Osborne 'not serious on currency'

His fiscal commission working group recommended last year that a sterling monetary union was the best currency option for Scotland and the rest of the United Kingdom.

But Mr Osborne, backed by Labour and Liberal Democrat leaders, ruled out the proposal during a visit to Edinburgh last month.

First Minister Alex Salmond has repeatedly refused to entertain a "plan B", such as a new currency or using sterling without formal agreement with the UK Government.

Mr Beveridge reaffirmed his group's position, saying the rest of the UK would face transaction costs for businesses and problems with the balance of payments if no agreement was reached.

The Treasury's acknowledgement of legal responsibility for the UK's debt would also be a factor, he told MSPs.

"I don't think any of us on the committee believe for a minute that the Chancellor is serious," Mr Beveridge said.

"We warned in our report last year that leading up to this there was going to be a lot of political statements, but in our opinion economics will trump the politics on this, and good heads will prevail if there happens to be a Yes vote.

"We would not want to even talk about a plan B at this stage of the game."

He added: "I think we would say there are lots of options, but our strong advice would be let's go down the path of recommending to the Government that they stick with the monetary union, and we will spend some time trying to help the rest of the UK understand the very strong advantages there are to that, and the very strong disadvantages there would be to go against that."

Mr Beveridge also told MSPs that advice to Mr Osborne from the Treasury's Permanent Secretary, Sir Nicholas Macpherson, gave "some wiggle room", because it stated he would advise against the monetary union "as currently advocated".

The Edinburgh Agreement, signed by the First Minister and the Prime Minister, also suggests constructive negotiations would take place in the event of a Yes vote, he said.

"I just cannot believe that just out of sheer spite, someone would say they are not going to enter into an agreement along those lines," Mr Beveridge added.

Fiscal commission working group member Professor Andrew Hughes Hallett told the committee that its recommendations on currency had not changed because the economic situation had not changed.

He also challenged analysis papers from the National Institute for Economic and Social Research and the Treasury which look at issues surrounding currency, debt and risk premiums which would affect interest rates.

The Treasury paper, he said, does not take account of economic growth or changes to fiscal policy, and only considers "risk premia" for Scotland and not the rest of the UK, Europe or the rest of the world.

Asked if the Treasury had "fixed the numbers", Prof Hughes Hallett said: "Put it another way, I would not let my students, even in their first year, get away with that.

"My bottom line is the Treasury needs to look at their recruiting policies."

The committee heard conflicting views from other economic experts, including suggestions that Scotland should set up its own currency.

Dr Angus Armstrong, of the National Institute of Economic and Social Research, said the Chancellor's position is "entirely rational".

"Based on the aspiration, pointed out in the White Paper, to build a Scotland which reflects the values and aspirations of Scottish people, then I think you want to have something that allows you the policy levers to be able to do that.

"There is, in my view, only one option which allows you that full range and that would be your own currency."

Dr Armstrong said experience in other countries suggests there may not be a big impact from transaction costs, highlighting what happened when Ireland broke its link to the UK currency in 1979.

"Looking at the trend of Irish exports to the rest of the United Kingdom... it's very hard to discern a break in the trend in exports," he said.

A new currency, pegged to sterling, would also be in the interests of the rest of the UK, he suggested.

Professor Jo Armstrong, an economist with the Centre for Public Policy for Regions at University of Glasgow, told the committee there are pros and cons for all currency options for Scotland.

"If I'm truly independent and I want full access to levers of power, I would want to try and make my own currency work," she said.

"That has got lots and lots or risks associated with it but it allows me to have absolutely full control of the fiscal levers, which is what an independent country would want."

But Professor David Simpson, a Harvard-educated economist who has worked for the UN, World Bank, European Commission and Standard Life, told the committee that a currency union is likely, even without formal backing from the UK.

"A currency union based on sterling remains the most likely outcome following independence because it is in the best interests of not just Scotland but of England as well," he said.

Scottish Secretary Alistair Carmichael later insisted the Chancellor is not bluffing.

He said: "Scotland already has the best currency option. Remaining part of the UK and keeping the UK pound is our best currency option. Alex Salmond set up his fiscal commission to consider what might be the least bad currency alternative if Scotland decided to leave the UK.

"We now know that there will not be a currency union in the event of a Yes vote. The three main UK political parties have all made it absolutely clear that they support the advice of HM Treasury not to enter into a currency union if Scotland becomes independent.

"I would urge the commission not to waste a minute of their time considering a currency option that is dead. What Alex Salmond asked his commission to do was never a particularly enviable task and they need to make sure it doesn't become a completely pointless task by recommending an option that is never going to happen."

The commission is meeting tomorrow, when it is expected to reaffirm its central proposal.

Mr Carmichael set out his position in a letter to Mr Beveridge, calling for him to set out the "plan B".