:00:24. > :00:27.Glamis Castle no more. Burns no more. Is the prospect of
:00:27. > :00:30.losing Scottish banknotes enough to convince you to stick with the
:00:30. > :00:33.Union? The Treasury says that could be one consequence of independence,
:00:33. > :00:36.if Scotland still wants to keep sterling. Tonight we ask: Is that a
:00:36. > :00:39.serious contribution to the debate? And with George Osborne due here
:00:39. > :00:49.tomorrow, we look at the options for the pound in your pocket - whoever
:00:49. > :00:49.
:00:49. > :01:30.Apology for the loss of subtitles for 40 seconds
:01:30. > :01:37.about what the Kashmir looked like when it comes out of the hole in the
:01:37. > :01:44.wall but they do want assurances about how the economy will be run.
:01:44. > :01:52.Today came on warning that under independence, the Bank of England
:01:52. > :02:00.might withdraw its support for Scottish banknotes. The SNP says the
:02:00. > :02:03.pound is as much Scotland is as it is the rest of the UK's. Look how
:02:03. > :02:06.the country's rich history is steeped in the currency. This is a
:02:06. > :02:13.Clydesdale bank �10 note featuring up richer of Robert Burns. Here is a
:02:13. > :02:17.picture of Glamis Castle. On this Bank of Scotland note is a picture
:02:17. > :02:24.of Sir Walter Scott who was once credited with saving the Scottish
:02:24. > :02:30.banknote! What are the currency options under an independent
:02:30. > :02:38.Scotland? There is joining the euro, that was the SNP preference of the
:02:38. > :02:41.eurozone crisis has ruled it out for now. A second option was -- could be
:02:41. > :02:47.a new Scottish currency but setting it up could be costly and take
:02:47. > :02:52.time. The SNP has landed on keeping the pound under a Sterling Zone,
:02:52. > :02:59.retaining the services of the Bank of England. But under that
:02:59. > :03:02.scenario, how independent would Scotland really be?
:03:02. > :03:06.An independent Scotland would be the junior partner in any agreement with
:03:06. > :03:13.the rest of the UK and would be subject to fiscal oversight from the
:03:13. > :03:19.rest of the UK so it would look at public spending, public borrowing,
:03:19. > :03:22.deficit and taxes. In any currency union, even the prospective sizes of
:03:22. > :03:29.an independent Scotland economy, and the rest of the UK, it is inevitable
:03:29. > :03:33.there would be more control on the UK's side as opposed to an
:03:33. > :03:36.independent Scotland. Former Chancellor Alistair Darling speaking
:03:36. > :03:43.earlier this year said it independence happened a currency
:03:43. > :03:46.union may be the best option. It would be desirable to have a
:03:46. > :03:52.currency union but there are consequences because a currency
:03:52. > :03:59.union means you both have to agree a budget, and taxes and the point I am
:03:59. > :04:06.making is that is not freedom. But Mr Darling who heads up a campaign,
:04:06. > :04:09.says the SNP cannot make promises. I cannot see how even if you enter
:04:09. > :04:14.into a currency agreement and are prepared to have your budget is
:04:14. > :04:18.rubber-stamped by the rest of the UK, how that would bring any
:04:18. > :04:25.benefits to Scotland. It seems to be so much trouble, especially when you
:04:25. > :04:31.know the currency union will end up with an economic and political
:04:31. > :04:33.union, right back where you started. The SNP says a Sterling Zone makes
:04:34. > :04:42.sense. We get the best of both worlds,
:04:42. > :04:51.trade continues and Scotland for the first time, gets control of its
:04:51. > :04:55.fiscal issues. These decisions will be taken in the future in Scotland.
:04:55. > :05:02.Tomorrow the Chancellor outlines the UK government thinking on an
:05:02. > :05:09.independent Scottish currency and this is an argument that will
:05:09. > :05:19.continue until the referendum and beyond. In fact, you can bank on it!
