Parties to deliver currency warning

Updated: 

Osborne speech on EU reform

Britain's three main political parties are set to deliver a warning to the voters of Scotland that they will not be able to keep the pound if they opt for independence.

Chancellor George Osborne is expected to rule out an independent Scotland joining a formal currency union with the UK when he publishes the latest Treasury analysis of the issue in Edinburgh.

It is expected to be followed by statements from shadow chancellor Ed Balls for Labour and Treasury Chief Secretary Danny Alexander for the Liberal Democrats making clear that their parties also would not allow Scots to retain the pound.

Scotland's Deputy First Minister Nicola Sturgeon dismissed the warnings as the "Westminster establishment" trying to lay down the law to Scotland and warned the move would backfire on the pro-Union parties.

In his speech, Mr Osborne will emphasise that being part of the UK had given Scotland economic stability, helping it to ride out the global financial economic crash.

"The pound is one of the oldest and most successful currencies in the world. I want Scotland to keep the pound and the economic security that it brings," he will say, according to an advance extract released by the Treasury.

"The UK works, in good times and also in bad. Together we have faced the worst economic and financial crisis since the Great Depression.

"But we avoided the economic collapse other nations around us in Europe faced because together, we had the strength to confront our problems and overcome them."

He will argue that as part of the UK, Scotland is now well placed to benefit as the recovery kicks in.

"Today Scotland is one of the most economically successful parts of the UK with growth per head the same as the smaller independent European states the nationalists would like Scotland to join but with far more stability and less volatility than them, thanks to being part of the wider UK," he will say.

According to the BBC, the Treasury paper - written by officials rather than politicians - will argue that for an independent Scotland to continue to use the pound, the Scottish and UK governments would have to agree to underwrite each other's banks, allow taxpayers in one country to subsidise the other, and come to broad agreement on tax, spending and borrowing levels.

Last night, however, senior figures from the three main UK parties were lining up to make clear that in practice it was hard to see how such an arrangement could work.

Mr Balls accused Scotland's First Minister Alex Salmond of trying to "pretend" to the Scottish people that they could become an independent sovereign state while retaining all the benefits of the Union.

"That's just not in the real world," he told LBC radio. "I don't think it's right for us to tell Scotland what they must do, but I don't see how you could have a negotiation about a Scottish separate country keeping the pound which would add up either for Scotland or for the rest of the United Kingdom."

Mr Alexander said that he had repeatedly made clear that it was "highly unlikely" that a currency union could be made to work either for Scotland or the rest of the UK.

"I stand by that analysis and those statements," he told LBC.

For the Tories, Treasury Minister Sajid Javid said the SNP's plan for a currency union without fiscal or political integration "lacks any credibility whatsoever".

"Scottish trade is important to the UK economy but it is not clear it is important enough to run the risk of recreating the problems in the euro area in the British isles," he told a Commons Westminster Hall debate.

"It would increase the risk of having to bail out Scottish banks, and the idea of putting the remaining UK's economy at risk because of another country's banks, just as we are getting our own banks into order, would make no sense whatsoever."

Ms Sturgeon however accused the UK parties of "bluff and bluster" which would not impress voters in Scotland.

"This is an unprecedented and extraordinary bid by the Westminster establishment to lay down the law to Scotland, which will backfire spectacularly," she said.

The Scottish Government has previously set out its blueprint for retaining the pound if people vote for independence, creating a ''sterling zone'' with the rest of the UK.

The plan has been endorsed by experts on the Fiscal Commission Working Group, set up by Mr Salmond, which said that keeping sterling as the currency in an independent Scotland would be ''sensible'' and an attractive choice for the rest of the UK.

Ms Sturgeon said: "We have set out a reasonable case that we should continue to use our pound because it is ours as much as it is anybody else's.

"Neither George Osborne nor anyone else can stop Scotland using the pound, which is just another reason why having a formal currency union will be in Westminster's overwhelming interests.

"What the No campaign and Westminster establishment says now, the reality will be very different if Scotland votes Yes."

Blair Jenkins, chief executive of the pro-independence Yes Scotland campaign, told BBC Radio Scotland's Good Morning Scotland programme that the "best currency choice for an independent Scotland is to be in a currency union with the rest of the UK".

He said ruling that out before the referendum was a "very extreme position being taken for the purposes of negotiation" by the pro-Union parties.

Mr Jenkins insisted: "It would be so clearly to the detriment of the rest of the UK to impose the additional costs, currency transactions, currency conversion, to threaten growth, to threaten jobs in that way.

"To go against what we know is the wishes of the majority of people in England, that Scotland should continue to use the pound after we vote Yes in September, would be ludicrous."

Former Scottish Secretary Michael Moore told the same programme that ruling out a currency union was "the logical extension of the debate over the last year".

The Liberal Democrat MP said: "We've got a very effective monetary union at the moment as part of a political and fiscal union, and it works very well across the UK. There are challenges in the economy, but together we have greater resilience and greater opportunities than if we go apart."

He said the Treasury assessment to be published today would show "actually it isn't in the interests of the rest of the United Kingdom " to be in a currency union with an independent Scotland.

Mr Moore then urged independence campaigners to "be straight with the people of Scotland about what the plan B is".

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