22/04/2013 Newsnight Scotland

Glamis Castle no more. Burns no more. Is the prospect of

losing Scottish banknotes enough to convince you to stick with the

Union? The Treasury says that could be one consequence of independence,

if Scotland still wants to keep sterling. Tonight we ask: Is that a

serious contribution to the debate? And with George Osborne due here

tomorrow, we look at the options for the pound in your pocket - whoever

Apology for the loss of subtitles for 40 seconds

about what the Kashmir looked like when it comes out of the hole in the

wall but they do want assurances about how the economy will be run.

Today came on warning that under independence, the Bank of England

might withdraw its support for Scottish banknotes. The SNP says the

pound is as much Scotland is as it is the rest of the UK's. Look how

the country's rich history is steeped in the currency. This is a

Clydesdale bank �10 note featuring up richer of Robert Burns. Here is a

picture of Glamis Castle. On this Bank of Scotland note is a picture

of Sir Walter Scott who was once credited with saving the Scottish

banknote! What are the currency options under an independent

Scotland? There is joining the euro, that was the SNP preference of the

eurozone crisis has ruled it out for now. A second option was -- could be

a new Scottish currency but setting it up could be costly and take

time. The SNP has landed on keeping the pound under a Sterling Zone,

retaining the services of the Bank of England. But under that

scenario, how independent would Scotland really be?

An independent Scotland would be the junior partner in any agreement with

the rest of the UK and would be subject to fiscal oversight from the

rest of the UK so it would look at public spending, public borrowing,

deficit and taxes. In any currency union, even the prospective sizes of

an independent Scotland economy, and the rest of the UK, it is inevitable

there would be more control on the UK's side as opposed to an

independent Scotland. Former Chancellor Alistair Darling speaking

earlier this year said it independence happened a currency

union may be the best option. It would be desirable to have a

currency union but there are consequences because a currency

union means you both have to agree a budget, and taxes and the point I am

making is that is not freedom. But Mr Darling who heads up a campaign,

says the SNP cannot make promises. I cannot see how even if you enter

into a currency agreement and are prepared to have your budget is

rubber-stamped by the rest of the UK, how that would bring any

benefits to Scotland. It seems to be so much trouble, especially when you

know the currency union will end up with an economic and political

union, right back where you started. The SNP says a Sterling Zone makes

sense. We get the best of both worlds,

trade continues and Scotland for the first time, gets control of its

fiscal issues. These decisions will be taken in the future in Scotland.

Tomorrow the Chancellor outlines the UK government thinking on an

independent Scottish currency and this is an argument that will

continue until the referendum and beyond. In fact, you can bank on it!

Are Business Editor Douglas Fraser Joins Me. This is a report of under

-- over 100 pages. This will be the sixth day in which the coalition

government and the Labour Party have together really pushed on this

currency, because they recognise it has got a lot of traction and will

have the yes campaign on the back foot. With the briefing we have for

tomorrow, there is a small element of this which has been made

available to journalist. One of the papers has overstated, I think, what

is being set out. They are saying it is not in the interest of the rest

of the United Kingdom, and unless we get a deal, there is no reason why

we would have to sign up to a deal such as the one the SNP wants.

has come from a Treasury source? Yes, and unnamed source. -- and

unnamed source. We should take this with a large pinch of salt, it

says, this is merely a negotiating position. The Treasury, which is

already committed to the outcome of the referendum results, will have to

negotiate in good faith. The SNP put a lot of store in the final part of

the Edinburgh agreement, were it stated that both sides would

negotiate in good faith. Another article and newspaper also leaves on

this. You can see the headline. It is the same angle but toned down a

little. It moves on to the interests of the rest of the United Kingdom to

do a deal with Scotland and that is where the debate is going. Tonight,

the Scottish government has published its plans for currency

union and its rationale. There is rather less detail, but they agree

with the working group of the fiscal commission which reported a few

weeks ago. You have got this clash between the two sides as to whether

Scotland can lay claim to the institutions of the United Kingdom,

sterling and the Bank of England and say we will have are sure of that.

-- I work share. There will be a fair and equal negotiating position

between the two sides, that is what this Treasury paper is focusing on.

