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Osborne: if Scotland walks away from the UK it's also walking away from the pound

Chancellor George Osborne declared today he would not sign up to a currency union with an independent Scotland, saying such a deal would "not work" and was "not going to happen".

The Tory went to Edinburgh to send the stark message to Alex Salmond's Scottish Government, which has set out plans to create a "sterling zone" with the rest of the UK if there is a Yes vote in the referendum.

Mr Osborne said: "The SNP says that if Scotland becomes independent, there will be a currency union and Scotland will share the pound.

"People need to know that is not going to happen.

"Because sharing the pound is not in the interests of either the people of Scotland or the rest of the UK."

He said official advice from civil servants on the key issue of currency was that "they would not recommend a currency union to the Government of the continuing UK".

Mr Osborne said: "Listening to that advice, looking at the analysis myself, it is clear to me I could not, as Chancellor, recommend that we could share the pound with an independent Scotland.

"The evidence shows that it wouldn't work, it would cost jobs and cost money. It wouldn't provide economic security for Scotland or for the rest of the United Kingdom."

He added: "I don't think any other Chancellor of the Exchequer would come to a different view."

Danny Alexander, the Liberal Democrat Chief Secretary to the Treasury, echoed Mr Osborne's remarks on a currency union, insisting such a deal "simply isn't going to happen".

Mr Alexander said having read the civil service advice he "couldn't recommend a currency union to the people of Scotland and my party couldn't agree to such a proposition for the rest of the UK".

He said: "The SNP continue to pretend that an independent Scotland could continue to share the pound. It couldn't, without agreement. And because a currency wouldn't work for anyone, it simply isn't going to happen.

"The SNP now need to work out what their alternative currency proposal is and set it out openly."

He also hit back at claims from Scottish Deputy First Minister Nicola Sturgeon that the "Westminster establishment" was attempting to bully Scotland ahead of the referendum.

Mr Alexander said: "This isn't bluff, or bullying, it's a statement of fact.

"The SNP's claims that an independent Scotland could or should be able to share the pound are pure fiction. When we vote in September, no one in Scotland should vote for independence in the belief that we could keep the pound."

Deputy Prime Minister Nick Clegg told LBC radio: "The point that George Osborne and Danny Alexander, on behalf of my party, and Ed Balls, on behalf of the Labour Party, are making is that if you analyse what you need to make sure that a currency union is successful, it is very difficult to make that successful if you are pulling apart in so many other ways.

"This is not to try to browbeat anybody. This is to say `Let's take a clear look at the facts. It's not an easy circle to square to say we are going to pull apart in one direction, but keep the currency in the other'."

Steven Camley's cartoon 

Mr Osborne said the issue of what currency a separate Scotland would use "more than any other exposes the gaping chasm at the core of the plans to separate Scotland from the rest of the UK".

He said: "People in Scotland are being asked to accept two diametrically opposite things at the same time - that with independence everything in Scotland will change and at the same time nothing will change.

"It simply doesn't add up for the Scottish Government."

The Chancellor told them: "If Scotland walks away from the UK, it walks away from the pound."

He described the pound as being "one of the oldest and most successful currencies in the world", as he said the argument about what money an independent Scotland would use was at the "very heart" of the debate over the country's future.

The Scottish Government has already set out its blueprint for retaining the pound if there is a Yes vote, creating a ''sterling zone'' with the rest of the UK.

This has been endorsed by experts on the Fiscal Commission Working Group, set up by Mr Salmond, which said that keeping sterling as the currency in an independent Scotland would be ''sensible'' and an attractive choice for the rest of the UK.

But Mr Osborne said it was "wrong" for the Scottish Government to claim keeping the pound after independence was common sense.

He said: "Common sense is when you've got something that works really well already, you don't throw it away.

"You don't replace it with something that certainly won't work as well, and you certainly don't embark on a high-risk experiment that may not work at all."

The Chancellor continued: "The Scottish Government say 'it's as much Scotland's pound as the rest of the UK's'.

"They are like an angry party to a messy divorce.

"But the pound isn't an asset to be divided up between the two countries after a break-up as if it were a CD collection."

He insisted there was "no legal reason why the rest of the UK would need to share its currency with Scotland" if it became independent.

New Treasury analysis sets out four key requirements that would need to be achieved if there was to be a currency union between an independent Scotland and the rest of the UK - a banking union, sharing of fiscal risks, both countries having the same monetary and exchange rate policy, and for such a deal to be permanent.

But Mr Osborne said it "would be impossible to construct an acceptable banking union" between an independent Scotland and the remainder of the UK, saying any such deal would "involve putting UK taxpayers on the line for banks in a foreign country".

While the rest of the UK may have to step in to bail out Scottish banks, the Chancellor said there would be "little prospect of any benefit flowing in the other direction, for Scotland could only make a limited contribution to supporting a big English bank".

In these circumstances he said: "It is very difficult to see how after a Yes vote, any UK politician could propose such an asymmetrical arrangement."

He added that "the logic of a currency union would mean that Scotland would have to give up sovereignty over spending and tax decisions".

At the same time, Mr Osborne said the rest of the UK would also have to concede "at least some sovereignty and supervision of our own budget to a foreign country", pointing out this was something the UK had "fiercely resisted up to now".

