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Osborne warns an independent Scotland would run out of cash

SCOTS could run out of every-day cash under independence as Scottish banks would no longer be able to print their own pound notes guaranteed by the Bank of England, George Osborne has warned.

FUTURE: David Cameron said wanting to stay in the Union did not make voters less Scottish. Picture: PA
FUTURE: David Cameron said wanting to stay in the Union did not make voters less Scottish. Picture: PA

Giving evidence to the Comm-ons Scottish Affairs Committee, the Chancellor categorically ruled out a currency union "no ifs, no buts" and tackled what some have suggested is the alternative open to First Minister Alex Salmond and his colleagues: using the pound but without a sterling zone; so-called "sterlingisation".

Mr Osborne explained at present Scottish banks are able to print their own pound notes because of the support and authority of the Bank of England and the UK Parliament but this 300-year-old tradition would end if Scotland chose to shadow the pound.

"They wouldn't exist any more," he told MPs, explaining that that particular arrangement meant "you don't have your own currency, you have another country's currency; you are not printing, distributing banknotes, you're not making coins".

Mr Osborne stressed it would be inconceivable that Scotland's financial sector, employing thous-ands of people, would be anything like the size or sophistication at present with sterlingisation, which would mean "you are literally having to grab pound notes and pound coins as they come across the border and try to hold on to them".

Last night, John Swinney responded to the Chancellor's appearance before the committee, saying: "It doesn't matter what George Osborne claims on curr-ency now; the people of Scotland do not believe his bluff and bluster and even senior UK Ministers have admitted that 'of course there will be a currency union'."

The Scottish Finance Secretary added: "A currency union is the choice of business in both Scotland and the rest of the UK, and it is clear the markets will expect the UK to negotiate constructively and in good faith. Anything else would simply be damaging to the economy of the rest of the UK."

The clash on currency came as David Cameron today begins a two-day visit to Scotland, invoking the name of John Smith, the late Labour leader.

Ahead of his trip, the Prime Minister said: "Twenty years ago this week, the Labour leader John Smith died. Whatever people thought of his policies, nobody could argue that he was a proud Scot who wanted the best for his country.

"And why not? Like millions of other people, he knew that loving your country and at the same time wanting to be part of something bigger does not make you any less Scottish. That truth is shared by millions of others.

"So my message is simple. We want Scotland to stay. We are all enriched by being together. Scotland puts the great into Great Britain. Together we are a United Kingdom with a united future."

Earlier, No 10 responded to the First Minister's personal attack on Mr Cameron, whom Mr Salmond described as "personifying" all that was wrong in British politics today. A spokesman said: "It sounds like our robust and substantive arguments are riling some people."

At the committee, the Chan-cellor sought to be clear in ruling out a currency union, which he said would be bad for the UK because its citizens would have to guarantee the debts of a foreign country and bad for Scotland whose citizens would hand over control of tax, spending and interest rates to a foreign country.

"I'm absolutely clear," he told MPs, "there would not be a curr-ency union if Scotland became independent; no ifs, no buts. There is no way we could agree to a currency union after indepen-dence. Scotland will not be able to share the pound."

Addressing sterlingisation, Mr Osborne said: "It's the Nationalists trying to muddy the waters; saying don't worry you will still have the pound under whatever arrangement. They are not being straight with people."

But he stressed this option was neither feasible nor sustainable, noting: "It's the Panama option and Scotland is much better than that."

He added: "It's for Alex Salmond, John Swinney and others to explain what is their plan for the currency. What are the people of Scotland going to be paid in, what are their mortgages going to be in, what are their savings going to be in; what is the currency of this newly independent country going to use?"

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