Holyrood elections to the Scottish Parliament are now just days away and the debate on Scottish independence is predictably heating up once again, especially as now there is a second pro-indyref party in the form of Alba, led by former SNP First Minister, Alex Salmond. The debate often skirts around one issue, currency and it's rather a significant subject which nationalists rather wish not to talk about!
Clearly neither Wales nor Scotland could create their own currencies: they would have to stay with the pound or join the euro. And since the euro is hugely unpopular in Scotland (only 18 per cent of Scots want to join the euro) - and would simply introduce dependence on Brussels - that would mean sticking with the pound.
Yet, Alex Salmond seems to think he could create a new currency. It is estimated that setting up a new Scottish currency could cost £40 billion.
In 2014, his lying promise that a separate Scotland could keep the pound won him votes. Polls in early 2020 published in the Scotsman showed that if the pound were not to be a separate Scotland's currency, 42 per cent of respondents were less likely to vote for separation.
An October 2020 poll confirmed this: 54 per cent of respondents supported keeping the pound. Only five per cent favoured setting up a brand new Scottish currency. The Scottish electorate's most unpopular currency option is the one that the separatist leaders want.
To have a strong currency, you need a credit rating built over a long history of fiscal reliability and probity. The pound is one of the world's five reserve currencies, based in the world's biggest financial centre and in one of the world's largest economies.
Scotland is a borrower whose borrowings the Bank of England has always underpinned. A new currency would have no record of reliability and therefore no credibility. Without a trusted currency, a separate Scotland would be denied access to funding at the rates enjoyed by the UK government, which has never defaulted on sovereign debt.
A new Scottish currency, under assault from the financial markets, would lose value fast. Capital would flee.
As the SNP admitted in its Growth Commission report, "It cannot be emphasised too strongly that the existing financial assets and liabilities of Scottish residents … are assets and liabilities of these individuals, businesses and institutions, not assets or liabilities of the Scottish Government, before or after independence. There is thus no benefit, and a considerable downside, for a future Scottish Government to seek to legislate to change the terms of these private contracts. If Scotland were to adopt a distinctive Scottish currency in future, that currency would be incorporated in future contracts — not in past or uncompleted ones."
This would be a huge risk for every Scottish person and every Scottish institution holding debts in sterling but who would receive income in the new Scottish currency. There are around 800,000 mortgage holders in Scotland, housing nearly two million people. Local authorities hold £18 billion debts. Scottish housing associations owe £4 billion. Scotland's one million pensioners would see their sterling state pension replaced with a new currency of far less value. Other pension schemes would also be at risk, including those of nurses, doctors, teachers and civil servants.
Our priority must be economic and social recovery. The role of the Bank of England as our central bank, and a government able to borrow in its own currency, are both vital to our recovery.
But the SNP's destructive policy of separation would jeopardise our recovery by causing hugely damaging economic disruption and social division. How could tearing our country apart not damage all prospect of recovery?
Britain's economy is based on mutuality across the whole country. Taxation, spending and monetary policy remain largely coordinated. Risks are pooled with a common insurance against uncertainty. For example, during the virus crisis, currency reserves became immediately accessible. Separation would destroy that risk sharing and would destroy that pooled exposure to risk.
Without the Bank of England's control over public debt in Scotland or Wales, its ability to manage the pound would be undermined. Without the pooling of risks across Britain, currently secured by all British taxpayers, English taxpayers would have to support the pound alone. That would lead to a weaker, less stable currency – which could only be bad news for everybody in Britain.
Experience shows that separate countries using the euro – a currency which has no effective fiscal or central banking oversight – causes severe problems. Why would the UK government want to replicate the euro's failings by allowing separate states to use the pound in the same way?