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Britain warns Scotland: Forget the pound if you walk away

Thursday, 13 February 2014 - 8:17pm IST | Agency: Reuters

Britain told Scotland on Thursday it would not be able to keep the pound if it voted to end its 307-year-old union with England, declaring that the currency could not be divided up "as if it were a CD collection".

British Finance Minister George Osborne, striking an unprecedentedly blunt tone as the September referendum approaches, said a break with the United Kingdom would cost Scots dearly in commerce and finance. Scottish nationalists accused him of bullying and said his words would backfire.

"If Scotland walks away from the UK, it walks away from the UK pound," he told a group of about 200 business leaders in a hotel penthouse with a panoramic view over the Scottish capital, Edinburgh.

Refusing to be drawn on whether his toughened stance would antagonise some Scots, he said the Scottish people needed to be clear on the facts before making their biggest decision in over three centuries.

"The pound isn't an asset to be divided up between two countries after a break up as if it were a CD collection," Osborne, Prime Minister David Cameron's closest ally, said.

Scotland votes in a yes/no referendum on independence on September 18. The vote is open to about 4 million of Scotland's 5.3 million residents aged over 16 with opinion polls showing the nationalists trailing but the gap starting to narrow.

With more uncertainty over the outcome in September the debate has accelerated and Osborne's speech came after Cameron last week made the patriotic case for unity which was described as a "love-bombing" by commentators.

But the 42-year-old architect of Britain's drive to reduce spending delivered a much harsher message to Scots: If you leave the UK, you will lose the pound and pay higher rates of interest.

"There is no legal reason why the rest of the UK would need to share its currency with Scotland," Osborne said, having coordinated his hardened line with Britain's two other main political parties.

His message will be reiterated in future days by Labour's finance chief Ed Balls and the Liberal Democrat Danny Alexander.

Osborne stressed that this unified approach by Westminster meant that a currency union was off the table, whoever held power after Britain's 2015 general election.


By honing in on Scottish nationalist hopes of keeping the pound, London politicians hope to undermine their economic case for independence. Pro-independence campaigners portrayed his remarks as an act of panic.

"We've gone in under a week from David Cameron's 'love-bombing' to attempted bullying and intimidation - from a charm offensive to just plain offensive," Scotland's Deputy First Minister Nicola Sturgeon said.

"This is a panic move which will backfire spectacularly. People won't take kindly to the Westminster establishment ganging up to try and bully Scotland in the decision that we are being asked to take on the referendum," she said.

Whether the move would sway some of the 20 percent or so of voters still undecided in opinion polls was to be seen.

"For some people this stance on the currency gives clarity but for others it could be seen as antagonistic," said Alex Sanderson, who works in a professional services company in Edinburgh and intends to vote against independence.

Sturgeon indicated that if London prevented a currency union, an independent Scotland could refuse to take on a share of the UK's 1.2 trillion pounds of government debt which Britain has promised to honour.

"Osborne's position is also a bluff," she said. "It would leave them having to pick up the entirety of UK debt."

Osborne said the nationalist threat to walk away from its share of UK debt would mean punitively high interest rates for an independent Scotland and was an "empty threat".

"In that scenario, international lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default," Osborne said.

Nationalists in Scotland, whose waters contain the European Union's biggest reserves of oil and gas, say they want the Bank of England to remain the lender of last resort for financial institutions after possible independence.

Bank of England chief Mark Carney cautioned last month that any currency union would entail a surrender of some sovereignty and nationalists have refused to say what they would do if they failed to get a currency union.

One possible option would be for an independent Scotland to continue to use the pound in a similar way that Ecuador uses the U.S. dollar ahead of a possible entry into the European single currency, the euro, at some later date.

Carney has refused to speculate on the risks of Scotland using the pound without a formal currency union. Scotland's First Minister Alex Salmond has said that despite the rhetoric before the vote, London might be willing to do a deal on the currency if Scots voted for independence.


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