Currency in Scotland after 2014

Angus Brendan MacNeil Excerpts

Wednesday 12th February 2014 Westminster Hall

[Ian Murray]

My hon. Friend has hit the nail on the head. A currency union is a question not only for Scotland, but for the rest of the United Kingdom, because the stabilisers that require a currency union would be stabilisers that England or the rest of the United Kingdom would have to use, as well as Scotland. It is a question for the rest of the United Kingdom, and that is a very valuable intervention from my hon. Friend, who is from an English constituency. [Interruption.] I can hear SNP Members chuntering, “Scaremongering”. Well, I hope that they go back and tell their constituents that the SNP disregards what they are saying as scaremongering rather than as raising legitimate issues about the currency and jobs.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Will the hon. Gentleman give way?

[Ian Murray]

I will make some progress, then I will give way. I was talking about the euro. Let us reflect on what is happening now with the euro area: it is seeking very significant steps to expand the sharing of risks and pooling of resources to create a more homogenous currency union to make it work properly—exactly what the UK in its current state now provides for the pound sterling.

I know that the First Minister said that we should ignore experts, but John Cridland, the director general of the CBI, emphasised last week:

“As the Governor highlighted, successful currency unions need strong fiscal agreements and a banking union, with common supervisory standards and resolution mechanisms. The negative effects”—

this point is critical—

“of not having these structures in place have been starkly illustrated by the Eurozone crisis.”

There is a very positive case for staying with the United Kingdom as part of this currency debate and I would like to run through three points that are particularly relevant to the currency and the economy.

First, Scotland benefits from being part of the UK economy, which is the third largest economy in Europe and the sixth largest in the world. Being part of the larger, more diverse UK economy brings strength, stability and security, not only to Scotland’s finances, but to those of the United Kingdom.

Secondly, being part of the UK offers us protection from financial shocks. During the financial crisis, banks based in Scotland took advantage of the protection offered to UK banks. Since 2007, the UK has committed £1.2 trillion to bailing out the banks. At its peak, the Edinburgh-based Royal Bank of Scotland received £254 billion in support from the UK Government. That pooling and sharing is critical.

Thirdly, the rest of the UK is Scotland’s biggest trading partner. Scottish businesses buy and sell more products and services from the rest of the UK than every other country in the world combined. In 2010, 70% of Scotland’s exported goods and services went to England, Wales and Northern Ireland, accounting for a massive 35% of Scottish GDP. Likewise, 70% of Scotland’s imports are estimated to come from the rest of the United Kingdom.

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[Ian Murray]

Let me make a little progress. I know that other hon. Members want to speak, but I will allow hon. Members to intervene.

It is not just an issue for Scotland. The rest of the UK—this is an important point, which other hon. Members have made in interventions—would have to agree. It appears from speculation in the press today—perhaps the Treasury Minister can indicate whether it is speculation—that there will not be an agreement on currency union, as it is undeliverable. If an agreement is not possible or is ruled out by the Treasury, what will be the Scottish Government’s plan B? [Interruption.] The nationalists are chuntering away about what they would do. I am happy to take an intervention if they want to tell the people of Scotland now what the Scottish nationalists’ plan B is for the currency should Scotland vote yes for independence. [Interruption.]

[Mr MacNeil]

I am very glad that the hon. Gentleman has given way; he promised to give way. Has he informed the people of England of what his policy would mean for them if he managed to go hand in hand with Osborne and keep Scotland out of sterling? What would it mean for the balance of payments? What would it mean for the value of sterling? What would be the price of holidays for English people going abroad without Scotland’s contribution to sterling? The hon. Gentleman knows full well that Labour keeping Scotland out of sterling would make things far more expensive for English people.

[Ian Murray]

I apologise to everyone in the debate. I allowed the hon. Member for the Western Isles to intervene to tell us what the SNP’s plan B is, and he chuntered on about something to do with holidays that I could barely hear because his colleagues were chuntering over him. I have no idea what he said. [Interruption.]

