Scottish independence: Osborne says currency plans 'dive into uncharted waters'


George Osborne says alternative currency arrangements are "less suitable"

Chancellor George Osborne has said it would be a "dive into uncharted waters" if an independent Scotland kept the pound in a currency pact with the UK.

The chancellor said a Treasury analysis of the plans concluded the economic case for the rest of the UK agreeing to the union was "not clear".

And he said an independent Scottish state would have to accept "significant policy constraints" under such a pact.

The Scottish government said a currency union would be in everyone's interests.

Voters in Scotland will be given the choice of opting for independence in a referendum in September 2014.


PDF download Scotland analysis: Currency and monetary policy. Report from UK Treasury[748kb]

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In a speech in Glasgow on the report, Chancellor George Osborne said there was no guarantee that the UK and Scotland would be able to come to an agreement on a currency union.

That would mean a separate Scotland was left with three options - unilaterally keeping the pound, creating a Scottish currency or joining the euro.

Alex Salmond: The rest of the UK needs Scotland within the currency area in order to support the balance of payments

Mr Osborne said: "All of these alternative currency arrangements are less suitable economically than we have now for both Scotland and the rest of the UK."

The contest over the currency of an independent Scotland is, at its core, a political battle.

George Osborne says that the SNP argues that an independent Scotland would retain the pound in order to lessen public anxiety over the project, in order to depict independence as a continuum from prevailing circumstances rather than a sharp departure.

Finance Secretary John Swinney says that UK ministers argue that there would be grave difficulties in establishing a post-independence sterling zone between Scotland and the remainder of the UK (rUK) because they want to forestall that prospect from arising.

The intriguing thing is that, in this remarkable battle, both might be right.

The chancellor went on to argue that with a currency pact there would be an unbalanced relationship between an independent Scotland and its much larger neighbour.

Mr Osborne said: "The fundamental political question this analysis provokes is this - why would 58 million citizens give away some of their sovereignty over monetary and potentially other economic policy to five million people in another state?"

He added: "The rest of the UK, as the larger economy, would be much more exposed to the risk of an independent Scotland running into fiscal and financial difficulties.

"Let's be clear - abandoning current arrangements would represent a very deep dive indeed into uncharted waters.

"Would a newly independent Scottish state be prepared to accept significant limits on its economic sovereignty? To submit its economic plans to Westminster before Holyrood?"

'Fairer country'

The chancellor further claimed that the Westminster government could expect to have more control over Holyrood than Germany has over its eurozone partners.

This is based on England, Wales and Northern Ireland accounting for roughly 90% of the proposed sterling zone monetary union, whereas the German economy makes up 30% of the 17-member eurozone.

The currency Scots use matters to them, as it does in any country. People want to know their coins, notes, savings and investments are securely backed.

So the choice of the pound, the euro or a new Scottish currency is of fundamental importance to the debate on Scottish independence.

It's also quite a complex one. But the clash of Treasury and Scottish government should help voters better understand what's at issue; the management of risk, the role of stability, the freedom to tax and spend, and the constraints that come from international pacts.

There is, amid this, a fundamental disagreement over who owns the pound sterling now, and the Bank of England.

The Scottish government says Scotland can expect to share such institutions, post-independence, having spent 300 years building them up within the UK.

But the UK Government takes the view that if Scotland votes to leave the UK, it can't expect to make demands of the UK's institutions.

It's hard to see how these views can be resolved, without either a lot of compromise or the help of the courts.

However, the Scottish government's own analysis said comparisons with the eurozone were misleading, because unlike Greece and Germany, Scotland and the rest of the UK have integrated economies with similar characteristics.

Scottish Finance Secretary John Swinney said such a system would let an independent Scotland "use the vital tax and other economic powers of independence to create jobs, grow the economy and build a fairer country".

It is also argued that Westminster would want to have a currency union because more than £45bn of goods and services are sold to Scottish customers, and oil and gas from Scottish waters would contribute billions of pounds to the sterling zone's balance of payments.

Mr Swinney told the BBC's Today programme: "What the Treasury's paper is designed to do is to make things sound as difficult and obstructive as possible and I don't really think it is a helpful contribution to the debate.

"We invited a number of leading international economists, including Joseph Stiglitz and Prof James Mirrlees, to advise us on the macro-economic framework that we have put forward and I have accepted their recommendations in relation to currency.

"I think they put forward a very rational and considered case for the establishment of a sterling zone that can work in the interests of Scotland just as much as it operates in the interests of the United Kingdom."


PDF download Currency choices for an independent Scotland: Report from Scottish government's fiscal working group commission[212kb]

Most computers will open PDF documents automatically, but you may need Adobe Reader

Mr Swinney said the Treasury was "playing with fire" in its arguments.

He said: "The chancellor is arguing in his paper that the UK would be the successor state, that it would hold on to the pound and we somehow could not get access to that.

"If that is his position then the UK as a successor state is obliged to hold on to all the debt and we would be liberated from a population share of UK debt of £125bn.

"Now if that is the kind of game and negotiation the chancellor wants to play he's welcome to do that but we are interested in a rational and considered discussion consistent with the Edinburgh agreement that both governments would work together to implement the outcome of the referendum next year."


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  • rate this

    Comment number 1762.

    England and Scotland still need to work together even of we do choose to become independent. We will still trade together after independence. It makes logical sense that we share the same currency. The Unionist have not got ONE good reason why it won't work. Not one. If England doesn't agree then you can take Scotland's share of the debt. That means we can start a fresh which is even better.

  • rate this

    Comment number 1761.

    if Scotland does become an independent country ( and that's a big if ) we should help and support it in its aims, we are not some colonial power implementing our rules on another nation anymore and should give this fledgling nation all the help they want in their aim of self determination . we should be firm friends and allies not bitter rivals

  • rate this

    Comment number 1760.

    John Ogden
    What about Civic nationalism John? I think you will find it was the British Empire that invented the concentration camp. Trying to paint all nationalists as nazis is childish and ignorant politics. Are all socialists nazis as well (national socialists)?

  • rate this

    Comment number 1759.

    "Do you know, I've completely changed my views about Scottish independence after reading through the comments on a BBC article" ...said no person ever.

    The Pound Sterling is just as much our currency as yours. Roll on independance

  • rate this

    Comment number 1758.

    The anti Tory tenor of many of the posts on here makes me have to point out it was a Labout government over 13 years with a Scottish Cancellor that created the current financial mess. They were asleep at the wheel whilst trumpeting an end to boom and bust. I suspect Alex Salmonds grasp of economics is about as sound.


Comments 5 of 1762


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