Scottish independence: Think tanks warns against monetary union

Scottish money The report says is it is not in Scotland's interests to remain part of the monetary union

The UK economy has become so "dysfunctional" and biased towards London that it is not in Scotland's interests to be part of the monetary union, according to a think-tank.

The Jimmy Reid Foundation study said the UK performed poorly among European states on various economic indicators, with Scotland even worse off.

Author Margaret Cuthbert said Scotland was denied the local policies needed.

She said as a result Scotland faced continuing chronic underperformance.

The Scottish Government's stated preference is for an independent Scotland to retain the pound as part of a UK-wide currency union.

However, Ms Cuthbert suggested the UK economy was in such a bad state, an independent Scotland should abandon the pound and use its own currency.

The economist's paper, The UK Economy: a strong and secure UK, looked at 30 years of data covering GDP, employment, population, industrial output, manufacturing, business start-ups, household income and benefits.

She said the UK failed a key test for an optimum currency area: that monetary policy changes should have similar effects across the monetary union area.

This condition is "grossly violated" for the UK, she said, with the dominant London area having a markedly different finance dominated economic structure from the rest of the UK.

'GDP underperformance'

Among the key points of Ms Cuthbert's report is a claim that Scottish Gross Domestic Product (GDP) has under-performed relative to the UK average and similar EU countries for the last 50 years.

Over the period from 1963 to 2011, in real terms, UK GDP increased by 329%, while Scottish GDP increased by 263%, the data showed.

In terms of average growth rates per year, the UK stood at 2.51%, while in Scotland it was 2.04% - an average annual difference of 0.5%.

Had Scotland's GDP grown at the same rate as the average of the UK since 1963, Scotland's GDP would be 25% larger than it is today, the report stated.

Start Quote

At present Scotland is being drained of finances and growth by the dominance of London in the UK economy”

End Quote Spokesman Scottish government

It also found that five of the 12 areas which make up the countries and regions of the UK have less than half the GDP per head of London. Scotland's GDP per head is only 58% of that for London.

Such regional disparities are the result of the fast growing south, particularly London and the City, acting as a magnet for capital and labour from other parts of the UK, the report said.

As a result growth in Scotland and other UK regions were "thus held back even more", according to the study.

UK industrial production is also struggling relative to other Western countries, said the report, falling by 1.2% from 1990 to 2011, while it grew by 32% in Germany and 361% in Ireland.

It added: "Overall, the UK cannot be seen as a successful economic entity keeping up with its competitor countries."

Economic tools

The report is part of the Jimmy Reid Foundation's Common Weal project.

The project argues that a Yes vote in the independence referendum could free Scotland from the UK economic model and allow it to adopt the best practices of the Nordic countries.

Ms Cuthbert said her conclusions challenged an assertion made by pro-union campaigners Better Together, which "takes for granted that we have a strong and secure UK".

A Scottish government spokesman said the report came weeks after an economic prospectus showed that independence would "provide the tools and opportunity to boost Scotland's economic performance".

He said: "Where the Scottish government prospectus highlights the opportunities of independence, the Jimmy Reid Foundation report highlights the need for it - highlighting that at present Scotland is being drained of finances and growth by the dominance of London in the UK economy."

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