You may have seen our prelude to the ‘White Paper’ yesterday (before we knew what it would actually be called), in which Gemma predicted that currency – and in particular the issue of a ‘Plan B’ – would take centre stage in the Scottish Government’s paper on Scottish independence, or at least in the arguments that follow. It transpires that the latter was the more correct prediction.
Regular readers will know that we have been commenting frequently on the currency issue throughout the debate. For some time now, the Scottish Government’s position has been that an independent Scotland would agree a currency union with the rest of the UK. This has been referred to as ‘Plan A’, with the implication that the Scottish Government would need to have a contingency plan up its sleeve, in case the rest of the UK (“rUK”) didn’t agree to that proposal. The UK Government has consistently said that it will not enter into ‘pre-negotiations’ on issues such as currency before the vote has been decided, but its equally consistent message on the prospect of a currency union has been that it would be (a) sub-optimal for Scotland compared to the status quo; and (b) unlikely to be attractive to the rest of the UK, and so not something to which the UK Government would be likely to agree in the event of a ‘yes’ vote. That message has come from across the political spectrum at Westminster, from George Osborne, Danny Alexander and Ed Balls, and from outside Westminster via Welsh First Minister Carwyn Jones. Expect it to be repeated ad nauseum over the next few days.
The Scottish Government has nevertheless refused to be drawn on the calls to set out a ‘Plan B’. As far as its Guide to an Independent Scotland is concerned, there is only one option on the cards in the event of a yes vote (see pages 109-116). Its principal argument is that a currency union would be in the interests of the rest of the UK due to the level of cross-border business and the contributions Scotland makes to the UK balance of trade. This implies an expectation that the UK Government would come around to the Scottish Government’s way of thinking in the course of any post-vote negotiations. Prior to this morning’s launch event, however, the Deputy First Minister also repeated an earlier claim that Scotland might refuse to accept any share of UK liabilities if rUK did not agree to a currency union. It can only be a matter for speculation, while that remains a hypothetical scenario, how the markets would view such a move.
The First Minister also argued this morning that the terms of the Edinburgh Agreement mean that the UK Government would be obliged to agree to a currency union, as both sides had agreed to “respect the outcome of the referendum”. However, the Agreement only concerned the referendum result and did not oblige either side to agree to a particular set of consequences. It is in any event unenforceable in the legal sense, and in the event of a ‘yes’ vote the UK Government would no longer be politically accountable to Scottish voters in its conduct of the negotiations.
On that note, it must be borne in mind that a currency union would have to be legislated for, and so at UK level it would be for Parliament rather than the Government to decide. The SNP’s plan therefore depends on a majority of MPs at Westminster voting for it. Given the popularity of the Euro among the British public, however, one could expect many MPs to be extremely nervous about voting for any sort of currency union, regardless of the terms or the identity of the other party, for fear of the reaction from their constituents.
We therefore remain in a situation where the prospect of a change in currency cannot be ruled out (and that’s without even getting into issues of the Euro, which we will be covering shortly). That would not necessarily be A Bad Thing – an independent Scottish currency is supported by other pro-independence parties, has been recommended by certain independent bodies such as the National Institute for Economic and Social Research, and was argued for this weekend by Bloomberg – but it would raise certain issues. We have commented previously on the possible redenomination of pre-independence contracts as a result of a change in currency.
The Scottish Government has nevertheless fixed its colours to the mast, and is clearly not for turning on the issue. We can therefore expect the currency question to run and run. And run. And run…
If you would like to hear more on the White Paper and the issues arising in the referendum, we’re running seminars on the subject next week in Aberdeen, Edinburgh and Glasgow. We’ve moved to higher-capacity venues due to the high demand, so spaces are still available. You can sign up here.
On November 26, 2013