:05:19. > :05:33.
:05:33. > :05:42.Are Business Editor Douglas Fraser Joins Me. This is a report of under
:05:42. > :05:45.-- over 100 pages. This will be the sixth day in which the coalition
:05:45. > :05:48.government and the Labour Party have together really pushed on this
:05:48. > :05:52.currency, because they recognise it has got a lot of traction and will
:05:52. > :05:54.have the yes campaign on the back foot. With the briefing we have for
:05:54. > :06:04.tomorrow, there is a small element of this which has been made
:06:04. > :06:07.
:06:07. > :06:16.available to journalist. One of the papers has overstated, I think, what
:06:16. > :06:18.is being set out. They are saying it is not in the interest of the rest
:06:18. > :06:23.of the United Kingdom, and unless we get a deal, there is no reason why
:06:23. > :06:33.we would have to sign up to a deal such as the one the SNP wants.
:06:33. > :06:33.
:06:33. > :06:42.has come from a Treasury source? Yes, and unnamed source. -- and
:06:42. > :06:48.unnamed source. We should take this with a large pinch of salt, it
:06:48. > :06:58.says, this is merely a negotiating position. The Treasury, which is
:06:58. > :06:58.
:06:58. > :07:00.already committed to the outcome of the referendum results, will have to
:07:00. > :07:03.negotiate in good faith. The SNP put a lot of store in the final part of
:07:03. > :07:10.the Edinburgh agreement, were it stated that both sides would
:07:10. > :07:19.negotiate in good faith. Another article and newspaper also leaves on
:07:19. > :07:29.this. You can see the headline. It is the same angle but toned down a
:07:29. > :07:29.
:07:30. > :07:33.little. It moves on to the interests of the rest of the United Kingdom to
:07:33. > :07:34.do a deal with Scotland and that is where the debate is going. Tonight,
:07:34. > :07:36.the Scottish government has published its plans for currency
:07:36. > :07:41.union and its rationale. There is rather less detail, but they agree
:07:41. > :07:51.with the working group of the fiscal commission which reported a few
:07:51. > :07:51.
:07:51. > :07:54.weeks ago. You have got this clash between the two sides as to whether
:07:54. > :08:00.Scotland can lay claim to the institutions of the United Kingdom,
:08:00. > :08:08.sterling and the Bank of England and say we will have are sure of that.
:08:08. > :08:13.-- I work share. There will be a fair and equal negotiating position
:08:13. > :08:19.between the two sides, that is what this Treasury paper is focusing on.
:08:19. > :08:22.In essence, they are doing what they have not done before. They are
:08:22. > :08:26.saying you can expect that if there are negotiations after the yes vote,
:08:26. > :08:32.the Treasury in particular will fight the position of the rest of
:08:32. > :08:41.the UK very toughly. Do you think there will be any real killer lines
:08:41. > :08:45.in the report tomorrow? It is a very big report. I think we will get some
:08:45. > :08:49.numbers. It will be interesting to see yet economists at the Treasury
:08:50. > :08:52.have figured out the borrowing costs. It is not surprising that the
:08:53. > :08:58.Treasury report comes to the conclusion that this is not a very
:08:58. > :09:03.good agreement for Scotland! That is one issue. Scotland could expect for
:09:03. > :09:13.a number of reasons to have higher borrowing costs and it may put --
:09:13. > :09:14.
:09:14. > :09:19.they may put a number on to that. Thank you.
:09:19. > :09:23.I am joined by Lord John McFall a Labour member of the House of Lords
:09:23. > :09:28.economic affairs and it, from Edinburgh by George Kerevan and
:09:28. > :09:38.economist, and Dr Jim Cuthbert, a former Scottish Office Chief
:09:38. > :09:38.
