Conclusions and recommendations
Currency options
1. The
choice of currency has major economic consequences for the future
prosperity of Scotland and its people. The Scottish Government's
preferred option of a currency union with the continuing UK would
require an agreement to be negotiated between the Governments
of a separate Scotland and the continuing UK. This has been categorically
ruled out by the Chancellor of the Exchequer, the Chief Secretary
to the Treasury and the Shadow Chancellor of the Exchequer. A
separate Scotland cannot unilaterally impose a shared currency
upon the UK and therefore we believe it is essential that the
Scottish Government reconsider its position and make public its
'plan B' as a matter of urgency. (Paragraph 43)
2. Even
if we leave aside the fact that a shared currency is not in the
interests of the continuing UK it is equally clear that the Scottish
Government's case for a currency union owes much more to politics
than to economics. A formal currency union would mean that there
would be substantial and ongoing restrictions on the Scottish
Government's levels of Government borrowing and debt, and that
Scotland would not have control over its own monetary policy.
This is a very strange aspiration for the Scottish Government,
which states that the most important decisions about the Scottish
economy should be taken by the people of Scotland. This would
clearly not be the case in the event of entering a formal currency
union with the continuing UK. (Paragraph 44)
3. It
is clear from the evidence that we have received, that the Scottish
Government's proposal to maintain a currency union while undoing
the necessary conditions of fiscal, banking and political union
which sustain it, masks the fact that separation would be a hugely
significant step that would have major adverse consequences for
Scotland and its economy. (Paragraph 45)
4. A
separate Scotland could not be prevented from unilaterally adopting
sterling. However, sterlingisation would have very serious consequences
for Scotland's sophisticated financial services industry, and
cannot be presented as being in Scotland's interest. While sterlingisation
is therefore not a credible option, it appears to be the Scottish
Government's current 'plan B'. We recommend that the Scottish
Government should commission and publish work on what sterlingisation
would mean in practice. Expert advice, together with the views
of the banking and financial services industry, needs to be sought
to clarify for Scottish voters the likely impact of any unilateral
use of sterling. (Paragraph 51)
5. In
the event of separation, a new Scottish State would not be able
to satisfy the conditions for membership of the Euro. However,
given that a currency union with the continuing UK has been ruled
out, a separate Scotland will have to consider seeking to join
the Euro and may be obliged to make a commitment to do so as a
condition of EU membership. The Scottish Government should therefore
clearly set out how it would deal with this conundrum and indicate
how and when the convergence criteria are likely to be met. (Paragraph
57)
6. Despite
the inherent risks involved, a new Scottish currency would give
the Scottish Government the maximum economic leverage required
to pursue a separate economic policy-the stated aim of separation.
The Scottish Government should therefore explain why a separate
currency is not its preferred option, and commission and publish
new work on how, and at what cost, a separate currency could be
created and the implications for Scotland's fiscal policy. (Paragraph
61)
7. In
considering all the advantages and disadvantages of the potential
currency options for a separate Scotland, it is clear beyond all
doubt that none of the options is as good for Scotland as remaining
in the UK, as part of the existing formal currency union as currently
configured within the UK state. (Paragraph 63)
Financial services
8. The
creation of an international border between Scotland and the continuing
UK would put the success of the financial services industry in
Scotland at significant risk. We have already seen evidence that
significant Scottish financial services companies are preparing
to relocate their headquarters, with the consequent effect on
Scottish jobs and the Scottish economy, in the event of separation.
It is clear from the evidence of contingency planning being undertaken
by major finance companies, that the referendum on separation
has created uncertainty in the financial services industry. This
uncertainty is now unavoidable. However, the more serious effects
which may follow in the event of separation can still be avoided.
It is important that voters are fully aware of these potential
consequences when making their decision. (Paragraph 78)
9. We
recommend that the Scottish Government responds to HM Treasury's
analysis on regulation of financial services in a separate Scotland
and outline how it proposes to address the issues identified,
notably how in the absence of a currency union a Scottish system
of prudential regulation would work. Otherwise, in the event of
a vote for separation, there could be very serious consequences
as Scottish firms seek the regulatory certainty they understandably
want. We also recommend the Scottish Government details how it
would ensure a smooth transition period so as to minimise the
impact on business and consumers. (Paragraph 90)
10. The
Scottish Government's existing proposals for financial services
regulation, and for safeguarding the customers of the financial
services industry are unsatisfactory. At present the United Kingdom
has a single financial services compensation scheme, which safeguards
the savings of Scottish people and those elsewhere in the United
Kingdom. This ultimately depends on the resources of the UK taxpayer,
and taxpayers' money was used to ensure that the UK Financial
Services Compensation Scheme was able to safeguard the savings
of all consumers in the recent financial crisis. Given the scale
of the Scottish banking sector in relation to the size of Scotland's
economy, it is inconceivable that a separate Scotland would be
able to offer this degree of security. (Paragraph 94)
- The Scottish Government should conduct
a full impact assessment of the impact of separation on the consumers
of financial services in a separate Scotland and the continuing
UK, including a quantification of the costs and benefits arising
from separation. (Paragraph 95)
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