UofG Centre for Public Policy

3 February 2026: A new blog from Patrick E. Shea and Ben Cormier examines the Scottish Government's plans to issue its first national bonds - or 'kilts' - writing that although intended as 'symbolic', it is an exercise that has clarified the price of independence, that 'bond yields and credit ratings will now function as a financial referendum'.

Blog by Dr Patrick E. Shea and Dr Ben Cormier

The Scottish government has announced plans to issue its first national bonds since the late 17th century. These bonds - nicknamed “kilts” to contrast with British “gilts” - will raise £300 million per year over five years (below Scotland's £470 million annual borrowing limit). January's Scottish Budget confirmed the programme remains on track. The first bond is expected in late 2026 or early 2027, with proceeds funding infrastructure investment.

To facilitate the bond issues, Scotland requested credit ratings from Moody’s and Standard and Poor’s. These ratings evaluate how likely a borrower is to repay and affect investor confidence. Both agencies awarded the same grades as the UK (Aa3 and AA, respectively), but kilts will incur higher interest rates than gilts for the foreseeable future -because they are new and will trade in a much smaller market than the £2.5 trillion gilt market, making them harder to trade.

Why pay more to borrow?

Scotland can already borrow through the UK's National Loans Fund at the same interest rate as Westminster. The Scottish Government argues bonds offer advantages over the National Loans Fund, including repayment flexibility and diversification. Kilts will cost more - fund managers estimate interest rates 0.3 percentage points above gilts, plus an additional £2 million per bond in administrative costs.

The Scottish National Party has stated that these costs are an investment in its independence goals. Scottish First Minister John Swinney explains that kilts are “tools” Scotland needs to build relationships and demonstrate Scotland's credibility to international financial markets. Deputy First Minister Kate Forbes is more explicit, explaining the kilt program “put[s] in place the foundation stones of an independent nation.”

Unintentional effects of Scottish bonds

Kilts will have a modest material impact. The £300 million annual borrowing represents less than 0.5% of Scotland's £60 billion budget, and Westminster-imposed debt ceilings prevent total Scottish borrowing from exceeding £3.1 billion.

However, the creation of kilts created an unintentional effect: we now have a financial barometer for independence. Both Moody’s and S&P noted that Scotland's high ratings depend on the current devolution framework, where most funding guarantees come from Westminster. Both agencies assessed that Scottish independence chances were low, and so constitutional changes seem unlikely. That’s a message that SNP may not want voters to hear.

Our ongoing research shows that investors and governments pay attention not only to credit ratings themselves, but to the sentiment of rating agency reports - the detailed language assessing a country's economic and political trajectory. Both agencies have already signalled that moves toward independence would trigger downgrades. We expect any inroads toward independence to increase Scotland's borrowing costs, even before formal rating changes occur.

The kilt-gilt spread will make this visible. Once kilts begin trading, the gap between kilt and gilt prices will act as a live market indicator of independence risk. It will also indicate the sovereign financial cost of independence should it come to pass, identifying the difference between what debt would cost as a devolved UK nation vis-a-vis an independent sovereign. If investors believe independence is becoming more likely, they will demand higher returns - and the spread will widen. Other factors like Scotland's relative economic performance and budget deficit will also play a role, but constitutional risk will be central to investor concerns.

In the lead-up to the 2014 Scottish independence referendum, analysts could only speculate about the financial costs of independence. For example, the UK government, citing third-party research, suggested an independent Scotland could pay up to 1.7% higher interest rate on public debt. But this was an estimate, not the market price. The new kilt program will provide continuous information on the financial cost of Scottish independence.

The Scottish independence movement has long been hampered by economic and financial uncertainty. Ironically, this symbolic exercise has clarified the price tag on independence. Bond yields and credit ratings will now function as a financial referendum. Whether these new market indicators shape voter attitudes remains an open question, but research shows that voters pay attention to both. The Scottish Government has given markets a permanent seat at the independence table.

Authors

Ben Cormier is a Senior Lecturer and Chancellor’s Fellow in the Department of Government and Public Policy at the University of Strathclyde

Patrick E. Shea is a Senior Lecturer and Subject Lead for International Political Economy and Development at the University of Glasgow.

 

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^{Preview photo by Ameet Dhanda on Unsplash}

First published: 3 February 2026