Alex Salmond: How to best use Scottish bonds to benefit all

The Alba leader, who as first minister negotiated the power to issue bonds from David Cameron's UK administration, also said that bonds could be linked to specific projects, and he was “perplexed” as to why none had yet been issued.

Economics experts also told The National that the bonds should be aiming at grassroots investors rather than huge financial institutions.

One, Professor Richard Murphy, said the case for independence could go “forward by leaps and bounds” if bonds are issued correctly.

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“What we actually want to see is people in every town and city and village in Scotland being able to invest,” Murphy said, adding that they should be available in minimum parcels of something like £500 or £1000.

It comes after First Minister Humza Yousaf announced plans to issue Scottish Government-backed bonds at the SNP conference in Aberdeen.

A bond is essentially a saving mechanism, where people can lend the Government funding in return for the promise that it will be paid back with interest.

Critics have claimed that the plan will be more expensive than borrowing from the UK Treasury.

Asked about this criticism, Salmond said: “That would be true if you have general bonds. But if you have project bonds, it's not necessarily true. It depends on your project.

“I'm saying, if you're launching something like that, make it for a project like the A9. Make it a project bond, a project bond that anybody can buy into, that folk in Scotland can buy into.”

The former first minister had used his speech to the Alba conference over the weekend to suggest that the first Scottish Government bonds should be used as “finance to dual the A9 and A96”.

Speaking to the National, he went on: “Once you get a successful one, then you open up for more successful ones.

“I know lots of folk who are pretty wealthy and if we said to them, you've got a decent interest rate, it's very secure, it's backed by government and you're doing something for Scotland [they would get on board].”

Murphy argued that higher interest rates would not be an issue unless the money was being paid to financiers outwith Scotland.

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The accounting professor said: “Is there a significant risk in the fact that Scotland will be issuing a bond which will pay a higher interest rate than is paid by borrowing from the government in London? The return will go to the people of Scotland. So, what's the problem?

“It would be recycling money back into the Scottish economy. It would create a virtuous circular economy within Scotland.”

Murphy argued that the issuing of bonds is “not just a pure numbers exercise”, but potentially an incredibly significant political one.

He said it could “become the way for Scotland to turn its savings into its future”.

As was previously reported, senior financiers from institutions including Baillie Gifford, the Bank of America and the Royal Bank of Scotland, have said that issuing bonds would significantly raise Scotland’s international profile.

Given the important role that Scottish Government-issued bonds could play, Salmond raised questions about why it had not been done already.

“That's why, all those years ago, I negotiated [the power to issue bonds] from George Osborne (above),” he told The National.

“I'm kind of perplexed that, in the years of low interest rates which we had basically up until last year, when people were desperate for investment, international investors desperate to have a secure investment, you wonder, why wasn’t it used then?”

Murphy said the plan “politically marks a new era of thinking in the SNP and that's good because it needs to be”.

He added: “If this is done properly, and it is understood that this is much more than an economic programme but it is about saying, ‘please people of Scotland save in Scottish bonds because these are for the benefit of Scotland’, then I think that would be incredibly important for the indicators that would be available as to the future strength of the Scottish economy.”

A Scottish Government spokesperson said: “Scotland has a wealth of investment opportunities and raising finance to fund infrastructure is key to supporting the Scottish Government’s priorities: delivering high-quality public services, boosting a green and thriving economy and ensuring equality of opportunity for everyone.

“The Scottish Government secured the power to issue bonds under the Scotland Act 2016. Negotiations with the UK Government this year as part of the Fiscal Framework Review secured added flexibility to Scotland’s borrowing powers, so now is the right time to re-assess how we use them. The precise terms of any bond issuance will be notified after the completion of all necessary due diligence and standard credit rating processes.”