Currency in Scotland after 2014

William Bain Excerpts

Wednesday 12th February 2014 Westminster Hall

[Ian Murray]

My hon. Friend is absolutely right. A currency union requires some kind of political co-ordination to ensure that the stabilisers make the currency work. What better political stability could we have than being the United Kingdom, with a strong Scottish Parliament as part of that overall economic and political framework?

[Mr William Bain (Glasgow North East) (Lab)]

I apologise for missing the start of the debate; I have just come from a debate on a statutory instrument that affects my constituency. My hon. Friend is making a powerful contribution. According to the International Monetary Fund, none of the 64 largest economies in the world operates without a central bank. Does he agree that if Scotland were forced into the position, which was denounced by the SNP’s fiscal commission, of using the pound without a central bank, the consequences for business and ordinary people throughout Scotland would be devastating?

[Ian Murray]

I could not have put it better myself. I look back to 2008, when hundreds of billions of pounds were poured into Scottish banks to keep the economy afloat, and to keep my constituents, many thousands of whom work in such banks in Edinburgh, in jobs. Without such action, the whole financial structure would have collapsed.

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[Anas Sarwar]

The hon. Gentleman fails to realise in making that criticism of how the Bank of England has operated and the effect on Scotland and Wales that the nationalists’ currency union plans after independence would have exactly the same effect. Decisions about the interests of the people of Scotland would still be taken in this place; the choice is whether we should have a voice here at the same time. The hon. Gentleman is undermining that voice.

[Mr Bain]

Scotland’s First Minister wants to frame the debate as him against the elite, but perhaps I can share the views that a voter in my constituency expressed to me in Edgefauld road in Springburn on Saturday afternoon. She said, “If you get the details about the currency wrong, it is ordinary working people like me who suffer the biggest hit.” Is not that right? Is not that what happened in Ireland when living standards declined by 20% between 2007 and 2011, and is not my hon. Friend right to campaign in favour of the pound?

[Anas Sarwar]

I could not have put it better. Yes, this has an impact on business and big institutions, but the price will always be paid by the poorest and most vulnerable people. I and my Labour colleagues stand shoulder to shoulder with those people throughout the United Kingdom. The nationalists will throw everything into this debate—every assertion, opinion, myth, allegation, contention and baseless claim—so that they can win on 18 September. They do not have any recognition of reality; they are much more the Walter Mittys of Scottish politics. The only thing that they have been clear on is the willingness to hand over control of monetary policy to another country; in the words of the Governor of the Bank of England, they would “cede sovereignty”.

It is important to look at the first letter sent in May 1997 by the then Chancellor, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), when he made the Bank of England independent. In paragraphs four and five of that letter, the point is made that

“The Bank is there to fulfil the objectives of the UK Government, as set out by the UK Government and not as determined by the Bank.”

So the Bank is there to support the economic policy of the UK, and after Scottish independence, it will be there to support the economic policy of the rest of the UK, not that of the Scottish Government. The Bank of England would go by the political will of the Chancellor of the Exchequer—whether the current Chancellor or the future Chancellor, the current shadow Chancellor, my right hon. Friend the Member for Morley and Outwood (Ed Balls). The Bank will follow that remit and not the remit of the current Scottish Government or, indeed, a future Scottish Government.

What does that mean for Scots? If someone has a mortgage, their interest rate will be controlled by the central bank of a foreign country, with no input or influence from Scots, no accountability and no say on inflationary targets or the cost of money supply. Likewise, if someone has a car loan, a credit card or an hire purchase agreement for a new suite or a new washing machine, all those things will be controlled by a foreign Government, with Scots having no say or influence, and with no accountability.

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[Cathy Jamieson]

My hon. Friend makes a valuable contribution, as always. I recognise that this is of huge importance to young people in Scotland. Obviously, young people aged 16 and 17 are, for the first time, have the vote in an important election. Of course, there are many young people here today in Parliament, including some members of the Scottish Youth Parliament, who are here to lobby on votes for 16-year-olds. I am struck by the intelligent way that young people have approached this debate. When it comes to the independence cause, they have not simply rushed to the barricades, as the SNP may, at one stage, have thought they would. They have thoughtfully debated, considered and put forward the arguments, and will come to their own conclusions, as indeed the rest of the people in Scotland will.

I have to say to the SNP that it is becoming rather tiresome to hear, every time anything is said that is not in agreement with the First Minister or his team, that we are somehow scaremongering. It is right and proper to scrutinise the proposals, including the White Paper and all the policies. [Interruption.] Indeed, the hon. Member for Dundee East (Stewart Hosie) is agreeing with me. He is an intelligent and articulate man who takes a close interest in all Treasury, banking and financial services sector issues; I gently say to him that it is rather odd that despite that, he continues to trot out the SNP line the whole time, without giving that degree of scrutiny to the proposals made by his political party.

On that point, Professor John Kay, former economic adviser to the First Minister and professor of economics at the London School of Economics and Political Science, said:

“If I represented the Scottish government in the extensive negotiations required by the creation of an independent state, I would try to secure a monetary union with England, and expect to fail…So Scotland might be driven towards the option of an independent Scottish currency.”

He also said:

“Alex Salmond has said I think rather stupidly that there is no plan B. The trouble with having no plan B is you don’t have any negotiating power if you don’t have a Plan B. So there has to be a Plan B. And Plan B has to be an independent currency.”

We are not getting that honesty in the debate, as far as the people of Scotland are concerned. That is important.

[Mr Bain]

My hon. Friend is correct to talk about scrutiny, but of course the Institute for Fiscal Studies and the National Institute for Economic and Social Research have scrutinised the White Paper and concluded that under any of the possible currency options, the pressure on fiscal policy would mean that taxes would have to rise or spending would have to fall. Would not that create more pressure on public services and the social security system in Scotland?

[Cathy Jamieson]

Again, my hon. Friend makes an important point. Perhaps the Minister will shed light on whether there has been any discussion on these issues. The SNP’s current argument seems to be that, in an independent Scotland, it will not take any of the difficult decisions that go along with that. It is not entirely clear yet what will happen to all the benefits and pensions arrangements, and all the rest of it, for some time into the distance. The idea that it will be all right on the night is simply not good enough, as was said earlier.

People have lined up to criticise the SNP’s scenario, including Brian Quinn, former executive director of the Bank of England, Owen Kelly of Scottish Financial Enterprise, Iain McMillan, director of CBI Scotland, the chair of political economy at the university of Glasgow, and the chief European financial economist, who is from a key financial institution. All those people—I do not have time to quote them—have criticised it.

I was told, although I did not hear it personally and will look closely at the transcript, that the Deputy First Minister implied, on “Good Morning Scotland”, that if an independent Scotland did not get its own way on the currency union, it would simply default or walk away from a debt. My hon. Friend the Member for North Ayrshire and Arran said that she never thought that she would see a referendum in her lifetime. In all the years I was in the Scottish Parliament, during some of which time I served as a Minister, I never thought I would hear a Deputy First Minister of Scotland shirk responsibility and say that they would walk away from a debt and put Scotland’s economy at risk. I hope that that report from this morning is not entirely accurate. If it is, I hope that the Deputy First Minister now regrets those remarks and looks again at them.