Crawford Beveridge: Sterling union best way forward

Crawford Beveridge argues that a monetary union with the UK is the best option for Scotland. Picture: TSPL

CROSS-Border sniping must be put aside to prepare for the post-independence world, says Crawford Beveridge

Earlier this year the Fiscal Commission working group, which I chair, set out its thoughts on independence for Scotland, making recommendations on the currency and the way in which an independent Scotland could run its financial affairs.

The members of the group remain impartial in the debate on Scotland’s future. However, in preparing the report there was no doubt in the minds of the four world leading economists – including two Nobel prize-winners – who make up the commission working group that Scotland is a wealthy and productive country with “the potential to be a successful independent nation”.

The working group’s report was clear that the best currency option for Scotland – and the rest of the UK – would be to retain sterling and continue with the Bank of England operating across a sterling zone as part of a formal monetary union.

Some commentators, including those who released a House of Lords report last week into independence, have suggested currency union may be too complicated, while it has been widely reported that the UK government will talk down the prospects of currency union or suggest the constraints on Scotland would be too restrictive.

As someone who has looked at this closely, I cannot see how these claims hold, particularly in the context of the proposition we put forward.

A currency union is to me the most sensible option, the simplest option and is clearly best for Scotland’s businesses and households. It could work seamlessly from day one, would provide a continuing platform for trade and would help the division of assets and liabilities, denominated in sterling.

With monetary policy determined at the sterling zone level, key opportunities for growth and tackling inequalities would flow from greater access to the key economic levers that would flow from such an arrangement. As the recent financial crisis has highlighted, risks also have to be managed – as they do under any macroeconomic framework including remaining in the Union – and in my view, the balance of opportunity and risk is enhanced, not inhibited, by a currency union.

At the most basic level, a vote for independence would see key economic levers transfer to the Scottish Parliament and it would be for people in Scotland to decide how to use them to grow and rebalance the economy, to counter the pull exerted on finance and jobs by London and the South-east of England, to deliver the infrastructure and services reflecting the choices of the people in Scotland and provide greater opportunities for all.

With independence, all revenues raised would be retained by Scotland for Scotland. At present only 7 per cent is raised and retained locally and, while this will increase to 15 per cent with further devolution, this still reflects a constrained and centralised system.

Welfare and employment policies would also be the responsibility of the Scottish Parliament under independence with the opportunity to establish a system that reflected the values of the people in Scotland – rewarding work while protecting the most vulnerable. There would also be far greater scope to integrate such new responsibilities with our existing powers in skills and education.