Three main parties to deliver warning on currency union

It is expected that it will be followed by statements from shadow chancellor Ed Balls for Labour and Treasury Chief Secretary Danny Alexander making clear that their parties would not allow Scots to retain the pound.

Scotland's Deputy First Minister Nicola Sturgeon said it was the "Westminster establishment" trying to lay down the law to Scotland and warned that the move would backfire.

Throughout the day, however, senior figures from the UK parties were making it increasingly clear that they would not countenance a currency union with Scotland.

Mr Balls said that it would be "very difficult indeed" to see how such a currency union could work.

"(Scotland's First Minister) Alex Salmond is trying to pretend he can go a step further and become a separate independent sovereign state, but he wants to also pretend to the Scottish people that somehow he can keep all the benefits of the union - it won't make any difference - and that's just not in the real world," he said.

"I don't think it's right for us to tell Scotland what they must do, but I don't see how you could have a negotiation about a Scottish separate country keeping the pound which would add up either for Scotland or for the rest of the United Kingdom."

Mr Alexander said that he head repeatedly made clear that it was "highly unlikely" that a currency union could be made to work either for Scotland or the rest of the UK.

"I stand by that analysis and those statements," he told LBC.

For the Tories, Treasury Minister Sajid Javid said the SNP's plan for a currency union without fiscal or political integration "lacks any credibility whatsoever".

"Scottish trade is important to the UK economy but it is not clear it is important enough to run the risk of recreating the problems in the euro area in the British isles," he told a Commons Westminster Hall debate.

"The remaining UK, to manage the risks of the union, would need to set interest rates and need to maintain oversight of an independent Scotland's tax and spending plans. Indeed, a currency union would also be likely to undermine an independent Scotland's resilience and credibility.

"Just as a currency union isn't in Scotland's interests, it is very hard to see how it could be in the interests of the remaining United Kingdom. It would involve the remaining UK giving up an element of its economic sovereignty... which is something the public would feel very strongly about.

"It would increase the risk of having to bail out Scottish banks, and the idea of putting the remaining UK's economy at risk because of another country's banks, just as we are getting our own banks into order, would make no sense whatsoever."

The BBC reported that the Treasury paper will argue that for an independent Scotland to continue to use the pound, the Scottish and UK governments would have to agree to underwrite each other's banks, allow taxpayers in one country to subsidise the other, and reach broad agreement on tax, spending and borrowing levels.

Ms Sturgeon accused the UK parties of "bluff and bluster" which would not impress voters in Scotland.

"This is an unprecedented and extraordinary bid by the Westminster establishment to lay down the law to Scotland, which will backfire spectacularly," she said.

"But the reality is the Tory Chancellor and his Labour and Lib Dem helpers are all over the place, with their briefing fast unravelling.

"First we were told George Osborne was going to rule out a currency union, but now it is being reported that he will outline a Treasury paper with a series of tests and conditions which would be their starting point in negotiations to secure a sterling area.

"That is a very long way from what was initially briefed, and simply underlines the fact that the Treasury themselves know - whatever the bluff and bluster of Westminster politicians - that a shared sterling area is overwhelmingly in the rest of the UK's economic interests following a 'yes' vote."

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