Scottish independence: SNP denies financial plan U-turn

Bank notes The Scottish government has said it would keep the pound, after independence

The Scottish government has denied performing a policy U-turn by asking UK regulators to oversee Scots banks in an independent Scotland.

The opposition said the move came following the SNP's previous criticism of UK industry controls on Scotland.

But a spokesman for First Minister Alex Salmond said the policy had now simply been "defined".

Scottish Finance Secretary John Swinney laid out his position during a speech in Glasgow on Monday evening.

He underlined a plan to keep a "sterling zone" and the UK regulatory framework, if the Scottish electorate voted for independence in the referendum, expected to take place in autumn 2014.

Addressing a business audience, Mr Swinney said a sterling zone would provide businesses in Scotland and the rest of the UK with the "certainty and stability for trade, investment and growth".

He added: "As the Bank of England takes on the role of regulator for UK financial services - a very sensible and long overdue position - retaining the pound will preserve the highly integrated UK financial services market.

"That framework is solid and substantial and I know that understanding our proposal is important to many of you in making your decisions about Scotland's future."

This is difficult stuff for SNP ministers.

Their rhetoric about the financial crisis has been about failed regulation from London being more significant than the failings of bankers in Scotland.

And even if John Swinney thinks the coalition government's reforms are welcome, it still looks like regulation from London.

And from London, it looks a bit presumptions that a Scottish government can assume the protection of institutions based in London.

But the nationalist view is that the Bank of England, being a central bank for the whole of the United Kingdom, is not the creature of Whitehall or of the rest of the UK, but of Scotland as well.

Likewise, the pound sterling is "as much Scotland's currency as it is the currency of England and Wales".

SNP policy favours an independent Scotland joining the Euro, pending a referendum, but the current economic conditions means the option is not currently attractive.

Ministers also said the Bank of England would continue to oversee monetary policy and set interest rates, but an independent Scotland could have a seat on its Monetary Policy Committee, or have a role in appointments.

Labour said the SNP had previously talked about an independent Scotland having its own financial watchdog and had pledged "light-touch regulation".

Scottish Labour leader Johann Lamont, said: "The SNP are making this up as they go along.

"The bank regulators they blamed for the collapse of the banking system are now the people they want to be in charge of the banking system. They reject the UK but want to keep George Osborne in charge of the banks?

"The truth is they know the people of Scotland reject leaving the UK, so they are now performing contortions on policy to make leaving the UK seem like remaining in it."

When asked what the point of independence would be if the SNP favoured keeping the pound and subscribe to London-based financial regulation, the spokesman for Mr Salmond said there was a "fundamental distinction" between monetary policy and fiscal policy.

He explained: "What fiscal policy provides you with is the levers of economic power in order to boost economic growth and increase employment in Scotland.

"No Westminster government has control over interest rates and has not done so since 1997, so, in that sense, it would be exactly the same as for successive Westminster governments."

The spokesman said independence would provide Scotland with a "strong voice" in Europe, adding: "Independence is the only constitutional policy which can ensure that we have the ability to remove trident nuclear weapons from the river Clyde - devo max doesn't provide that power.

Start Quote

I don't quite know how you can be a servant of two masters, in terms of two separate treasuries and one central bank”

End Quote Sir Howard Davies

"Independence is the only constitutional option which can ensure that Scotland decides which military activities we are involved in in order that never again can Scotland be dragged into an illegal war such as Iraq."

The comments came as Sir Howard Davies, a former head of the Financial Services Authority, told BBC Radio's Good Morning Scotland programme that the SNP position to keep a central Bank of England and the pound was unclear.

He said: "It's not obvious quite how a system with two separate finance ministries and one central bank would work.

"Supposing the Bank of England looked again at a Scottish bank and said, 'it's really in trouble, people would want it to be rescued, but we're not going to rescue it unless we're indemnified', where would they look for that indemnity?

"It wouldn't be the UK Treasury, presumably the English Treasury - it would have to be the Scottish Treasury.

"I don't quite know how you can be a servant of two masters, in terms of two separate treasuries and one central bank. I can't think of an analogy where that's the case."

The Scottish government said it supported a key recommendation of the Vickers report into banking reform to remove the taxpayer from having to bail out troubled institutions in future.

Responding to Sir Howard's point, Scotland's deputy first minister, Nicola Sturgeon, said in the event of a Scottish bailout being needed: "The Scottish government, in that scenario, would pay the Bank of England to provide lender of last resort facilities for Scottish banks.

"The Scottish government has made clear, the SNP's made clear, that an independent Scotland would remain within sterling."

A Treasury spokesman said the Scottish government's proposals remained "totally unclear".

The spokesman said: "If they are proposing a full monetary union with Sterling, then the Eurozone crisis shows that strong control of monetary policy, fiscal policy and borrowing would have to be agreed with the UK government and exercised centrally.

"This includes the role of the Bank of England and the conduct of macro-prudential regulation.

"If they are proposing an independent Scotland using the pound but without a formal monetary union, the presumption is that the Bank of England would not be required to act as lender of last resort or take account of the Scottish economy when setting monetary policy."

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