Mev Brown: Beware as those who fan the flames of Project Fear

Scottish banknotes are guaranteed by the Bank of England. Picture: Jeff J Mitchell/Getty

Scottish banknotes are guaranteed by the Bank of England. Picture: Jeff J Mitchell/Getty

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As Project Fear kicks into high gear, Scottish voters are having a sense of déjà vu.

Last week saw an intervention from the International Monetary Fund (IMF) suggesting Brexit “could cause severe regional and global damage”.

Firstly, the IMF’s track record on forecasting is terrible. Secondly, one can only wonder if French farmers, worried about a cut to their subsidies in the event of Brexit, had a word with French President François Hollande, who then bent the ear of former French finance minister and current head of the IMF Christine Lagarde.

Last month, Mark Carney, the governor of the Bank of England, claimed Brexit could hit the economy. Interestingly, Carney worked for Goldman Sachs for 13 years. Goldman Sachs has donated £500,000 to Britain Stronger in Europe. Are strings being pulled?

We have had interventions from Chancellor George Osborne and Alistair Darling, his Labour predecessor, both predicting doom in the event of Brexit.

In this eventuality, there are two likely outcomes. Firstly, a free trade agreement will be negotiated, in which case things carry on as normal. Secondly, tariffs will be levied on goods and services traded between the UK and the EU. These tariffs fall within World Trade Organisation rules and are typically less than 4 per cent. This is good news for Britain. We buy £60 billion more from Europe than they buy from us, so UK plc is about £2.4bn up on the deal.

When senior political figures resort to scaremongering, it undermines trust in politics. Indeed, I do have wider concerns about Messrs Osborne and Darling. During the two-year independence campaign, these two could not explain to Scottish voters the difference between using the pound and sharing the pound.

Today’s Scottish banknotes are “legal currency” insofar as they are issued with the permission of the UK government and are guaranteed by the Bank of England (BoE).

Scottish banks are required to hold reserves of Bank of England banknotes and UK coinage, and have balances with the BoE to the same value of the Scottish banknotes issued – approximately £4bn.

So, while it was true for Darling to say that a “Yes” vote meant walking away from a formal currency union, an independent Scotland would inherit an informal currency arrangement.

In this regard John Swinney, the Scottish Finance Secretary, was quite correct. There was nothing UK ministers could have done to stop an independent Scotland using sterling. “Sterlingisation” is not so much the “Plan B”, it is, in law, the default position.

So, why the confusion?

With independence, the Bank of England would have lost its role as guarantor. Without a central bank’s guarantee, today’s Scottish banknotes would cease to be legal currency.

Former First Minister Alex Salmond did make one thing clear during the Scottish currency debate. His government would not act as guarantor for Scottish banknotes. A “Yes” vote in 2014, coupled with this fact would have left Scotland’s banks with no alternative but to implement rule 10 of the Scottish and Northern Ireland Banknote Rules. This allows the banks to withdraw their banknotes after giving notice to the Bank of England.

In effect, the banks can implement sterlingisation unilaterally by withdrawing their Scottish banknotes and replacing them with their Bank of England notes.

There was never any need for political approval, north or south of the Border.

It’s true that few would have missed the irony of an independent Scotland, stepping on to the world stage with Bank of England notes as its legal currency. But for Messrs Osborne and Darling to fail to communicate this is a disappointment.

Returning to the EU referendum, my advice is to ask yourself two simple questions.

Firstly, is there a vested interest in the argument being made by whoever is making it? Secondly, is there something they are not telling you?

If you can find the answer to one or both of these questions, you should be fine.

Mev Brown is spokesperson for Business for Britain in Scotland

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