Scottish independence: Osborne says currency plans 'dive into uncharted waters'

Chancellor George Osborne has said it would be a "dive into uncharted waters" if an independent Scotland kept the pound in a currency pact with the UK.

The chancellor said a Treasury analysis of the plans concluded the economic case for the rest of the UK agreeing to the union was "not clear".

And he said an independent Scottish state would have to accept "significant policy constraints" under such a pact.

The Scottish government said a currency union would be in everyone's interests.

Voters in Scotland will be given the choice of opting for independence in a referendum in September 2014.

In a speech in Glasgow on the report, Chancellor George Osborne said there was no guarantee that the UK and Scotland would be able to come to an agreement on a currency union.

That would mean a separate Scotland was left with three options - unilaterally keeping the pound, creating a Scottish currency or joining the euro.

Mr Osborne said: "All of these alternative currency arrangements are less suitable economically than we have now for both Scotland and the rest of the UK."

The chancellor went on to argue that with a currency pact there would be an unbalanced relationship between an independent Scotland and its much larger neighbour.

Mr Osborne said: "The fundamental political question this analysis provokes is this - why would 58 million citizens give away some of their sovereignty over monetary and potentially other economic policy to five million people in another state?"

He added: "The rest of the UK, as the larger economy, would be much more exposed to the risk of an independent Scotland running into fiscal and financial difficulties.

"Let's be clear - abandoning current arrangements would represent a very deep dive indeed into uncharted waters.

"Would a newly independent Scottish state be prepared to accept significant limits on its economic sovereignty? To submit its economic plans to Westminster before Holyrood?"

'Fairer country'

The chancellor further claimed that the Westminster government could expect to have more control over Holyrood than Germany has over its eurozone partners.

This is based on England, Wales and Northern Ireland accounting for roughly 90% of the proposed sterling zone monetary union, whereas the German economy makes up 30% of the 17-member eurozone.

However, the Scottish government's own analysis said comparisons with the eurozone were misleading, because unlike Greece and Germany, Scotland and the rest of the UK have integrated economies with similar characteristics.

Scottish Finance Secretary John Swinney said such a system would let an independent Scotland "use the vital tax and other economic powers of independence to create jobs, grow the economy and build a fairer country".

It is also argued that Westminster would want to have a currency union because more than £45bn of goods and services are sold to Scottish customers, and oil and gas from Scottish waters would contribute billions of pounds to the sterling zone's balance of payments.

Mr Swinney told the BBC's Today programme: "What the Treasury's paper is designed to do is to make things sound as difficult and obstructive as possible and I don't really think it is a helpful contribution to the debate.

"We invited a number of leading international economists, including Joseph Stiglitz and Prof James Mirrlees, to advise us on the macro-economic framework that we have put forward and I have accepted their recommendations in relation to currency.

"I think they put forward a very rational and considered case for the establishment of a sterling zone that can work in the interests of Scotland just as much as it operates in the interests of the United Kingdom."

Mr Swinney said the Treasury was "playing with fire" in its arguments.

He said: "The chancellor is arguing in his paper that the UK would be the successor state, that it would hold on to the pound and we somehow could not get access to that.

"If that is his position then the UK as a successor state is obliged to hold on to all the debt and we would be liberated from a population share of UK debt of £125bn.

"Now if that is the kind of game and negotiation the chancellor wants to play he's welcome to do that but we are interested in a rational and considered discussion consistent with the Edinburgh agreement that both governments would work together to implement the outcome of the referendum next year."