Independent Scotland ‘will hand control of spending to London’

By SCOTT MACNAB
Published on 26/02/2013 00:31

ALEX Salmond’s plans to keep the pound after independence will leave London with effective control of public spending levels in Scotland, the UK government is expected to argue next month.

Scotland would face a deficit “cap” to be policed by the Bank of England, aimed at ensuring the fledgling country’s public finances do not get out of control, it was reported yesterday. A former economic adviser to Alex Salmond warned last week that Scotland must be ready to adopt its own currency after independence, because keeping the pound would not deliver real economic freedom.

Professor John Kay said Scotland would not have “equal” status in any currency union, with the Treasury and Bank of 
England effectively calling the shots.

The coalition government warning next month will come when it publishes the latest in a series of papers setting out the impact of independence. The UK government has previously argued that a shared currency would require some form of monetary union to guard against Scotland running up big deficit levels – but a deficit cap could eliminate this.

A senior coalition spokesman reportedly said yesterday that there would have to be a “negotiated settlement” for this.

Chancellor George Osborne said yesterday that the SNP has yet to set out the case for independence.

“The SNP, if they’re going to persuade the Scottish people to vote for independence, are going to have to answer some pretty fundamental economic questions about the currency they would use, the fiscal agreement they would seek if they want to use the pound with the rest of the UK, and some pretty fundamental questions about the financial services based in Scotland, with the Royal Bank of Scotland based in Edinburgh,” he told MPs.

“Those are the questions they are simply unable to answer at the moment and as a result I think people doubt the case they’re making for independence.”

The coalition paper next month is also set to warn that Scotland could not withstand another 2008-style banking crash because the country’s financial services industry, largely based in Edinburgh, would be too big to bail out.

The SNP government has accepted that there will need to be a “fiscal agreement” with the Bank of England if it keeps the pound, but insists that borrowing would not get out of control in Scotland.

Finance secretary John Swinney said yesterday: “We welcome this acceptance by the UK government that it will be in the best interests of both the Scottish and UK economies for an independent Scotland to continue to use sterling.

“That is why we established the Fiscal Commission Working Group whose comprehensive report earlier this month set out detailed proposals, including the merits of a shared central bank.”