ALEX Salmond admitted last night that an independent Scotland would have to rely on the Bank of England as a lender of last resort if the country retained sterling as its currency.
Ahead of today’s publication of a consultation paper setting out the terms on which the SNP would like to hold a referendum, Mr Salmond said the Bank would continue to set “monetary policy” but that the Scottish Government would still “have significant discretion over financial policy”.
One expert last night said Mr Salmond’s admission had pushed the debate over Scotland’s future into uncharted territory, and that it would “not be a good thing for Scotland at all” if it had to rely on the measure.
The First Minister made the comments in response to former Labour Treasury minister Lord Myners during a question-and-answer session following a speech in London.
Mr Salmond said Scotland would be part of a currency union similar to the one the Benelux countries shared before the introduction of the euro.
He said: “In the Benelux context, the lender of last resort would be the Bank of England.” The SNP favours keeping sterling as the currency of an independent Scotland.
However, ridiculing the proposal, Lord Myners said: “Is it really credible that the interest rates of an independent Scotland would be set by a bank that has no responsibility for Scotland?
“It is beyond belief that the Bank of England would be a lender of last resort any more than the Bank of China would be. The burden of that bailing out would fall on English/UK taxpayers.”
David Bell, professor of economics at Stirling University, said the Scottish Government would “desperately want to avoid” approaching the Bank as a lender of last resort and would have to adopt a “fairly cautious fiscal policy”.
Prof Bell said: “This is starting to advance the discussion. It is certainly an area which hasn’t been previously explored. If Scotland was part of a currency union, it means adopting certain disciplines so you don’t end up in a situation where you have to go to a bail-out.
“A bail-out happens because no-one is willing to lend to you because your tax and fiscal policy are not under control.
“There would have to be some sort of agreement about how Scotland managed its fiscal policy, assuming Scotland did stay with sterling.”
He added: “A lender of last resort is basically a situation where you’ve taken out a loan on a car and not got the money to pay for it. You would search round for someone to lend to you. The person who will come to your aid as the last possible lender may charge you quite a high interest rate. It’s always good to know they are there. It would not be a good thing for Scotland at all.”
Mr Salmond is expected to put the economic case for independence at the heart of his agenda today as he launches his plans for Scotland’s historic referendum, by arguing secession can pull Scotland away from the threat of a new slump.
He will publish the historic consultation paper on his referendum plans at the Scottish Parliament, and then at the symbolic venue of Edinburgh Castle, where the white paper setting up the devolved Holyrood parliament was also launched 15 years ago.
With UK GDP figures out today expected to show that Britain either shrank or stood still in the last three months of 2011, Mr Salmond is set to argue that giving MSPs full control over taxation, spending and borrowing will help the country steer its way out of recession.
It comes amid fresh warnings yesterday from the International Monetary Fund (IMF) that the global economy was entering “a danger zone” and claims that the eurozone would suffer a year-long recession in 2012 thanks to the debt crisis.
The UK’s own growth, according to the IMF, will be just 0.6 per cent. That prompted the Governor of the Bank of England, Sir Mervyn King, to warn last night that Britain’s recovery will be “arduous, long and uneven”.
However, critics last night warned Mr Salmond’s economic case for independence was flawed, and ignored growing concerns about the currency Scotland would adopt, and the relationship it would have to forge with Europe.
Mr Salmond is expected to have a global audience this afternoon as he sets out his case, with 70 journalists from foreign media expected to attend. He will publish a consultation paper setting out the SNP’s referendum terms.
It is expected that, with the consultation period open for three months, tens of thousands of people around Scotland will write in to the Scottish Government setting out their views on how the referendum should be run. Expat Scots around the world will also be welcome to share their opinions, although they will not have a vote in the referendum.
The First Minister will confirm that he wants to hold off staging the referendum until autumn 2014, saying it cannot be held any sooner due to parliamentary and legislative reasons.
He will also confirm that while the party favours a straight “yes-no” question on independence, it would be wrong to rule out asking a second question on “devo max” – under which the UK would remain in place, but all issues on tax and spending would be taken by Holyrood.
UK government sources indicated last night they were “relatively relaxed” about the timing of the poll, but that the Scottish Government should rule out a multi-option referendum, which they say will lead to massive voter confusion.
Scottish Secretary Michael Moore has also insisted that, unless the Scottish Government is given new powers to hold a referendum by Westminster, it will be ruled illegal by the courts.
Mr Moore and Mr Salmond are now scheduled to hold talks on Friday.
In his speech last night, Mr Salmond outlined his claim that independence would help Scotland out of the economic slump and warned against “scare stories” from political opponents, arguing that an independent Scotland would be weaker and more impoverished. The First Minister said: “In Scotland, my party’s manifesto for last year’s election made it clear that the economy would be a top priority for us.
“We are still deeply aware, as are many places in England and Wales, of the lasting damage done by the mass unemployment of the 1980s, which left a legacy of alienation, ill-health and hopelessness which endured long after economic recovery had taken hold.
“However careful we are at directing spending towards areas which protect welfare and promote economic growth, we cannot escape the consequences of the UK government’s macro-economic policies.
“Nobody denies that the UK government’s budget deficit needs to be tackled. However, the sheer scale of the austerity measures decided upon by the UK government is proving counter-productive, particularly in the cuts to capital spending.
“It doesn’t require a Nobel laureate in economics to understand that it is difficult to sustain an economic recovery on export-led growth when your major export market is enduring significant problems.”
Mr Salmond went on to claim that small, independent countries such as Norway, Sweden and New Zealand, were weathering the economic storm better than larger countries, including the UK, Spain and Italy.
“What independence would do is to give us the tools – corporation tax, for example, or alcohol excise duty – which we could use to get on with the job of promoting recovery and improving people’s lives,” he said.
Responding to the speech, Mr Moore rejected the idea that independence would benefit Scotland. He said: “The very purpose of devolution and a Scottish Parliament is to allow Scotland to make policy decisions on matters such as health, education and transport in line with Scotland’s needs and priorities. That is happening already.
“So Scotland can have that while remaining part of the UK family, with all the shared strength and security that provides, particularly with regard to the economy. I think that Scotland is stronger within the UK and the UK is stronger for having Scotland within it.
“And particularly in times of strain, it’s better for families to stick together rather than break apart.”