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Treasury chief says currency deal will be impossible

THE SNP's plans to increase borrowing in the years immediately after a Yes vote would place Scotland in a "precarious" financial position and make a formal deal to share the pound impossible, Danny Alexander has warned.

The Chief Secretary to the Treasury claimed proposals to borrow billions more in the first three years of independence was a sign the SNP now "assumed" it would not enter a currency union with the rest of the UK.

His comments were dismissed by First Minister Alex Salmond, who said the LibDem had "failed to understand" how the proposed currency union would operate.

The row came as the two sides clashed over North Sea oil following fresh claims - firmly denied by the Nationalists - that the Scottish Government has overestimated the value of remaining reserves.

The SNP stepped up its attacks on Ed Miliband, highlighting a new poll showing the Labour leader was less popular than David Cameron, while Michael Moore, the LibDem former Scots Secretary, called on the pro-UK parties to agree welfare and employment powers that would be devolved to Holyrood after a No vote.

Inverness MP Mr Alexander voiced his concerns about the SNP's borrowing plans in a letter to the First Minister.

He said proposals to borrow significantly more compared with the UK from 2016 to 2019 would put an independent Scotland on a different economic course and were incompatible with Mr Salmond's aim of sharing the UK pound in a formal monetary union.

In his letter, Mr Alexander said this amounted to an admission that a currency union would not be created since the economic policies of the two states would "diverge".

He said: "John Swinney's plans for massive extra borrowing basically show that the Scottish government is now assuming that there won't be a currency union.

"One of the biggest reasons why I think a currency union wouldn't work, and have said no to it, is because inevitably policies would diverge between Scotland and the rest of the UK under independence."

He added: "The Scottish government, as we already know, would start off with a larger deficit than the rest of the UK, would face higher borrowing costs because of the setting up of a new country and the extra risks that involves.

"By adding yet more borrowing to that position you create a pretty precarious position, financially, for an independent Scotland. You can't have massive extra borrowing and claim that a currency union is going to take place."

The UK Government, backed by Labour, has ruled out the currency union plan, though the SNP insists the move is a "bluff".

Scottish Government Finance Secretary John Swinney outlined plans to increase borrowing in an interview with The Herald earlier this month.

The SNP aims to borrow to fund a three per cent rise in public spending in each of the first three years after independence, to be declared in 2016 if Scots vote Yes. The plan - which would see an independent Scotland borrow an extra £2.4billion in financial year 2018/19 alone. Chancellor George Osborne plans to limit spending increases to one per cent per year.

A spokeswoman for Alex Salmond said: "Scotland will continue to use the pound, just as we do today because, in the words of Alistair Darling, that is the 'logical' and 'desirable' arrangement for an independent Scotland.

"The best way to reduce the deficit in the long term is to invest in public spending, to grow the economy and reduce the deficit in a sustainable way, ensuring there is less need to borrow in the future by boosting revenues in the long term." The government argues three per cent is sustainable, as the deficit is expected to fall.

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