Osborne scorns Scottish independence camp’s plan for currency union

Scottish finance secretary tells chancellor to ‘grow up’ after he pours cold water on SNP’s plans to retain pound sterling

George Osborne has stepped up the Treasury’s attacks on Scottish independence by warning it is “unlikely” the UK would agree to a sterling currency union that could threaten the economy.

In a blunt assault on Alex Salmond’s proposals for a new sterling pact after independence, the chancellor said voters in England, Wales and Northern Ireland would react angrily to any deal that gave Scotland influence over their tax and spending policy.

Osborne told an audience of business people in Glasgow that setting up a new currency union would be “a very deep dive into uncharted waters”.

Scotland would be a foreign country of just 5 million people if it voted for independence in September 2014, with its economy based on volatile oil revenues, yet was expecting all 58 million voters in the rest of the UK to accept a eurozone-style currency union to suit Scotland’s interests.

“Let’s stop speculating and look at the evidence. Would the rest of the UK family agree to take that risk? Could a situation where an independent Scotland and the rest of the UK share the pound and the Bank of England be made to work?

“Frankly, it’s unlikely because there is real doubt about the answers to these questions,” Osborne said.

His remarks followed the release of a Treasury report on Tuesday criticising Salmond’s currency policy.

Salmond said Osborne’s credibility was already weakened by his squabbles with the IMF and with the UK economy being downgraded by two ratings agencies. The chancellor ought to “grow up” and realise Scotland’s oil wealth and exports were of great benefit to the wider UK economy.

“When serious economic interest takes over, as opposed to the political sabre-rattling we saw today, people will sit down and do what’s in the best interests of the people of Scotland and of course the people of the UK. That’s what I’m doing and I think that George Osborne should grow up and do the same,” Salmond said.

John Swinney, the Scottish finance secretary, accused Osborne of using “shock tactics and scaremongering”.

He told the BBC Radio 4 Today programme that a sterling zone was “the most sensible approach”. It would allow Scotland “a significant amount of fiscal and economic flexibility [to] improve the economic performance of people in Scotland.”

Swinney said it was in the UK’s interests to keep a single market within the British isles and benefit from North Sea oil revenues adding to the UK’s balance of trade. New barriers would harm English businesses, too: trade over the Scottish border was worth £45bn a year, with North Sea revenues in 2011 worth £40bn.

Even so, Swinney kept the door open to an independent Scotland simply adopting sterling without a formal deal with the Bank of England – similar to Panama’s use of the dollar – a position previously supported by Salmond. The wisdom of that stance was questioned by the Treasury, as it would leave Scotland without a central bank and no power at all over its currency.

His stance was supported by David Blanchflower, a former member of the Bank of England’s monetary policy committee, who said there were no major obstacles at all to a currency union if both sides acted with an open mind, or to Scotland using sterling without a formal deal.

“I just think they [the UK government] has just made it up: it’s political more than economic,” he told the Guardian.

It was “pretty rich” for Osborne to lecture Scotland on economic policy. “It’s certainly pretty likely, given how disastrous George Osborne has been, that if Scotland had had their own fiscal policy, they would’ve done better,” he said.

Osborne’s threats to veto any future currency union were not explicitly supported by Labour, which has a far greater political stake in Scotland than the Tories and could run the UK’s negotiations with a newly independent Scotland if it won the 2015 UK general election, due about seven months after the referendum.

Labour sources said they were working on the basis that independence would be defeated at the referendum, and would not prenegotiate. But Margaret Curran, Labour’s shadow Scottish secretary, supported Osborne’s criticisms of the Scottish government’s proposals.

“The SNP are making a promise to Scots that they know they can’t keep,” she said. “If we leave the UK, we leave the UK pound. Whether it’s currency, defence or EU membership, Alex Salmond wants to try to make people think that independence means no change. Scots know this just isn’t true.”

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