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Scottish independence: Clash over borrowing claims Scottish independence: Clash over borrowing claims
(about 11 hours later)
The Treasury has claimed that Scottish government plans to increase borrowing under independence would be incompatible with retaining the pound.The Treasury has claimed that Scottish government plans to increase borrowing under independence would be incompatible with retaining the pound.
Danny Alexander said boosting borrowing to fund higher spending would set Scotland on a different path from the rest of the UK.Danny Alexander said boosting borrowing to fund higher spending would set Scotland on a different path from the rest of the UK.
The Treasury chief secretary has expressed his concerns to Alex Salmond in a letter. The Treasury chief secretary expressed his concerns to Alex Salmond in a letter.
The first minister said initial borrowing would boost the economy.The first minister said initial borrowing would boost the economy.
He said this would allow a sustainable cut in the deficit. He added that this would allow for a sustainable cut in the deficit.
He also said Scotland would start out being more prosperous per head than the UK, France or Japan. He also said an independent Scotland would start out being more prosperous per head than the UK, France or Japan.
Scottish ministers plan to increase public spending by 3% in each of the first three years after independence to drive economic growth. This contrasts with the 1% planned by the chancellor. Following a "Yes" vote in September's referendum, the Scottish government plans to increase public spending by 3% in each of the first three years after independence to drive economic growth. This contrasts with the 1% planned by the UK chancellor.
The extra Scottish spending would be funded by borrowing. According to Finance Secretary John Swinney, this extra spending would be funded by borrowing.
But in his letter to Mr Salmond, Mr Alexander said this amounted to admitting that a sterling zone would not be created. But in his letter to Mr Salmond, Mr Alexander said this amounted to an admission that a currency union would not be created since the economic policies of the two states would "diverge".
He said the plan would mean that the Scottish economy would diverge from that of the UK, ruling out a common currency. Speaking in an interview with the BBC, Mr Alexander called on the Scottish government to be "transparent and open" about alternative currency plans.
He said: "John Swinney's plans for massive extra borrowing basically show that the Scottish government is now assuming that there won't be a currency union.
"One of the biggest reasons why I think a currency union wouldn't work, and have said no to it, is because inevitably policies would diverge between Scotland and the rest of the UK under independence."
He added: "The Scottish government, as we already know, would start off with a larger deficit than the rest of the UK, would face higher borrowing costs because of the setting up of a new country and the extra risks that involves.
"By adding yet more borrowing to that position you create a pretty precarious position, financially, for an independent Scotland.
"You can't have massive extra borrowing and claim that a currency union is going to take place."
However a spokeswoman for the Scottish government described Mr Alexander's comments as "more misbriefing".
She said: "Scotland will continue to use the pound, just as we do today because, in the words of Alistair Darling, that is the 'logical' and 'desirable' arrangement for an independent Scotland and the rest of the UK.
"We have made clear that we oppose Westminster's austerity measures and believe the best way to reduce the deficit in the long term is to invest in public spending, to grow the economy and reduce the deficit in a sustainable way, ensuring there is less need to borrow in the future by boosting revenues in the long term."
She added: "Even with a 3% increase in spending growth, Scotland's deficit is forecast to fall to 2.2% of GDP in 2018-19, significantly below the current level of 8.3% and would ensure that the country's debt was falling as a share of GDP.
"Indeed, the Scotland Institute report, referred to by Mr Alexander, underlines Scotland's economic strength by highlighting that an independent Scotland stands to have 'a smaller debt to gross national product ratio than the remaining UK'."