Salmond’s currency plan for Scotland draws ridicule

Guardian News and Media/London

In its first formal intervention on the currency debate, the Treasury will issue a report today signalling that it would want to see significant restraints on Scottish economic policies before it agreed to a new currency union with an independent Scotland.

If either side fails to agree on that deal, the Treasury will state, Scotland would need alternatives to a formal sterling pact. It could still use sterling without a currency union, leaving it with no influence on Bank of England policy, set up a new currency or join the euro.

The report, which will be studied by the City, is expected to show the Treasury would expect Scotland to agree to very strict disciplines on its budgets, borrowing and taxation before the UK agreed to a currency pact.

Under those terms, there were “no guarantees” the rest of the UK and the new Scottish government could agree a deal, it will suggest. In a joint essay, George Osborne, the chancellor, and Danny Alexander, chief secretary to the Treasury, said the Scottish government was “tying themselves in knots” over currency and independence.

Agreeing to a currency union would “hand to what would become a foreign government key decisions over the Scottish economy. This is one of the big contradictions in their whole economic approach. Calling for ‘full fiscal freedom’ with one breath, but calling for a ‘full fiscal pact’ with the next. It simply doesn’t add up,” they said.

Alistair Darling, the former Labour chancellor and chairman of the pro-UK Better Together group, said: “It’s a pretty significant piece of work and you can’t bluster your way around this. It raises very real problems and real consequences.”

Their analysis is rejected by the Scottish government. Supported by some business leaders and other experts, Salmond and his deputy, Nicola Sturgeon, insist a sterling union is in the UK’s interests.

They cite Darling’s earlier comments that union was logical and desirable. It would ensure both countries can trade with minimum disruption, provide economic stability and allow the UK to count Scotland’s multi-billion-pound North Sea oil and whisky sales in its balance of payments, Salmond argues.

Reacting to the Treasury report, Salmond said: “He is a downgraded chancellor without a remaining shred of credibility. This is the man who had the audacity to come to Scotland 18 months ago to sneer that the constitutional debate would damage the economy. The reality is that Scotland is outperforming the UK on every measure inward investment, employment, unemployment and growth.

The report is intended to alarm voters and increase divisions within the SNP and pro-independence movement over Salmond’s strategy, with Salmond acknowledging recently that he had no plans in place for an alternative currency.

But the pro-independence Scottish Green party said a new currency would be a better option, as have two senior SNP figures, former leader Andrew Wilson and former deputy leader Jim Sillars. Other senior figures, including two economists often cited by Salmond – professor John Kay, a former member of Salmond’s council of economic advisers, and Jim Cuthbertson said a separate currency could be Scotland’s best interests.