18, Brussels might take a more positive approach to allowing Scotland in.

ARMED FORCES – The SNP wants to set up a Scottish army, navy and air force based on units of the British armed forces currently in Scotland, boosting the number of regular service personnel to 15,000 within 10 years, up from about 11,000 based in Scotland now. It says some of the additional costs would be met by not having nuclear weapons and not aspiring to have a global military reach as the UK does. It also wants to take possession of British military hardware including naval vessels, army artillery and 12 Typhoon fighter jets.

NUCLEAR BASES - Scotland wants to remove Britain’s four Trident submarines, which are equipped with nuclear missiles, from the Faslane naval base near Glasgow within the first five-year term of an independent Scottish Parliament. The UK government says moving Trident from Scotland would be very expensive and complex and it is likely to push for a transition period of much more than five years.

CITIZENSHIP - The Scottish government proposes that people born in Scotland or British citizens who are “habitually resident” at the date of independence should automatically become citizens. People with a Scottish parent would be able to request citizenship and other nationals can apply for naturalized citizenship. The nationalists note that British citizenship laws allow for dual citizenship but the UK has not said whether that will happen automatically or not.($1 = 0.6163 British Pounds)

Writing by William Schomberg; Additional reporting by Alistair Smout; Editing by Sophie Walker

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