September 18 is decision day for Scotland: build a prosperous future on foundation of the pound, or take a leap into the unknown

It is now clear the only way to retain sterling as the anchor of our future prosperity is to keep Scotland within the United Kingdom.

William Bain is Labour MP  for Glasgow North East

People I’ve met across Scotland in the last year have been united about what they want in the Referendum campaign – the facts on what separation really means for them and the country.

Today they got them. There are not many economic policy areas that Danny Alexander, George Osborne and I could ever agree on, but some matters are so vital that consensus in the national interest is essential. The future of our currency and macro-economic system are such issues.

Scotland now faces a clear choice between two futures on September 18: building a prosperous future founded on our retention of the pound, or a pessimistic path without sterling, with either a separate Scottish currency or the Euro.

It has been my view for some time that the main parties represented in the UK Parliament should make clear our position in the event of a Yes vote, so the electorate has the clarity it deserves on what separation from the UK means.

As a voter in the Springburn ward, the area with the highest levels of child poverty in Scotland, told me last week: get the details on the currency wrong and ordinary working people are the biggest losers.

That was the case in the Eurozone, where the lack of fiscal union to accompany monetary union led to Irish living standards collapsing by a fifth between 2007 and 2011, with the housing estates of Dublin suffering a harshest penalty due to the Euro’s fundamental flaw.

It would have been folly to repeat those errors in these islands with a Eurozone by the Clyde.

The Scottish government’s plans for a sterling currency union without fiscal or political union would have been the worst of all worlds. They would give Scotland no political influence over the remit or operations of the Bank of England, as well as subject both states to scrutiny of tax, spending and borrowing decisions by the other under a permanent fiscal compact with insufficient democratic control.

They would also expose the smaller unit to potential economic shocks given the absence of a common fiscal fund to even out disparities in economic demand in tough economic circumstances.

The Eurozone is in the process of correcting its errors, Alex Salmond simply wants to repeat them in ways that would be bad for economic stability and prosperity in Scotland, England, Wales and Northern Ireland.

So, with its fiscal commission having ruled out using sterling informally without a central bank as a credible long-term option, the Scottish government must come clean with the country.

Is it to be a separate currency, with exchange costs creating barriers to trade and investment between Scotland and the continuing UK, or will they follow through on the in-principle commitment Scotland would need to make if admitted as a new EU member state, and join the Eurozone as quickly as possible?

As the Institute for Fiscal Studies and the National Institute for Economic and Social Research have shown, whichever of these systems is chosen, an independent Scottish government could not borrow as cheaply as the UK, so higher borrowing costs place a greater strain on fiscal policy.

This would mean that public services, pensions and benefits are at greater risk through higher taxes and deeper spending cuts, as Scottish finance secretary John Swinney’s leaked Scottish cabinet memos admit.

The resulting higher government bond yields would be disastrous for the Scottish economy. For every 1 per cent Scottish interest rates rose above UK levels, the average mortgage in Scotland would be £1,300 a year higher.

But higher bank interest rates mean higher costs for people buying insurance, or paying credit card or store card bills, buying a washing machine on hire purchase, or seeking finance for their small business, deepening the cost of living crisis.

A separate Scottish currency floating on the international exchanges could see the costs for ordinary Scots of servicing debts still numerated in sterling – by then a foreign currency – to spiral. Downward pressures on growth, higher taxes, and lower living standards all stemming from making the wrong choices on Scotland’s currency and economic framework in this Referendum.

Were this to be accompanied by a flight of capital, or the Scottish government failing to service its share of cumulative debt, borrowing conditions for the government, and economic conditions for everyone else in Scotland would deteriorate further.

Argentina declared a moratorium on its debt repayments in 2001, leading to runs on its banks, mass unemployment, erosion of currency reserves, and the ability to borrow only at punitive interest rates on the international markets.

Ordinary people suffered the most. It is not a credible long-term economic plan to threaten to default on debt, particularly for a potential new state with no credit history.

This is the week simple facts cut through the Scottish government’s bluster and obfuscation. A Yes vote is a vote to scrap the pound and lose the Bank of England as lender of last resort to Scotland’s financial system, with all that means for Scotland’s financial services sector and the wider economy.

It is now clear the only way to retain sterling as the anchor of our future prosperity is to keep Scotland within the United Kingdom. It’s now time for Scotland to choose between those two futures.

18 Responses to “September 18 is decision day for Scotland: build a prosperous future on foundation of the pound, or take a leap into the unknown”

  1. subtleknife666

    Pack of Tory lies. Shame to see a Labourite writing them, but then NuLabour is utterly Thatcherite anyway.

