Currency in Scotland after 2014

David Mowat Excerpts

Wednesday 12th February 2014 Westminster Hall

[Stewart Hosie]

No. I have only five minutes.

The hon. Member for Edinburgh South suggested that so much money had been put into Scottish banks. I draw his attention to chapter 1, paragraph 1 of the report by the Parliamentary Commission on Banking Standards. The cash cost at peak is reported to be £133 billion—that was £47 billion to Royal Bank of Scotland in return for 82% of the stock, around £25 million into Lloyds, and smaller amounts to the Icelandic and other financial institutions. Where taxpayers are still on the hook is the near £50 billion owed to them from Northern Rock and Bradford and Bingley, which may be many things, but they are not Scottish banks. The notion that the argument was ever about Scottish banks bad, English banks good, must be knocked on the head.

The old chestnut about Scotland in a sterling currency zone being like Greece was also raised. Greece’s problem had nothing to do with being in a currency union and everything to do with appalling productivity. As we know, Scottish productivity is nigh on identical to that of the rest of the UK. That would avoid such problems entirely.

[David Mowat (Warrington South) (Con)]

Will the hon. Gentleman give way?

[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.

--- Later in debate ---

[Mr McKenzie]

The right hon. Gentleman makes the point clearly and we have been highlighting that throughout the debate on Scotland’s future.

If Scotland carried on using the pound regardless, we would have no control over our economy and we could lose our central bank, which acts as the lender of last resort. The nationalists are now suggesting that Scotland should default if they do not get their way on a currency union; the Deputy First Minister has said that Scotland might not take its share of national debt if it is not agreed. That is wildly irresponsible and would jeopardise an independent Scotland’s creditworthiness. The people of Scotland have every right to worry about the future of the money in their pocket, when they hear bullying threats, such as the threat of reneging on our share of the debt. What tone would that bring to other negotiations about separation? It is hardly the way to make friends and impress people.

[David Mowat]

The hon. Gentleman is right to say that the Scottish Government cannot default on the debt, but can only refuse in the negotiation to take their share; the debt is already underwritten by the UK Treasury. What I do not understand about that position is that all the cash collection systems operating in the UK—Her Majesty’s Revenue and Customs, benefit systems and all the rest—will continue to be operated centrally. It is a mess.

[Mr McKenzie]

The hon. Gentleman makes some good points; but the main thing is that the Scottish Government believe they can do anything they want.

Losing the pound would mean a higher cost of living, with higher mortgage repayments, higher credit card and store card bills and more costly loans, because Scotland would start out as a separate state with no credit rating. There would also be an unnecessary threat to jobs: what would the exchange rate be? The cost of changing money every time Scottish firms were to buy from or sell to our biggest customer—the rest of the United Kingdom—would be an issue. There would be deeper cuts or higher taxes as the Scottish Government paid more to borrow money, leading to more debt and lower public spending. There would be risks to benefits and pensions as payments were converted into a different currency. Many people worry about what currency they will be paid in and what their savings will be worth.

There would also be risks to the economy. Without the back-up of the rest of the UK following the world banking crisis, Scottish banks would have gone under and families and businesses would have lost everything. Let us remember that billions were pumped into our banks following the world banking crisis. In my constituency alone, more than 400 jobs were saved. Time is running out for those who want a separate Scotland to give an answer and provide an assurance on currency. The Scottish people cannot be expected to go on any longer with “Don’t worry—it will be all right on the night.” It is not scaremongering to want a direct answer from the nationalists, incorporating a guarantee on currency in Scotland after 2014.