Scotland politics

Scottish independence: George Osborne will rule out currency union

George Osborne
UK Chancellor George Osborne will set out his detailed position on a currency union this week

UK Chancellor George Osborne will rule out a formal currency union with an independent Scotland, government sources have told the BBC.

His position will also be backed by Labour shadow chancellor Ed Balls and Liberal Democrat Chief Secretary to the Treasury, Danny Alexander.

The Scottish government wants to keep the pound in a currency union if there is a referendum "Yes" vote.

SNP ministers said the Westminster parties were bullying Scotland.

Mr Osborne will set out his detailed position this week, with Mr Balls and Mr Alexander expected to follow in the days to come.

Deputy Scottish First Minister Nicola Sturgeon said the UK government's position did not bear scrutiny, adding that failure to do a deal on the currency in the event of a "Yes" vote in the 18 September referendum could leave Westminster with all UK debt.

Meanwhile, Alistair Darling, leader of the Better Together campaign to keep the Union, accused the Scottish government of making a "reckless threat".

The Scottish government has set out a plan to retain the pound and the services of the Bank of England, in the event of a "Yes" vote, which it said would be in the best interests of Scotland and the rest of the UK.

Until now, Mr Osborne has said such an agreement would be "unlikely", but a formal ruling out of such a move would pile huge pressure on the Scottish government's currency plan, said BBC political correspondent Tim Reid.

Answering questions at a Downing Street news conference on Tuesday, Prime Minister David Cameron, said: ''I think it would be very difficult to justify a currency union post-independence."

Currency is a major issue in the referendum debate

Ms Sturgeon told BBC Radio's Good Morning Scotland programme the UK government had given its clearest sign yet that it was losing the argument.

"We've gone, in under a week, from David Cameron's love bombing, back to bullying and intimidation," she said.

"It is a bluff, because if this was to be the position of the Westminster government then it would put them in a position that's at odds with majority public opinion in Scotland, it would put them at odds with majority public opinion in England.

"It would cost their own businesses hundreds of millions of pounds, it would blow a massive hole in their balance of payments and it would leave them having to pick up the entirety of UK debt."

The Scottish government has said Scotland should meet a fair share of the cost of servicing UK Treasury debt, but that "assets and liabilities" went together.

Ms Sturgeon said that, no matter what Westminster said now, the reality would be very different if Scotland voted "Yes".

Responding to the comments, Mr Darling said: "The nationalist threat to default on debt if they don't get their way on currency is reckless.

"The impact of Alex Salmond's default would be to say to the world that we cannot be trusted to honour our debts. The result would be higher interest rates for Scots on mortgages and credit cards."

The former UK chancellor added: "One thing is certain - the only way to guarantee to keep the UK pound as our currency is to vote to keep Scotland a strong part of the UK."

Scottish economic commentator Bill Jamieson said Mr Osborne's intervention raised a series of questions, including whether it was within the chancellor's gift to make such a ruling.

He said: "This is a very fluid situation with a UK general election coming up next year and I would suspect that any decision on currency sharing would be a matter for the Westminster parliament, rather than a Conservative or coalition chancellor."

The referendum will see voters in Scotland asked the Yes/No question: "Should Scotland be an independent country?"

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