In the latest of what promises to be a long series of cross-border skirmishes two political heavyweights squared up to each other over Scotland’s future currency yesterday. In the red (white and blue) corner we had Westminster’s George Osborne while in the blue (and white) we had Holyrood’s John Swinney.
Old Etonian ‘Gentleman George’ Osborne is well versed in the Marquis of Queensberry Rules but ‘Slugger’ Swinney is a capable street scrapper; in a bruising contest of contrasting styles neither fighter landed a knock out blow, so there’s sure to be a rematch soon. And it’s no clearer whether we’ll be spending pounds, euros or even dollars here in Scotland after next year’s referendum
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The clash came following the publication of a report on Scotland’s currency and monetary policy, helpfully produced by the Westminster government to ‘inform the debate on Scotland’s constitutional future’, launched by Chancellor of the Exchequer, George Osborne, and Chief Secretary to the Treasury Danny Alexander in Glasgow yesterday.
The report reviews how the current UK currency and monetary policy arrangements work and examines the options in the event of independence. The analysis sets out in detail the advantages and disadvantages of the potential currency options open to an independent Scotland, including: a formal sterling currency union with the continuing United Kingdom; using sterling unilaterally, with no formal agreement; joining the euro; or introducing a new Scottish currency.
The paper concludes that none of the options under independence would serve Scotland as well as the current arrangements in the United Kingdom, which is one of the most successful monetary, fiscal and political unions in history.
All of the alternative currency arrangements would be likely to be less economically suitable for both Scotland and the rest of the United Kingdom.
Speaking during his Glasgow visit Chancellor George Osborne (pictured above) said it would be a “very deep dive into uncharted waters” if an independent Scotland kept the pound in a currency pact with the UK, and added that 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.
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 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: “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 it’s economic sovereignty? To submit it’s economic plans to Westminster before Holyrood? The only way to be sure of keeping the pound as Scotland’s currency is to stay in the UK.”
However the Scottish Government has commissioned it’s own study and believes that a Sterling zone monetary union is the best option for an independent Scotland.
The Scottish Government’s currency paper, also published yesterday, fully endorses the findings of the Fiscal Commission Working Group’s expert report that as an independent country in a Sterling zone Scotland would have the powers needed to exploit areas of comparative advantage and also tackle those areas where we need to improve performance.
Scottish Government – Currency
Commenting on the paper, Finance Secretary John Swinney (pictured below) said: “A Sterling zone, with the pound as a shared currency will provide the full flexibility to set tax and spending decisions to target key opportunities and challenges in Scotland.
“The sharing of the pound between an independent Scotland and the rest of the UK is the common sense position supported by the Fiscal Commission. A sterling zone is also in the overwhelming economic interests of the rest of the UK every bit as much as it is in the interests of Scotland. An independent Scotland using the pound will mean Sterling’s balance of payments will be massively supported by Scotland’s huge assets, including North Sea oil and gas – which alone swelled the UK’s balance of payments by £40 billion in 2011-12.
“The Fiscal Commission Working Group includes two Nobel Laureates, and their expert report – having examined several possible currency options – concluded that sharing Sterling with the rest of the UK is the best option, offering freedom and flexibility for Scotland to develop our own taxation and spending policies to boost growth and address inequality. At present, the Scottish Parliament controls just seven per cent of Scotland’s revenue base, and that would only increase to 15 per cent under the terms of the Scotland Act. With independence, Scotland will control 100 per cent of our revenues, which is what it needs to be to build a stronger economy and fairer society.
“The combination – which only comes with independence – of keeping the pound, accessing Scotland’s abundant resources, and taking decisions on tax and other economic policies that are right for Scotland, is the best way to boost jobs and growth.
“Scotland’s finances are consistently stronger than the UK’s – generating more revenue per head than the rest of the UK in each one of the past 30 years – and Scotland has had a lower fiscal deficit than the UK over the past five years. With the additional economic levers that independence will provide, and the up to £1.5 trillion asset base provided by Scotland’s oil and gas reserves, an independent Scotland will stand on a strong financial footing.
“Next year’s vote is the choice between unlocking the opportunities independence will open up or continuing to allow economic and welfare policy to be set by a Westminster system that isn’t working for Scotland.”
A deep dive into uncharted waters, or unlocking opportunities? Ultimately, you’ll decide next autumn.
