Eddie Barnes: Sterling zone might have a few shocks

Picture: Getty
Picture: Getty
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ONE of the UK’s most respected political commentators offered his views on Scottish independence last week. It took more than 1,000 words of elegant copy to declare that, if independence was what the Scots wanted, then he wasn’t going to lose any sleep over it.

The referendum debate may be consuming newsprint here, but it appears England is concluding that, as with a furious domestic row in a neighbours’ house which can be heard through the plasterboard, it is probably best not to become too involved.

That is not how (Lord) Gus O’Donnell sees it, however. The former head of the UK civil service began his academic career in Glasgow. When he retired as cabinet secretary in 2011, he left a note for ministers giving them a list for their in-box. Top was Scotland’s referendum.

In April, he published a lengthy article on the issue. At the weekend, he gave a series of interviews on the subject. He is keeping a very close eye on proceedings indeed.

Doubtless, some pro-independence supporters will seek out the smell of a rat given Lord O’Donnell’s background within Whitehall. However, he has thought hard about the subject and reached some telling conclusions. At the weekend, he was pointing out the need for Scotland to build up credibility so that, if there is a “yes” vote, cheap debt finance will be available.

He also had some views to share on Alex Salmond’s idea of a pound-sharing deal with the rest of the UK.

Unlike the Treasury’s own analysis, O’Donnell notes that there would have to be a two-way street after independence. Both new countries – Scotland and the remaining UK – would need oversight of one another. Or, in other words, Scotland would need to have a say over whatever the Westminster chancellor was up to so as not to destabilise Scotland’s economy. He suggests that a neutral referee (he calls it an office of budget responsibility for the sterling area) could be set up to make sure both sides stick by the rules. Under this arrangement, he says, the thing might be made able to work.

The question, however, is whether it is politically conceivable to imagine England, Wales and Northern Ireland, having just seen Scotland leave the Union, agree that some of their sovereignty be given up to help stabilise a new sterling zone.

O’Donnell, the cautious civil servant, responded drily at the weekend that there may the odd “obstacle” in the way.

Other academics, such as Sebastian Payne, a public law expert at Kent University, declare more forthrightly: “The proposal of a joint sterling zone is economically unattractive and politically unsellable within the UK.”

As shown by the bewildered and disengaged reaction from elsewhere in the UK to Scotland’s decision, none of this complex debate has filtered as yet to people in other parts of the country. Given the likely reaction to the implications of Mr Salmond’s independence deal, ignorance, at present, is bliss.