This, he said, showed greater fiscal union "would not be acceptable to the rest of the UK".

He went on to point out that, in a currency union, an independent Scotland would not be able to set interest rates, saying this would mean it would be forced to "take more drastic fiscal measures in times of crisis", such as cutting spending "dramatically" or raising taxes "hugely".

Mr Osborne also argued if a currency union was to succeed, then the markets must believe such a deal was "built to last".

But he claimed: "The Scottish Government's vision is of a currency union of convenience, not conviction."

This stance would make a currency union "unsustainable", he said.

Rather than independence, Scotland could have "an alternative, confident, future" where the "nations of the UK work together to provide economic security for our citizens".

The Chancellor said this was a "future where strengthened devolved government empowers people from every corner of our land to play their part".

He insisted a "strong Scotland within a United Kingdom" was a "future worth fighting for".

Currently the UK economy is "growing faster than any other advanced economy in Europe", the Tory said, adding that Scotland was "growing faster" economically than the rest of the UK.

"We've had six consecutive quarters of Scottish growth," Mr Osborne said.

But he stressed the job of rebuilding the economy after recession was "not yet done" as he warned: "These hard-fought gains could be easily lost.

"And nothing could be more damaging to economic security here in Scotland than dividing our United Kingdom."

The Chancellor also claimed Mr Salmond had resorted to "reckless threats" over Scotland's share of the UK debt

"He says an independent Scotland would refuse to accept its fair share of a national debt if the UK refuses to share the pound," he said.

"That's like saying, 'because my neighbour won't agree to my unreasonable demands, I am going to burn my house down in processes'."

The Chancellor said Scotland benefits from the UK's credibility in the markets, with low mortgages for Scottish families and low rates for borrowing for Scottish businesses.

Independent experts have said that even if a new Scottish state accepted its share of UK debt, it would have to pay an "independence premium" to borrow from the markets, Mr Osborne said.

This would mean an extra £1,700 a year for the average mortgage payer, he said.

But he warned: "The premium would be nothing compared to the millstone the Scottish people would have to carry if an independent Scotland failed to honour its fair share of the national debt.

"In that scenario international lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default. And they would demand a punitively high interest rate as a result.

"That would be crippling for every Scottish household with a mortgage or personal loan, for every Scottish business with credit, for the public finances and therefore for public services and for taxpayers, and for the whole economy.

"If an independent Scotland reneged on its debts it would become an outcast among the family of responsible economic nations.

"So it is a reckless threat. And Alex Salmond knows it."

Prime Minister David Cameron's official spokesman said: "The Chancellor is making an extremely important point here on one of the absolutely key issues in the current debate."

Asked if the Government had co-ordinated today's announcement on currency union with the opposition, the PM's spokesman said: "When it comes to such an important issue about the UK with such long-term consequences over generations, you might not think it would be a particular surprise if there were cross-party discussions around that in Westminster."

Ms Sturgeon dismissed the Chancellor's remarks as "campaign rhetoric" ahead of September's independence vote.

She told BBC News 24: "George Osborne wants people in Scotland to vote No. So do Ed Balls and Danny Alexander. They're entitled to that view, but what they are saying needs to be seen in the context of a campaign that wants to frighten and intimidate people in Scotland."

The Scottish Deputy First Minister claimed ruling out a currency union was "quite a panicky reaction from George Osborne and the No campaign", claiming they were responding to "swing in support towards independence" since the Scottish Government published its White Paper in November.

Ms Sturgeon said: "Once Scotland votes, if we do vote democratically to be independent, we will look at what is in the best interests of Scotland and the rest of the UK.

"And there are some very strong, practical, hard-headed reasons why continuing to use the same currency is in the interests of people across the rest of the UK."

She said exports from England into Scotland were worth £60 billion a year, adding that if Scotland used a different currency this would "cost England hundreds of million of pounds in transaction costs".

Ms Sturgeon continued: "Right now oil and gas exports contribute about £30 billion to the UK balance of payments. If we don't have a shared currency that is removed from the UK's balance of payments and the UK trade deficit goes through the roof, that has an impact on the value of sterling."

She said: "If Scotland does vote Yes, in those circumstances it would be a very odd chancellor of any UK government that insisted on a course of action that cost their own businesses hundreds of millions of pounds, that blew a massive hole in their balance of payments and, because assets and liabilities go hand in hand, would potentially leave the rest of the UK shouldering the entirety of UK debt."

The SNP deputy leader said there was "no appetite in Scotland" for the euro, but claimed there would be "an optimal currency zone between Scotland and the rest of the UK".

She rejected claims that the constraints a currency union would bring would mean Scotland would not be truly independent

"France and Germany share a currency but they are both independent countries," she said.

"With independence we don't have to put up with Tory chancellors we don't vote for, but more importantly we get the fiscal powers and tools to grow our economy, to create jobs, which are so essential to any independent country."

She added: "If Scotland votes for independence, Scotland and the rest of the UK will continue to be close allies, friends, neighbours, working constructively together. And it would make sense for all of us for one of those things we continue to work constructively together on to be a shared currency."

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