  2. subtleknife666

    “build a prosperous future on foundation of the pound, or take a leap into the unknown”

    The correct answer is: Scotland will do neither of those two things, of course.

  3. Alec

    You forgot “neo-liberal”.

    ~alec

  4. subtleknife666

    Neo-con is the correct expression, really.

  5. Bill Cruickshank

    I wonder if Mr. Bain realises the anger and resentment that today’s announcement has caused in Scotland. People are angry about the bullying tactics from Osborne, but are furious with Balls. They see Labour’s decision to back the Tories as an act of treachery.

  6. Alec

    It really isn’t.

    ~alec

  7. Alec

    Yes, it’s like something out of the Book of Revelations.

    ~alec

  8. uglyfatbloke

    Will there come a point when Cameron etc. stop trying to lose the referendum? WIllie – if there is n’t an agreement about a shared currency – which Alistair Darling has told us in the past was the sensible option for both parties – then the Scottish government won’t start life with a share of the debt. You don’t get to carry the burdens unless you get a commensurate share of the assets to go with it.

  9. Shoemarx

    Mr. Bain talks about people in the poorest areas suffering the most. Well, he’s damn right. So what’s Labour’s solution? Stay the same. Change nothing. Be thankful for what you’ve got. Poverty, well, it’s kind of inevitable isn’t lads, sorry about that. Lets get this guy into a position of power! One where he could make a difference… Oh, hang on. This article shows the poverty of will in the Labour party to make real social change. Whatever was left of it died a long, long time go. New Labour are Thatcher’s proudest achievement, if we want change, we have to take it, not ask nicely for it from Westminster. I’d ask anyone on here to make a left wing case for staying in a Westminster run plutocracy. Answers on the back of a stamp.

  10. St George

    The wee scotlanders should listen to their English chancellor, if scotland chooses to look after themselves they cant use Englands currency.

  11. Shoemarx

    Hud yer wheesht

  12. uglyfatbloke

    ..except that it is n’t England’s currency.

  13. Peter Martin

    The Euro could work. It would depend on how the terms of trade worked out for an independent Scotland. The Euro works fine for net exporting countries like Germany and the Netherlands. Ireland too is now a net exporter and they are now starting to recover reasonably well from their recent economic turmoil.

    But, the Euro does not work for a net importer. It would be a disaster for the UK as a whole now. Money drains from a net importer’s economy to pay for those imports. This has to be replenished by the Government running a budget deficit, or the economy slumps badly. Incidentally this is a point that both Ed Balls and George Osborne seem blissfully unaware of. The government then needs to sell treasury securities , internationally, to recycle the funds back into the domestic economy.

    There’s nothing wrong with doing this, providing there are international buyers for those securities. There seems to be plenty of buyers for UK bonds. Of course, Scotland would have to make a judgement about that.

    But they wouldn’t have that option with the Euro. Budget deficits of any size are a big no-no. If they got it wrong there would be no turning back and they could end up trapped in an economic abyss like Greece and Spain.

  14. DC Rooney

    not really bullying. I mean if I were the Chancellor of the rUK I would not accept a shared currency: after resisting the Euro for so long why would you? And Labour is not backing the Tories: Parliamentary arithmetic means that it would be rather hard for Balls to sell a currency union to his backbench MPs even if he were so inclined.

  15. DC Rooney

    Sorry, this is just a fantasy. If the SNP had decided to go with the Euro, we would still have part of the debt as the Great Recession was not an English but a global problem-e.g. the debt is as much Scotland’s as the rUK. In other words, the debt share was never reliant on a sterling zone. If an independent Scotland reneged on its debt obligations no-one would lend Scotland money: it would also be a really good way of annoying our new neighbour, the IMF and the World Bank. Not a good move.

  16. DC Rooney

    there is also questions as to why we voted Yes. Why replace London with Brussels? The trend in the Eurozone is for ever closer integration and if Greece, Spain, Portugal and other such small (economically) Euro nations are anything to go by Scotland would probably have more autonomy within the UK than within the inner circle of the EU.

  17. DC Rooney

    No it is Britain’s currency. However, if we were to leave Britain it could no longer be classed as Scotland’s currency unless the successor state to the UK (presumably England, Wales and NI) was willing to negotiate a currency union. The experience with the Euro during the Blair era and the recent interventions from the Chancellor and Shadow Chancellor indicate that the House of Commons has never been particularly keen on the idea of losing sovereignty over currency matters.

  18. uglyfatbloke

    Of course Scotland should get a share of the debt, but there would have to be a share of the assets to go with it.

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