By a Newsnet reporter
Conservative Chancellor George Osborne has weighed into Scotland’s independence debate, claiming that there is still an economic case for the Union and that supporters of the Union should avoid “wallowing in nostalgia”. The Chancellor asserted that an independent Scotland could not keep the pound as its currency without the remainder of the UK approving its tax and spending levels.
Mr Osborne added that the crisis in the Eurozone is a warning of the dangers Scotland would face if it were independent. The Chancellor made his remarks at CBI Scotland’s annual dinner in Glasgow last night.
Mr Osborne disputed whether it was even possible for Scotland to become independent if it remained in a currency union with another state, saying:
“But the conundrum of the eurozone crisis is how difficult it is to combine currency union with full fiscal and political independence.”
He added:
“The members of the Eurozone are now faced with what I’ve described as the ‘remorseless logic’ – the very lesson of the eurozone crisis – that you can’t have monetary union without greater fiscal and political integration.
“That’s why the eurozone are developing plans to control the fiscal positions of individual member states.”
Mr Osborne added that he did not believe that the Bank of England would or could adjust monetary policy to suit an independent Scotland, saying he saw no mechanisms for doing so:
“In a world in which a separate, independent Scotland wished to pursue divergent economic policies, what mechanism could there be for the Bank of England to set monetary policy, as it does now, to suit conditions in both Scotland and the rest of the UK?
“As Chancellor of the Exchequer, I have seen no such credible mechanisms proposed by those advocating independence. I am not clear they exist.”
The Scottish Government argues that there would be considerable benefits to the rump-UK by retaining a common currency with Scotland. Earlier this year Scottish Finance Secretary John Swinney noted that Scottish oil and gas alone boosted the UK’s trade balance by £32bn in 2010. Scottish international exports, other than energy, are worth a further £22bn annually, of which £3.3bn is made up by whisky exports.
The Scottish Government also points out that Scotland would enjoy much a healthier economic position than the UK as a whole, and public sector debt in Scotland is lower than the EU and G7 average.
In February this year, Mr Swinney responded to critics making arguments similar to those made by Mr Osborne yesterday, who had claimed that an independent Scotland would have no influence on the Bank of England. Mr Swinney said:
“By keeping sterling after independence, we will have exactly the same relationship with the central bank as the Westminster chancellor does, who has not set interest rates since 1997.”
The Chancellor’s speech comes shortly after the CBI’s director general John Cridland warned that independence would be damaging to the Scottish economy. However the CBI leader admitted that in the event of a Yes vote in the referendum, the CBI would “work with the mandate”, although he warned that a Yes vote would bring “several more years of upheaval and negotiation.”
CBI Scotland has consistently opposed Scottish independence, attracting criticism from certain high-profile business people as a result.
Responding to the Chancellor’s comments yesterday, Mr Salmond said:
“The real investors, the real companies know that a competitive edge through economic power, through independence, is necessary for future prosperity for Scotland.
“And the last thing that we need is a Tory Chancellor from London who’s the author of job destruction, coming up to tell us what to do.”
The Scottish Government’s finance secretary John Swinney noted that the Chancellor’s speech was made on the same day that the OECD predicted that the UK economy would shrink by 0.7% this year, whereas Mr Osborne had previously predicted there would be growth.
Mr Swinney said:
“Scotland needs no lessons from a Tory Chancellor whose disastrous economic policies are threatening jobs and investment across this country.”
He added:
“The cast-iron position is that an independent Scotland will keep the pound – a position that the Scottish secretary Michael Moore has agreed with. And Scotland urgently needs the powers of an independent country to boost economic recovery and create jobs, and many of the leading job-creators in Scotland agree with us on that.”