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It's Scotland's pound and we're keeping it, says Alex Salmond It's Scotland's pound and we're keeping it, says Alex Salmond
(about 7 hours later)
Alex Salmond has provoked a fresh battle over his plans for the Scottish currency after independence by declaring "it's our pound and we're keeping it." Alex Salmond has provoked a fresh battle over his plans for a Scottish currency after independence by declaring "it's our pound and we're keeping it".
The first minister gave the clearest indication yet that an independent Scotland would use sterling after a yes vote even if a formal sterling zone was rejected by the UK government – an option known as dollarisation or the Panama option. The first minister gave the clearest indication yet that an independent Scotland would use sterling even if a formal sterling zone were rejected by the UK government – a controversial option known as dollarisation or the Panama option.
As his opponents distributed leaflets shaped like a pound coin with Salmond's head replacing the Queen in a bid to mock his policies, the first minister insisted the UK government had no moral right to stop Scotland using sterling after a yes vote. During an ill-tempered session of first minister's questions, he said that if the UK government ignored a democratic endorsement by yes voters, Scotland would be entitled to renege on its share of the UK's debt. That would force the Treasury to pay an extra £5bn a year in debt repayments, Salmond claimed. As Scottish Labour lampooned Salmond by distributing leaflets shaped like a pound coin with his portrait replacing the Queen's head, the first minister insisted that the UK government would have no moral or political right to stop Scotland using sterling if it voted for independence.
"The reason we are keeping the pound in a currency union, and the reason we are so unambiguous about it, is because we are appealing to the greatest authority of all, that is the sovereign will of the people of Scotland," he told Holyrood. "It is Scotland's pound. It doesn't belong to George Osborne [the UK chancellor], it doesn't belong to Ed Balls [the shadow chancellor]. It's Scotland's pound and we are keeping it." "We are keeping the pound in a currency union [because] we are appealing to the greatest authority of all – that is, the sovereign will of the people of Scotland," he told Holyrood, in a message pitched to appeal to grassroots nationalists and independence campaigners unnerved by his faltering performance in the televised debate on Tuesday.
He later added: "It would be extremely attractive for Scotland to be debt-free. We would be in balance of payments and budget surplus, but it's not a reasonable position to put forward, which is why in the white paper we are offering to pay our fair share of the massive liabilities built up by the likes of George Osborne." But a central plank of Salmond's case – that this option was spelt out in his government's independence white paper, came under attack after it emerged that the key passage in the paper contained a serious factual error. Renewing his threat to renege on Scotland's share of the UK's debt if the government in London refused to share sterling, Salmond added: "It is Scotland's pound. It doesn't belong to George Osborne, it doesn't belong to Ed Balls. It's Scotland's pound and we are keeping it."
Salmond repeatedly referred during question time to page 110 of the white paper, insisting that it was the definitive explanation of his government's currency policy. However, Salmond's chief spokesman later admitted that passage was wrong to state that the continued use of sterling was "pegged and flexible." The words pegged and flexible referred to the other option, creating a new Scottish currency that could be linked to sterling. Salmond insisted that sharing sterling was in the UK's interests, because of the close integration of the Scottish and UK economies and high levels of cross-border trade – a stance backed by some senior Scottish business leaders and bankers.
That was "effectively a typo", his spokesman said, adding that the correct explanation could be found buried in the annex to a report on Scotland's currency options by the Scottish government's fiscal commission. Opposition leaders retorted that a UK prime minister had a sovereign mandate to defend the interests of England, Wales and Northern Ireland.
Currency experts and economists have disputed the Scottish government's case that sterling is an asset, since the pound is simply a system of exchange based on trust and confidence in the bank which issues it, and a government's ability to meet its debts. "It is not for the first minister, no matter how limitless he thinks his powers are, to determine what is in the national interest of another country," said Johann Lamont, the Scottish Labour leader.
