POTENTIAL Labour chancellor Ed Balls has confirmed he could seek to veto Scottish use of sterling, stressing he is "not bluffing", but Alex Salmond has ridiculed the claims.

The First Minister and Shadow Chancellor clashed on the by-election campaign trail in Dunfermline over energy policy and the prospects of Scotland retaining sterling after independence.

The two big hitters appeared at the same time a couple of hundred yards apart at Pitreavie industrial estate, and both were asked about similar national issues.

Mr Balls was outspoken about the prospects of the remainder of the UK ­agreeing to allow Scotland to continue using the pound, insisting that voters south of the Border would be sceptical and saying of his own potential role if negotiations were continuing and he came to power: "I'm not bluffing."

He insisted that the SNP plan to keep the pound if Scotland becomes independent was "utterly economically incoherent" and "one for the birds".

But Alex Salmond, launching his party's campaign in the Fife town against the difficult ­background of the jailed incumbent, and the previous day's criticism of Labour's planned energy freeze, defended the Government's record.

He said of the energy row: "The estimate for a family saving if a price freeze was possible is a one-off payment of £120. The council tax freeze, which is being ­delivered which is real, saves an average family £1637 which is way over 10 times any perspective freeze on electricity bills for a limited period.

"What Fergus Ewing has said is correct. We are always interested in the people's priorities of protecting living standards. But the question is, can this freeze be delivered? Or will it lead to the perverse effects like price rises before the freeze comes in. Or price rises that follow a shortage of electricity?"

Mr Balls was stressing the likelihood that no UK chancellor would agree to allow Scotland easy or unfettered access to a sterling currency zone. Mr Salmond said he believed that after a Yes vote, any UK chancellor would decide that shared use of sterling was in the best interest of all concerned.

Mr Balls said: "The idea of the pound operating as a parallel currency in Scotland is utterly economically incoherent. It would be massively destabilising. No financial institution could possibly operate without a proper regulator and lender of last resort backing it.

"That one is just for the birds. Scotland is not Kosovo. If Scotland votes for independence, there is absolutely no guarantee at all that it will be able to keep the pound, whatever Alex Salmond says.

"More than that, it will be a very difficult negotiation and I find it hard to see how the outcome could be an agreement which works either for Scotland or for the rest of the UK."

Mr Salmond said even Better Together leader Alastair Darling had spoken of sharing sterling as ­"logical and desirable".

He added of the Bill Walker scandal: "The people in by-elections look forward and they look to what's going to be offered and I think the campaign priorities I have listed are far more important to the people of Dunfermline than the behaviour of the former disgraced MSP."