THE SNP government has given up hope of Scotland sharing the pound in a currency union after independence, according to Treasury Chief Secretary Danny Alexander.
He has written to First Minister Alex Salmond warning that SNP plans to increase borrowing after a Yes vote would be incompatible with retaining sterling and set Scotland on a “different path” from the rest of the UK.
But the claims were dismissed by the SNP government, which insists that a currency union is the “logical choice” for the UK and Scotland after a Yes vote.
The Scottish Government plans to increase public spending by 3 per cent in each of the first three years after independence to drive economic growth and this would be met from borrowing. This contrasts with the 1 per cent planned by the UK Chancellor.
Mr Alexander called on the Scottish government to be “transparent and open” about alternative currency plans. “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,” he said.
“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 that Scotland would start off life with a higher deficit and higher borrowing costs after a Yes vote.
“You can’t have massive extra borrowing and claim that a currency union is going to take place,” Mr Alexander said.
The Scottish Government has refused to say which currency option it would use if it cannot secure a currency union with the UK, which is ruled out by the coalition government and Labour opposition.
It could simply use the pound in the same way that Panama uses the US dollar, the so called “dollarisation” approach, but this would mean the Bank of England would no longer be there to bail out Scottish banks in the event of another crash. Alternatively, Scotland could have its own currency and central bank. It could also apply to join the euro if it retains EU membership, although this would be a longer-term option.
However, a spokeswoman for finance secretary John Swinney 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 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.”