Salmond's offensive on his currency plans came two days after a bruising exchange with the former Labour chancellor Alistair Darling in their first live TV debate on independence. Darling, leader of the Better Together pro-UK campaign, had repeatedly asked the first minister to set out his plan B for a Scottish currency if, as all three UK parties have insisted, they would veto a formal deal to share sterling by creating a new single currency. After a snap poll for the Guardian found Darling had won that debate by 56% to 44%, Salmond has come under intense pressure from the worried SNP backbenchers and ministers to regain the initiative against his opponents. UK party leaders and Treasury mandarins have ruled out a deal on sterling because of the economic and political risks of underwriting another country's economy, insisting that sterling is not an asset but simply a system of exchange based on confidence in the bank that issues it, and trust in a government's ability to meet its debts.
During opening exchanges at first minister's questions, Johann Lamont, the Scottish Labour leader, retorted that the British prime minister had a "sovereign mandate" to say no to a formal currency union, since all UK parties believed that was in the best interests of the UK's wider economy. Salmond repeatedly insisted that his fight for a deal on using sterling was supported by his government's independence white paper, but that was immediately undermined after it emerged that the document contained a serious error of fact.
"It is not for the first minister, no matter how limitless he thinks his powers are, to determine what is in the national interest of another country," she said. It wrongly stated that the "continued use of sterling" would be "pegged and flexible". In fact, only a wholly new Scottish currency – a policy ruled out by Salmond – could be pegged to sterling or flexible, his spokesman admitted, before brushing off the mistake as "a typo".
Ruth Davidson, the Scottish Tory leader, batted away Salmond's references to an interview where she appeared to endorse a currency union, and insisted no UK party or leader had accepted a post-independence currency pact. She said a currency union was not in Salmond's gift, "and all the wishing in the world won't make it so." She added: "The vast majority of the people of England and Wales said in June it is not in their interests. Salmond's tougher rhetoric on using sterling without a deal came after he repeatedly refused to set out his plan B options on currency during Tuesday's debate against the no campaign leader, Alistair Darling.
"The first minister of Wales said it is not in their interests. The permanent secretary to the Treasury [Sir Nicholas Macpherson] has said it is not in England, Wales or Northern Ireland's interests. The chancellor, the shadow chancellor, the chief secretary to the Treasury, have said it is not in their interests. The markets have said it is not in their interests." With six weeks until the referendum and with the yes campaign more than 12 points behind, speculation is surfacing at Holyrood of a possible revolt against Salmond's leadership after the vote as senior unnamed figures in the party began criticising his tactics.
He was forced to make a rallying speech to nervous ministers and backbenchers on Wednesday after a snap poll for the Guardian showed that viewers believed Darling had won by 56% to 44%, but his stance on a currency quickly came under fresh attack from one of the country's leading macroeconomists.
Angus Armstrong, a former head of macroeconomics at the Treasury, said that using the pound informally, without having the Bank of England guaranteeing Scotland's financial sector as a lender of last resort, could force many of the big banks and financial institutions, such as RBS and Lloyds, to move to London.
Financial services were Scotland's largest single export, worth £11bn – 15% of the country's balance of payments – but a vast majority of those sales were to the rest of the UK. Losing that business would hit Scotland's balance sheets, its GDP and the taxes paid into a Scottish exchequer.
In a report for the National Institute for Economic and Social Research, Armstrong said an independent Scotland would instead need to build up its ownsubstantial emergency reserves as an insurance fund to back up its banks, which held about £120bn in deposits from Scottish customers. Creating that fund would immediately eat into a Scottish government's budgets.
Armstrong added that his analysis was based on Scotland repaying its share of the UK's debt, even if the UK refused to agree a sterling pact. If an independent Scotland then refused to pay its share of the UK's debt, expected to hit £1.6tn by 2016, the EU could take a much tougher stance on Scotland's EU membership.
Scotland's best option, he added, was to set up its own independence currency, or consider joining the euro.
"You could do these things, yes. The question is at what cost," he said.
"One of the costs of dollarisation is you give up having a fully functioning central bank; that matters for your banking system and when it's a big financial sector, that is going to matter for your balance of payments and therefore your economic prosperity."