In essence, they are doing what they have not done before. They are

saying you can expect that if there are negotiations after the yes vote,

the Treasury in particular will fight the position of the rest of

the UK very toughly. Do you think there will be any real killer lines

in the report tomorrow? It is a very big report. I think we will get some

numbers. It will be interesting to see yet economists at the Treasury

have figured out the borrowing costs. It is not surprising that the

Treasury report comes to the conclusion that this is not a very

good agreement for Scotland! That is one issue. Scotland could expect for

a number of reasons to have higher borrowing costs and it may put --

they may put a number on to that. Thank you.

I am joined by Lord John McFall a Labour member of the House of Lords

economic affairs and it, from Edinburgh by George Kerevan and

economist, and Dr Jim Cuthbert, a former Scottish Office Chief

Statistician who joins me from Edinburgh. Lord McFaul, the UK

government is set to reject the UK Sterling Zone, Scottish banknotes

are no longer being available in an independent Scotland, there are a

lot of scare stories around? coalition is what a former adviser

to the Scottish government said. If there is a vote for independence,

there will be many years of complex negotiations. What you are seeing

tonight, is the decision process taking place, whereby the SNP, have

the opportunity to step away from the union, which has existed for 300

years. They are trying to establish their own credentials. The UK

government will have the decision as to whether they go into a eurozone

type currency arrangement, with a foreign country. These are momentous

decisions. A former Scottish economist to the Scottish office,

said they may look dry and technical, but they affect everyone

in terms of taxes and spending. These are big issues and big

questions. George Kerevan, there are big question marks and it has been a

difficult few days for the SNP, since Danny Alexander made that

statement last Thursday. There has been a trickle of concerns coming

through every day about this apparent Sterling Zone and the SNP

plans for postindependence. The SNP plans are to keep the pound and the

common currency. It is so countries on both sides of the border can go

one training with each -- trading with each other! That would drive up

English interest rates and the markets would have something to say

about that. The SNP wants to keep the common currency because that is

good for both parties. It is amazing to hear the Chancellor trying to

break up the monetary union that exists and works. Why bother doing

it if it hurts both sides? Monetary union at the moment? We have had the

same currency for 300 years. We used to have a common currency for 30

years after World War II with New Zealand, no one noticed. We had a

common currency with Southern Ireland after it left the United

Kingdom and we have that for 50 years. No one noticed excavation

mark common currencies can work. Jim Cuthbert, you have a different

view. You produced a paper which was critical of successive UK

governments and the way they handled the UK economy, that you also call

for nationalist tactics to be reversed because you think there is

a UK economic catastrophe on the way? You are calling for a new

Scottish currency? Yes, in due course. -- the paper analyses the

competitiveness and the balance of payments in the UK economy since the

second World War. The UK has had a declining economic competitiveness.

It was amassed by while revenues. Essentially, the UK economy has

turned itself into a large bank or assets and liabilities or seven

times the UK GDP. That is not a very stable or sustainable situation. It

is likely that something has to give. It is in the context of that

likely crisis that we should be looking at the bargaining position

of Scotland and the UK, a You can never say never. What a

economy of Britain, Scotland and the rest of Europe will look like in 30

years time. What are talking about is the transition phase. So that

Scotland can become independent and control its fiscal policy.

Scotland's economic growth has been 1.5% for 30 or 40 years. The UK has

had a 2.5% growth. We need to look after our own economic industrial

business needs. That is what this process would allow. I have no

problem of having a fiscal pact with England. That would have meant that

Gordon Brown would not have had to undertake the insane borrowing he

did many years ago and that the credit crunch might not have been as

bad! Alistair darling revert to this as a

straight jacket because a foreign country has to be said of fiscal

policy. Alistair is exaggerating as he often does. A fiscal act or

fiscal pact means that members of the monetary Union cannot borrow to

the point when it becomes unsustainable. I hope that Scotland

would do that anyway and if you have that you are free within the

envelope of your spending and borrowing to tailor the individual

taxes to the needs of your economy. For instance, in Northern Ireland,

the business committee estimate that once the devilish and of corporate

tax so that it can have a level that fits Northern Ireland and not the

UK. This is a debate happening across the British Isles. A fiscal

policy is what we will get tailored to Scotland's needs and business and

that is a good thing. Lord McFall, George Kerevan was writing about

that issue last week. About a more localised fiscal

policy. What about his point about the balance of payments and how

Scotland's conjuration helps Sterling?

