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.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.
Leave a Reply