Chancellor’s Comments on Currency
Last week the Chancellor sought to make a foray into the independence debate, in a move which has backfired badly for the Westminster government.
George Osborne seems completely unaware of the amount of work and analysis that has been devoted to the question of Scotland’s currency in an independent Scotland on which the Scottish Government’s Fiscal Commission Working Group has already set out a range of viable currency options.
In their report published last year the group, comprising internationally renowned economists (including two Nobel Laureates), concluded that sharing the pound in a sterling zone was the best option for Scotland and, crucially, also the best option for the rest of the United Kingdom.
Despite the continuing scaremongering and bluster from the unionist parties, the Fiscal Commission report set out in considerable detail why the proposed currency union differs fundamentally from the Eurozone and explained how and why it would work. It detailed a robust framework for its success.
Mr Osborne ignored the considered detail that went into this report. He chose instead to present a misleading caricature of the macroeconomic framework they presented.
The Chancellor cited the size of Scotland’s financial services sector as a reason why he could not recommend such an arrangement.
However, HMRC estimates that Scotland’s share of the Bank Levy (effectively a charge on the balance sheets of banks) to be 7.3% of the UK total – smaller than Scotland’s share of UK GDP.
This is nothing like the near 25% claimed by the Treasury, upon which Mr Osborne’s remarks are based. The Treasury achieved its inflation of the Scottish financial sector by simply allocating London based assets to Scotland.
For example, the greater part of the banking assets allocated to Scotland is the RBS markets division, which is located in the city of London, has always been located in the city of London and is now 80% owned by HM Government and in any case will soon be ring fenced by the Vickers reforms. In other words, one of the Chancellor’s key arguments rests on a misrepresentation.
The Chancellor also said UK tax-payers would have to transfer money to an independent Scotland in times of economic stress (e.g. a fall in the price of oil). They would not. Indeed the Fiscal Commission Working Group recommended a stabilisation fund to address this very point. The fund would mean money would be built up when the price of oil is high to smooth out price fluctuations if the price of oil was low.
The Chancellor significantly downplayed the disadvantaged to the rest of the UK from not entering into a sterling zone with an independent Scotland. The transaction costs this would create for businesses in the rest of the UK – the “George Tax” – would be impossible to justify.He chose to downplay too the £30 billion contribution of Scottish oil and gas production to the sterling area’s exports – something which certainly wasn’t missed by those in the industry I have spoken to over the days since the Chancellor’s visit to Edinburgh. He ignored the fact that remaining as a single currency area provides transparency of pricing and no exchange rate risk strengthening the efficiency of the market to the benefit of consumers in both Scotland and the rest of the UK.
Further still, he chose to disregard that the UK Government itself has argued that being part of a currency area with reduced transaction costs “improves specialisation and results in a better allocation of resources, with a positive impact on productivity and growth.
In short, last Thursday the Chancellor presented a campaign tactic; not an economic assessment.
Scotland’s future in the EU
Scotland gains a great deal from our membership of the European Union – in terms of international trade, jobs, travel and health, amongst many other factors.
The EU also benefits to a huge extend by having Scotland as a part of it. Indeed, it is hard to describe our country as anything but a prosperous and vital part of Europe, with such a wealth of natural resources and human talent. It is, simply, not credible to suggest that an independent Scotland – a willing and active member of the EU for some 40 years so far, which already meets all of the membership requirements – would not be warmly welcomed.
Our membership of the European Union must, and will, continue. The only imminent threat to Scotland’s EU membership is in being dragged out by a future UK Government – a situation which is against the wishes of the majority of the Scottish people.
The best way to secure Scotland’s future in Europe, strengthen our influence and create further opportunities still is by voting for independence in September.