:09:38. > :09:43.Statistician who joins me from Edinburgh. Lord McFaul, the UK
:09:43. > :09:46.government is set to reject the UK Sterling Zone, Scottish banknotes
:09:46. > :09:54.are no longer being available in an independent Scotland, there are a
:09:54. > :10:01.lot of scare stories around? coalition is what a former adviser
:10:01. > :10:05.to the Scottish government said. If there is a vote for independence,
:10:05. > :10:14.there will be many years of complex negotiations. What you are seeing
:10:14. > :10:20.tonight, is the decision process taking place, whereby the SNP, have
:10:20. > :10:26.the opportunity to step away from the union, which has existed for 300
:10:26. > :10:29.years. They are trying to establish their own credentials. The UK
:10:29. > :10:37.government will have the decision as to whether they go into a eurozone
:10:37. > :10:42.type currency arrangement, with a foreign country. These are momentous
:10:42. > :10:47.decisions. A former Scottish economist to the Scottish office,
:10:47. > :10:52.said they may look dry and technical, but they affect everyone
:10:52. > :11:02.in terms of taxes and spending. These are big issues and big
:11:02. > :11:07.
:11:07. > :11:13.questions. George Kerevan, there are big question marks and it has been a
:11:14. > :11:15.difficult few days for the SNP, since Danny Alexander made that
:11:15. > :11:16.statement last Thursday. There has been a trickle of concerns coming
:11:16. > :11:19.through every day about this apparent Sterling Zone and the SNP
:11:19. > :11:29.plans for postindependence. The SNP plans are to keep the pound and the
:11:29. > :11:30.
:11:30. > :11:36.common currency. It is so countries on both sides of the border can go
:11:36. > :11:41.one training with each -- trading with each other! That would drive up
:11:41. > :11:45.English interest rates and the markets would have something to say
:11:45. > :11:52.about that. The SNP wants to keep the common currency because that is
:11:52. > :11:56.good for both parties. It is amazing to hear the Chancellor trying to
:11:56. > :12:03.break up the monetary union that exists and works. Why bother doing
:12:03. > :12:08.it if it hurts both sides? Monetary union at the moment? We have had the
:12:08. > :12:14.same currency for 300 years. We used to have a common currency for 30
:12:14. > :12:16.years after World War II with New Zealand, no one noticed. We had a
:12:16. > :12:20.common currency with Southern Ireland after it left the United
:12:20. > :12:25.Kingdom and we have that for 50 years. No one noticed excavation
:12:25. > :12:30.mark common currencies can work. Jim Cuthbert, you have a different
:12:30. > :12:36.view. You produced a paper which was critical of successive UK
:12:36. > :12:41.governments and the way they handled the UK economy, that you also call
:12:41. > :12:45.for nationalist tactics to be reversed because you think there is
:12:45. > :12:55.a UK economic catastrophe on the way? You are calling for a new
:12:55. > :12:59.
:13:00. > :13:03.Scottish currency? Yes, in due course. -- the paper analyses the
:13:03. > :13:09.competitiveness and the balance of payments in the UK economy since the
:13:09. > :13:17.second World War. The UK has had a declining economic competitiveness.
:13:17. > :13:23.It was amassed by while revenues. Essentially, the UK economy has
:13:23. > :13:30.turned itself into a large bank or assets and liabilities or seven
:13:30. > :13:35.times the UK GDP. That is not a very stable or sustainable situation. It
:13:35. > :13:40.is likely that something has to give. It is in the context of that
:13:40. > :13:50.likely crisis that we should be looking at the bargaining position
:13:50. > :14:05.
:14:05. > :14:08.of Scotland and the UK, a You can never say never. What a
:14:08. > :14:15.economy of Britain, Scotland and the rest of Europe will look like in 30
:14:15. > :14:18.years time. What are talking about is the transition phase. So that
:14:18. > :14:24.Scotland can become independent and control its fiscal policy.
