By Keith Aitken in Edinburgh | 23 April 2013
The UK and Scottish governments have today published sharply conflicting reports on the Scottish National Party’s proposal that an independent Scotland should remain within the sterling zone and subject to Bank of England oversight.
Chancellor George Osborne, in Glasgow to launch a UK Treasury report, Scotland analysis: currency & monetary policy, said there were risks if currency union were no longer underpinned by political union. These included institutional and policy divergence, higher borrowing rates for Scotland and the possibility that financial markets might try to exploit any instabilities in a flawed currency union.
Osborne said: ‘The question of whether you have a euro-style currency zone between the rest of the United Kingdom (RUK) and Scotland is, frankly, not just a decision for Scotland. It is a decision for England, Wales and Northern Ireland and I think it is unlikely that you could get a currency zone agreed by the RUK that would work.
‘That's because the RUK would ask questions about why it was in their interests to enter a euro-style arrangement.’
The chancellor also predicted that Westminster would exert far tougher controls over Scottish policy than Germany applies to other eurozone members. This was because the RUK would be 90% of the sterling zone economy, compared with Germany’s 30% in the eurozone.
But the Scottish Government dismissed the Treasury paper as ‘scaremongering’. It put out a paper from its Fiscal Commission Working Group, which argued that independence within the disciplines of a sterling union would give Scotland the fiscal discretion it needed to make economic policy better suited to Scottish preference and circumstance.
The expert group, which includes two Nobel economics laureates, concluded that independence within sterling was the best of the available options for Scotland. The other possibilities include establishment of a separate Scottish currency and membership of the eurozone.
Scottish Finance Secretary John Swinney also argued that a sterling zone was the best option for RUK, since Scotland had generated more revenue per head than RUK for each of the past 30 years. Having Scotland aboard would strengthen sterling by factoring in the £1.5trn asset base of oil and gas reserves in – potentially – Scottish waters, which yielded £40bn of revenues in 2011/12, he said.
Swinney also reminded Osborne that, after 300 years of union, institutions such as the Bank of England belonged as much to Scotland as to any other part of the UK. This is emerging as a key point of issue for any eventual negotiations towards a new constitutional settlement, with UK ministers disputing the right of Scotland to make claims on UK institutions after a vote for independence.
‘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,’ Swinney said.
