Politics

Scottish independence: Currency is still the big question in the debate

Alex Salmond is still incapable of formulating a decent plan for what Scotland would do without the pound

August 06, 2014
Last night's TV debate wasn't the decisive victory that Salmon hoped for. © Harris Morgan/Antonio Cruz/ABr
Last night's TV debate wasn't the decisive victory that Salmon hoped for. © Harris Morgan/Antonio Cruz/ABr

The debate on Scottish independence between Alex Salmond, Scotland’s First Minister, and Alistair Darling, the former Labour Chancellor came down to one big economic question—currency. If Scotland left the UK, would it be able to retain the pound?

Alistair Darling commented that expecting to retain the pound was like “getting a divorce and keeping the same joint bank account,” a good line that would have sounded better if he had been able to make it sound more spontaneous. Salmond countered that it was only “logical" for Scotland to retain the pound, and that whatever status the pound enjoys in global markets is in part down to the efforts of Scotland’s economy."

But Darling did not let Salmond get away and in the passage of the debate where one speaker was allowed to question the other, Darling pressed hard on the monetary question. The pound, he said, is the currency not of England, not of Scotland, but of the UK, the country that you intend to leave. So if Scotland leaves, what is your plan B? To this Salmond replied once more that it was Scotland’s pound, and then produced the transcript of an interview in which Darling had referred to a currency union as “desirable.”

Darling waved this away and invited Salmond to “contemplate for one moment that you might be wrong,” about the ability of Scotland to keep the pound. It was a powerful piece of rhetoric. The crowd responded well. From that moment, Darling had won, as evidenced by the questions that came later from the floor on the same point. Darling persisted, saying that Salmond would not only have to shed the pound, but that if he intended to retain the pound without a formal currency union, that is, keep the pound no matter what Westminster said, then there would be no central bank backing the Scottish currency. This would leave Scotland without a safety net in the event of a future financial crisis.

Darling then moved from monetary to fiscal questions, asking Salmond to comment on an IFS finding that Scotland has a £6bn black hole in its balance sheet. Salmond retorted that his plan is to win independence in order to end the Westminster government’s austerity policies, and later criticised the IFS for its reliance on the Office for Budget Responsibility, which Salmond said was nothing more than “part of the Conservative party.”

There were further economic debates on pensions, tax revenues, and also revenues from North Sea oil—Salmond said these could fill Scotland’s coffers and be pooled into a sovereign wealth fund along Norwegian lines. Darling said they could not.

But before any of these questions, before pensions can be paid, taxes taken or oil revenues salted away, the problem remains that all must be transacted in a given currency that has a solid foundation, that is recognised by international markets and in which borrowing costs are at a reasonable level. It was surprising that, at this stage in the debate over Scottish independence, Salmond does not have a strong answer to the question of “if not the pound, then what?” This is a serious lacuna in the SNP’s thinking. If the plan between now and 18th September is to state baldly that of course Scotland will keep the pound and that there is nothing to discuss, then there will be a profound weakness at the root of the SNP’s political platform.

In the coming weeks, expect Alistair Darling and his colleagues on the No campaign to press that point repeatedly, and hard.