:14:24. > :14:32.Scotland's economic growth has been 1.5% for 30 or 40 years. The UK has
:14:32. > :14:36.had a 2.5% growth. We need to look after our own economic industrial
:14:36. > :14:40.business needs. That is what this process would allow. I have no
:14:40. > :14:46.problem of having a fiscal pact with England. That would have meant that
:14:46. > :14:49.Gordon Brown would not have had to undertake the insane borrowing he
:14:49. > :14:54.did many years ago and that the credit crunch might not have been as
:14:54. > :14:58.bad! Alistair darling revert to this as a
:14:58. > :15:06.straight jacket because a foreign country has to be said of fiscal
:15:06. > :15:09.policy. Alistair is exaggerating as he often does. A fiscal act or
:15:09. > :15:13.fiscal pact means that members of the monetary Union cannot borrow to
:15:13. > :15:17.the point when it becomes unsustainable. I hope that Scotland
:15:17. > :15:20.would do that anyway and if you have that you are free within the
:15:20. > :15:24.envelope of your spending and borrowing to tailor the individual
:15:24. > :15:28.taxes to the needs of your economy. For instance, in Northern Ireland,
:15:28. > :15:31.the business committee estimate that once the devilish and of corporate
:15:31. > :15:37.tax so that it can have a level that fits Northern Ireland and not the
:15:37. > :15:41.UK. This is a debate happening across the British Isles. A fiscal
:15:41. > :15:46.policy is what we will get tailored to Scotland's needs and business and
:15:46. > :15:51.that is a good thing. Lord McFall, George Kerevan was writing about
:15:51. > :15:57.that issue last week. About a more localised fiscal
:15:57. > :16:02.policy. What about his point about the balance of payments and how
:16:02. > :16:05.Scotland's conjuration helps Sterling?
:16:05. > :16:08.Scotland is the second was prosperous region outside of the
:16:08. > :16:13.South East of England, more prosperous than the north-west and
:16:13. > :16:19.north-east of England. Scotland has not held back. The big issue in
:16:19. > :16:22.Scotland and what none of us have focused on is the inequality that
:16:23. > :16:27.exists in Scotland. That is home grown and we can do something about
:16:27. > :16:30.it. It is not a case of being held back, it is getting our heads
:16:30. > :16:35.together to ensure that we get a more prosperous Scotland and that is
:16:35. > :16:40.what the issue is. Do we wish to separate from a currency Union that
:16:40. > :16:45.has been established for 300 years to go into a eurozone agreement that
:16:45. > :16:50.Professor John McCain says the markets will push the Scottish
:16:50. > :16:54.Government towards an independent currency will stop Jim Sellers and
:16:54. > :16:58.others in the SNP has said that if you are going to have independence,
:16:59. > :17:05.let us have an independent currency. They consider this a sham and for
:17:05. > :17:10.those purists of independence it is a good point. Dr Cuthbert, that
:17:10. > :17:14.makes you a puritan, wanting your own independent currency.
:17:14. > :17:17.When I spoke to Stuart Hall said yesterday I put your points to him
:17:17. > :17:24.and he said that on this you were wrong.
:17:24. > :17:29.There is an issue of timing here. An independent Scotland would initially
:17:29. > :17:34.stat of an Sterling, there is no other way around. I would hope that
:17:34. > :17:38.their arrangements about that could be negotiated. Over the longer term,
:17:38. > :17:42.I was talking about when they would be a likely problem with the UK
:17:42. > :17:49.economy that needs it less attractive for the Scottish economy
:17:49. > :17:54.to share that of England's. The UK currency Union was not considered
:17:54. > :17:58.until the bank charged act. Some authorities trace the relatively --
:17:58. > :18:05.relative decline from that stage. Interest rates have not been set
:18:05. > :18:09.with Scotland in mind. Not since the 19 century.