Scotland is the second was prosperous region outside of the

South East of England, more prosperous than the north-west and

north-east of England. Scotland has not held back. The big issue in

Scotland and what none of us have focused on is the inequality that

exists in Scotland. That is home grown and we can do something about

it. It is not a case of being held back, it is getting our heads

together to ensure that we get a more prosperous Scotland and that is

what the issue is. Do we wish to separate from a currency Union that

has been established for 300 years to go into a eurozone agreement that

Professor John McCain says the markets will push the Scottish

Government towards an independent currency will stop Jim Sellers and

others in the SNP has said that if you are going to have independence,

let us have an independent currency. They consider this a sham and for

those purists of independence it is a good point. Dr Cuthbert, that

makes you a puritan, wanting your own independent currency.

When I spoke to Stuart Hall said yesterday I put your points to him

and he said that on this you were wrong.

There is an issue of timing here. An independent Scotland would initially

stat of an Sterling, there is no other way around. I would hope that

their arrangements about that could be negotiated. Over the longer term,

I was talking about when they would be a likely problem with the UK

economy that needs it less attractive for the Scottish economy

to share that of England's. The UK currency Union was not considered

until the bank charged act. Some authorities trace the relatively --

relative decline from that stage. Interest rates have not been set

with Scotland in mind. Not since the 19 century.

George Kerevan, you with the SNP must rue the day when the Euro

crisis came because it meant a change in policy and perhaps a

rather convoluted policy of having to have this Sterling Zone. Do you

think that Scotland may have to join the euro if there is independence?

How can Scotland opt out if we are to become members of the Union?

rules do not allow you to not join if you do not want to. For example,

if Scotland had to renegotiate its membership of the EU then it would

have to join what is called the monetary system and we have to be in

that for a while. The euro issue is dead in the water, it is a long way

off because of the crisis in the European monetary fund. Let us be

clear, the real issue is that German banks lent far too much to the Greek

government which could not pay them back. The crisis is about bad

banking, not so much about the monetary Union. I am confused about

what Lord McFall has said. We do not want out of this monetary Union. We

want to stay in it. It is the Treasury that is trying to force as

out of it. It is a system and by having this

referendum, the SNP are making a statement. Alex Salmond is already

on record as saying that the pound as a millstone around Scotland's

neck. It is a millstone that he wants to insure he is tied to. It

does not make sense, there is a lack of guidelines about the Nationalists

policies. They have been exposed. They say they will have the currency

Union. If you are going into a complex negotiation, you must have a

number position. We have only been exposed to have one position. They

have adopted for positions over 25 years. They must grow up on this

issue and ensure that when they go into negotiations they are going

into difficult negotiations and do not kept people on about the

situation. People said they should stay in a

monetary Union if it was independent. Having a monetary Union

is that there are two sides to it. Tell me your side. It is for the

history of the United Kingdom to say if we're going to provide banking

facilities to a fall in coming tree. Central banking facilities that

provided 211% of Scotland's GDP. Abe going to still maintain that and if

we have a foreign country are we going to into a situation where we

have little control over the tax and spending policies of a foreign

country? I doubt that and people will question that. Dr Cuthbert, how

make his negotiations proceed with one big partner controlling 90% of

the economy, the rest of the UK, along with a smaller Scotland?

Negotiations would be very tough. The Treasury would drive a hard

bargain and Scotland is unlikely to get conditions that in the long term

it would regard as being satisfactory. I would say the

outcome of the negotiations with the temporarily favourable.

The big partner and the smaller partner, it is going to be difficult

if it came to that? What I am trying to explain as that

it is in the interests of the rest of the UK and England to have this

monetary union. That would form the basis of negotiations. Can you

imagine what would happen if there was a separate currency in Scotland

and Scotland's interest rates deviated from those of England?

Money would float one-way or the other.

We will have to leave it there. George Kerevan, thank you very much.

Lord McFall and Dr Cuthbert. Thank you. A quick look at the rest of the