Scotland’s Place in the UK

Debate between Viscount Thurso and Lord Tyrie

Thursday 6th February 2014 Commons Chamber

[Mr Andrew Tyrie (Chichester) (Con)]

Unusually, I agree with just about every word I have just heard from the Opposition Benches.

In the short time available, I want to say a few words about the consequences of independence for currency arrangements in the rest of the UK and Scotland, but I ought first to make it clear that the Scots are not without options: they could create their own currency, whether pegged or free floating, they could create a currency board or they could join the euro. All these options are available. But the frontrunner in some quarters seems to be the creation of a formal single currency with the rest of the UK. In the current economic and political circumstances, this should not be attempted, and in the four minutes now available to me, I will try to explain why.

The primary reason is that a British monetary union would need something dramatically tougher than the eurozone rules—so tough that, on both sides of the border, if it was fully explained, I am confident our respective electorates would not want it. And they would be right. It would amount to a common fiscal policy between independent countries, which would be a massive undertaking to design and sustain.

[John Thurso (Caithness, Sutherland and Easter Ross) (LD)]

Was my hon. Friend struck, as I was, by the Treasury output graphs that we saw at the end of Governor Carney’s speech? They showed that banking in Scotland would represent 12.7 times the economy—five points greater than the seven times for Iceland—and that it would be unsustainable without the currency union provisions my hon. Friend is describing.

[Mr Tyrie]

I think it crucial for us to understand that a banking union could well trigger the migration of banks to London, where they would be able to benefit from the “lender of last resort” facilities provided by the Bank of England.

Let me say something about what a common fiscal policy would entail. It would mean, for instance, pre-approval of budget proposals, which would be accompanied by intensive and very intrusive oversight of budgetary outcomes. It would require rigorous powers to insist on overshoots being corrected quickly and reversed, backed up by credible sanctions for non-compliance.

In order to carry credibility, such powers would probably need to be directly applicable in law on both sides of the border. What that means in practice is that the Bank of England and the Treasury would have the power to direct a large part of Scottish economic and financial policy. For example, the Scots would probably be required to seek their approval before they could borrow in order to build schools and hospitals.

Is it realistic to imagine that all those in Scotland who had just voted for independence would readily accept such intensive supervision and direction from the rest of the United Kingdom? I doubt it.