Independent Scotland 'should be ready to establish own currency'

Ten pound notes, generic money shot.
Leading economist: 'Scotland should be ready to adopt an independent currency.'

Scotland should be ready to adopt an independent currency if the country votes in favour of leaving the UK, a leading economist is warning.

In a lecture on Thursday night Professor John Kay will say that the Scottish Government "would be right" to try to form a monetary union with the rest of the UK.

But he will add that it could be "difficult" to negotiate an agreement that would give Scotland the fiscal freedom sought through independence.

The Scottish Government favours keeping the pound if the country were to become independent after next year's referendum, with SNP ministers proposing the country would be part of a "sterling zone" with the rest of the UK.

Prof Kay, a visiting Professor of Economics at the London School of Economics and a Fellow of St John's College Oxford, is to raise the issue of the currency in an independent Scotland in a talk at Glasgow University.

The former member of the Scottish Government's Council of Economic Advisers will state: "The currency issue is crucial — Scotland would be right to seek agreement on monetary union with the remaining United Kingdom, but it would be difficult to negotiate an agreement that would be consistent with the fiscal freedom sought through independence.

"Scotland should be ready to adopt an independent currency. Market expectations would begin to force events from the day a Yes vote was obtained."

In his lecture Prof Kay will say that in the event of independence, oil revenues would be "split on a formula strongly favourable to Scotland".

But with higher levels of public spending per person in Scotland, he will add that the overall position will "at least initially, be little different from the present".

Prof Kay will say: "There is a broad balance between this gain from oil taxation and the higher level of per capita public expenditure in Scotland permitted by the existing block grant so that the overall fiscal position of an independent Scotland would, at least initially, be little different from the present."

The economics expert will also address the issue of an independent Scotland's membership of the European Union (EU), saying there would "limited negotiation" on this which would "mainly concern the variety of opt outs enjoyed by the UK".

On the issue of Europe, he will claim the EU "would probably settle for some vague and indefinitely postponed aspiration" that Scotland would adopt the euro.

Finance Secretary John Swinney welcomed the remarks, saying: "John Kay joins a growing range of experts who agree that Scotland's negotiations to continue in the EU as an independent country will be straightforward."

He added: "We also welcome Professor Kay's endorsement of the Scottish Government's policy for an independent Scotland to keep the pound.

"Scotland will retain Sterling after independence — that policy was backed last week by experts on the Fiscal Commission working group as the most sensible and practical currency option, and it will offer flexibility for the Scottish Government to develop its own taxation and spending policies to boost growth, and address inequality.

"And there is no provision to make any member of the EU join the euro."

Mr Swinney also said Prof Kay gave "expert acknowledgement that the vast bulk of North Sea oil will accrue to an independent Scotland" saying this "further underlines the economic case for independence".

But Tory deputy leader Jackson Carlaw questioned the SNP's policy on the currency for an independent Scotland.

He said: "The Scottish Government seems to think it will be waved in by the Bank of England without any questions and given a prime seat on the Monetary Policy Committee.

"That privilege isn't afforded to any other separate state, so why would Salmond's separate Scotland be any different?"

Meanwhile Liberal Democrat leader Willie Rennie MSP said: "Alex Salmond's former adviser and favoured economic expert is now warning that an independent Scotland stands to lose out in negotiations for re-entry to the EU and has cast further uncertainty over the Nationalists plans for an independent Scotland to keep the pound.

"This growing opinion from experts around the economic issues of independence and the failure of Alex Salmond to heed let alone address these will make people more anxious about his independence plans, particularly in these tough economic times."

Related articles