:18:09. > :18:13.George Kerevan, you with the SNP must rue the day when the Euro
:18:13. > :18:18.crisis came because it meant a change in policy and perhaps a
:18:18. > :18:23.rather convoluted policy of having to have this Sterling Zone. Do you
:18:23. > :18:30.think that Scotland may have to join the euro if there is independence?
:18:30. > :18:37.How can Scotland opt out if we are to become members of the Union?
:18:37. > :18:41.rules do not allow you to not join if you do not want to. For example,
:18:41. > :18:47.if Scotland had to renegotiate its membership of the EU then it would
:18:47. > :18:53.have to join what is called the monetary system and we have to be in
:18:53. > :18:59.that for a while. The euro issue is dead in the water, it is a long way
:18:59. > :19:05.off because of the crisis in the European monetary fund. Let us be
:19:05. > :19:09.clear, the real issue is that German banks lent far too much to the Greek
:19:09. > :19:16.government which could not pay them back. The crisis is about bad
:19:16. > :19:23.banking, not so much about the monetary Union. I am confused about
:19:23. > :19:27.what Lord McFall has said. We do not want out of this monetary Union. We
:19:27. > :19:32.want to stay in it. It is the Treasury that is trying to force as
:19:32. > :19:38.out of it. It is a system and by having this
:19:38. > :19:41.referendum, the SNP are making a statement. Alex Salmond is already
:19:41. > :19:46.on record as saying that the pound as a millstone around Scotland's
:19:46. > :19:50.neck. It is a millstone that he wants to insure he is tied to. It
:19:50. > :19:54.does not make sense, there is a lack of guidelines about the Nationalists
:19:54. > :19:59.policies. They have been exposed. They say they will have the currency
:19:59. > :20:05.Union. If you are going into a complex negotiation, you must have a
:20:05. > :20:10.number position. We have only been exposed to have one position. They
:20:10. > :20:14.have adopted for positions over 25 years. They must grow up on this
:20:14. > :20:17.issue and ensure that when they go into negotiations they are going
:20:17. > :20:23.into difficult negotiations and do not kept people on about the
:20:23. > :20:28.situation. People said they should stay in a
:20:28. > :20:37.monetary Union if it was independent. Having a monetary Union
:20:37. > :20:42.is that there are two sides to it. Tell me your side. It is for the
:20:42. > :20:51.history of the United Kingdom to say if we're going to provide banking
:20:51. > :20:57.facilities to a fall in coming tree. Central banking facilities that
:20:57. > :21:01.provided 211% of Scotland's GDP. Abe going to still maintain that and if
:21:01. > :21:06.we have a foreign country are we going to into a situation where we
:21:06. > :21:12.have little control over the tax and spending policies of a foreign
:21:12. > :21:17.country? I doubt that and people will question that. Dr Cuthbert, how
:21:17. > :21:24.make his negotiations proceed with one big partner controlling 90% of
:21:24. > :21:26.the economy, the rest of the UK, along with a smaller Scotland?
:21:27. > :21:32.Negotiations would be very tough. The Treasury would drive a hard
:21:32. > :21:36.bargain and Scotland is unlikely to get conditions that in the long term
:21:36. > :21:41.it would regard as being satisfactory. I would say the
:21:41. > :21:45.outcome of the negotiations with the temporarily favourable.
:21:45. > :21:50.The big partner and the smaller partner, it is going to be difficult
:21:50. > :21:54.if it came to that? What I am trying to explain as that
:21:54. > :21:59.it is in the interests of the rest of the UK and England to have this
:21:59. > :22:04.monetary union. That would form the basis of negotiations. Can you
:22:04. > :22:07.imagine what would happen if there was a separate currency in Scotland
:22:07. > :22:13.and Scotland's interest rates deviated from those of England?
:22:13. > :22:23.Money would float one-way or the other.
:22:23. > :22:27.We will have to leave it there. George Kerevan, thank you very much.
:22:27. > :22:34.Lord McFall and Dr Cuthbert. Thank you. A quick look at the rest of the