[Ian Murray]

Thank you, Mrs Riordan. I will give the nationalists one more opportunity if they want to intervene to tell us what the SNP’s plan B would be should people vote yes for an independent Scotland and there is no currency union. No?

[Mr MacNeil]

rose—

[Ian Murray]

Go on. Tell us what plan B will be.

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[Mr MacNeil]

The hon. Gentleman did not hear because of the chuntering beside him, but the point is that we know full well what we are doing—we are keeping sterling. But if his policy was—[Laughter.] If his policy was put in place, what would happen to people in England as the balance of payments worsened and sterling weakened? Imports would be more expensive. Holidays would be more expensive. Labour’s policy is irresponsible to the people of England as it is to the people of Wales.

[Ian Murray]

Mrs Riordan, I apologise again for wasting another intervention through the nationalists not telling us what plan B would be. Let me tell them what the currency will be in England and Wales. It will be the pound sterling. That is what they will keep.

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[Mr MacNeil]

Will the hon. Gentleman give way?

[Ian Murray]

I will not give way again to the hon. Gentleman, because he refused to answer my last question. To summarise, losing the pound would result in a higher cost of living, with higher mortgage repayments, higher credit card and store card bills, and more costly car loans. Scotland would start out as a separate state with no credit rating, or one that had been hugely damaged by threats of default. There would be fewer jobs, because of the cost of changing money every time Scottish firms bought or sold from our biggest customer, which is the rest of the United Kingdom. There would be deeper cuts or higher taxes because the Scottish Government would pay more to borrow money, which would result in more debt and lower public spending. There would be risks to benefits and pensions as payments were converted from sterling to a different currency.

There would be risks to the economy. Without the back-up of the rest of the UK, Scottish banks would have gone under during the financial crisis, and families and businesses across the country would have lost everything. Scotland would have an unproven and weak currency with a poor credit rating and high borrowing costs. The SNP’s proposition may be summed up as this: we should go from a proven and respected single currency backed by a strong lender of last resort as part of the United Kingdom to a promise from Alex Salmond that he is simply not in a position to deliver. That is not good enough for the Scottish people or Scottish business.

I can say this afternoon without doubt, argument or contradiction that the currency of Scotland post 2014 will be the pound, but only if we stay in the United Kingdom. It is now clear that the most positive case that we can make for the Union is the pound in our pockets. We must do all we can, today and for the next seven months, to protect it for future generations.

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[Stewart Hosie]

No. I do not have time.

The hon. Member for Edinburgh South rightly and understandably prayed in aid Dr Carney’s recent speech, which he said did not pass judgment on the relative merits of the different currency options for Scotland, but instead drew attention to the key issues. However, Dr Carney did point out that any arrangement would be negotiated and that the Bank of England would implement whatever monetary arrangements were put in place. That is to be welcomed, not just by me, but by the 71% of people in the rest of the UK who support the continued use of sterling after Scottish independence. The same proportion—71%—of Labour voters in Scotland also support the continued use of sterling after independence.

The hon. Member for Edinburgh South and the no campaign seem to fail to understand what Scotland brings to the table. Of course we recognise the constraints—I will come on to them—but we bring export revenue receipted in sterling. The impact on the sterling balance of trade would be immediate and significant were Scotland somehow—impossibly—forced not to be able to use sterling. The same applies to trade—the rest of the UK sells £60 billion into Scotland. If we were forced to use a foreign currency and transaction costs were applied, that would imply a catastrophic loss to English businesses: additional costs that the no campaign never mentioned.

Let us put the matter into context. In 2012, the rest of the UK sold into Scotland more than it did into Brazil, South Africa, Turkey, Russia, India, South Korea, China, and Japan combined, yet we hear from the no campaign that they do not want us to use sterling, even though that is impossible, which would imply massive transaction costs and the loss of jobs in the rest of the UK. I am sure that is not something they intend to do.

[Mr MacNeil]

Will my hon. Friend give way?

[Stewart Hosie]

No, I do not have time. So where would independence while keeping sterling leave us? It would not imply a foreign currency controlling our economy, because the central bank does not control the economy. It works to a single 2% inflation target, which we think is sensible.