Experimental feature

Listen to this article

Experimental feature

It comes as no surprise to Jim Sillars that the Scottish National party has taken a beating over the pound this week. The veteran SNP dissident has repeatedly given warning of the tactical risks of making formal currency union with the UK a cornerstone of post-independence economic policy.

“The political flaw is that, by doing this, you have handed over the political initiative to your opponents, because it takes two to make a currency union – just like it takes two to tango,” said Mr Sillars. “If one says no, you can’t tango, and you can’t have a currency union.”

It is a flaw that pro-union politicians have ruthlessly exposed as Scotland enters the final phase of campaigning for next month’s independence referendum.

The three big parties at Westminster have ruled out a currency deal and, in a televised debate on Tuesday, Alex Salmond, Scotland’s SNP first minister, came under heavy pressure from Alistair Darling, leader of the Better Together campaign, to offer a “Plan B”.

Mr Salmond had to fend off similar calls throughout a tempestuous session in the Scottish parliament on Thursday, while Ed Miliband, Labour leader, popped up in Glasgow on Friday to add his voice to the critical chorus.

“If you are going to have a currency union, you also need a political union; you need a union of decisions on tax and spending and on banking,” Mr Miliband told the BBC, adding that the SNP needed to “come clean” about the costs of independence.

SNP leaders wave aside such complaints as mere campaign bluster, insisting that if Scotland votes Yes, the remaining UK would quickly recognise that currency union was in its interests, too.

The SNP also notes that Scotland would have other options, as laid out by its panel of economic experts. They have explored the merits and downsides of establishing an independent currency, seeking to join the euro or continuing to use the pound without a formal pact – an approach dubbed “sterlingisation”.

But the party’s refusal to identify a formal Plan B reflects its hope to win cautious Scots over to independence by arguing that it can be achieved without substantial economic or social disruption.

This is deeply frustrating for nationalists such as Mr Sillars, a strongly socialist former MP and long-standing critic of Mr Salmond.

“The SNP strategy has been to punt the idea of ‘change but no change’ – keep the Queen, keep the pound, keep this, keep that,” Mr Sillars said in an interview after an appearance at an Edinburgh Fringe show that also featured pro-independence songs and poetry.

“I think they have misunderstood the temper of the country, because the thirst now is for radical change,” he said.

According to Mr Sillars, it is not too late for the SNP to endorse as a Plan B a new Scottish currency, an option that he and many others in the Yes movement say would give much greater control over economic destiny.

But while John Swinney, Scotland’s finance secretary, called a new currency “perfectly viable” on Friday, the SNP appeared to be signalling that it favoured using the pound even without a formal currency union.

“There is absolutely nothing Westminster can do to stop Scotland using the pound,” noted a spokesperson for Mr Swinney. “It is Scotland’s pound, and we are keeping it.”

The SNP stance has its own political risks, however. Not least, sterlingisation would mean Scotland having no voice at all on monetary policy or any guarantee that the Bank of England would stand behind its banking sector

For his part, Mr Sillars thinks sterlingisation would be unsustainable. But he is optimistic that the currency issue will not derail what he sees as a powerful grassroots Yes movement that is about more than details of economic policy.

“People like me tell the voters they are not voting for Alex Salmond’s currency proposals,” he said. “After a Yes, all the options are open.”

Swinney plays debt trump card

In the argument about whether the remaining UK would agree to a formal currency union with an independent Scotland, the Scottish National party believes that it holds a £120bn trump card – Scotland’s share of the UK national debt.

A refusal to share the pound would absolve Scotland of responsibility for the debt and its £5bn annual servicing costs, according to John Swinney, Scotland’s finance secretary.

“That to me is a ridiculous proposition from the other parties. They cannot turn around to the electorate in the rest of the UK and say we are going to let the Scots go away debt free from the United Kingdom,” Mr Swinney said this week.

Pro-union politicians react fiercely to such talk. Ed Miliband, Labour leader, said it was extraordinary that Mr Swinney could “envisage Scotland defaulting”.

Scottish refusal to take on UK debt would not constitute default, however.

London’s insistence that the remaining UK would be the only “continuing state” in the event of Scottish independence means that it would have sole legal liability for the debt. Scotland’s responsibility would be a matter for bilateral negotiation.

But while the SNP’s debt threat is a reminder that Scotland would not come into post-independence negotiations empty-handed, it would be a risky card to play.

Resolution of issues such as Scotland’s EU membership and the future of nuclear weapons based on the river Clyde would require goodwill on both sides. Forcing the UK into a currency pact or walking away from the debt might be a bad way to start.

Get alerts on Scottish Independence when a new story is published

Copyright The Financial Times Limited 2019. All rights reserved.

Follow the topics in this article