The
Bank of England would step in to help an independent Scotland in a financial crisis, the
SNP leader has insisted as he launched an economic blueprint for separation later branded by critics as “fantasy”.
John Swinney said that the Bank would continue to act as lender of last resort while an
independent Scotland initially used the pound, despite it having left the UK.
His new blueprint said Scotland would
switch to its own currency at the first opportunity but Mr Swinney admitted this would not be worth the same as sterling.
An estimated £35bn of reserves would have to be raised to protect the new currency from economic shocks and speculators but the paper contained few details on how this would be done.
It claimed independence would make Scottish households more than £10,000 per year better off but did not spell out how it would deal with the country’s deficit, which official figures show would be the largest in Europe.
A leading Scottish macroeconomist told The Telegraph that the currency plan was a “totally shambolic policy and clearly would have a devastating effect”.
Prof Ronald MacDonald, of Glasgow University’s Adam Smith Business School, warned that keeping the pound after independence would mean unprecedented austerity and “crippling high borrowing rates”.
He said this was because Scotland would have to raise the money in sterling every year to meet its annual balance of payments deficit, which currently stands at around £22bn.
Prof MacDonald said this would mean switching the new Scottish currency “immediately” after independence.
However, this would have a “sharply devalued rate” compared to sterling, which would feed into the value of Scots’ wages and pensions.
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The Scottish Tories attacked Mr Swinney for producing “yet another fantasy paper” on independence and argued he should “move on” to fixing
Scotland’s public services.
Mr Swinney unveiled the paper ahead of this weekend’s SNP conference in Aberdeen, where he faces a showdown with party rebels over the party’s independence policy.
The First Minister has tabled a motion arguing that the only way to force the Prime Minister to allow another referendum is for the SNP to win an outright majority at next year’s Holyrood election.
But rebels who believe this sets the bar too high have lodged an amendment arguing that independence-supporting parties, including Alba and the Greens, would have a mandate to open divorce negotiations with the UK Government if they together win a majority of the popular vote. No referendum would be required.
The Nationalists struggled to come up with a lucid currency policy ahead of the 2014 referendum after the UK Government ruled out a sterling currency union.
Mr Swinney’s new paper said Scotland would initially use sterling unilaterally, in the same way countries like Panama use the US dollar, before switching to a Scottish pound.
However, Scotland would have no central bank or lender of last resort while it used the currency of another country.
It would also have to have enough sterling reserves to meet its balance of payments deficit.
Mr Swinney said: “Obviously, while we’re using pound sterling, the lender of last resort is the Bank of England.”
Pressed why the UK’s central bank would step in to help an independent Scotland in economic crisis, he said: “They anchor sterling.”
But Prof MacDonald said: “I was astonished to read the Scottish Government’s latest take on its currency proposal for an independent Scotland, contained in its latest paper on the macroeconomics.
“Astonished because of the apparent total ignorance of the SNP’s understanding of the currency issue, which has remained unchanged since 2014.”
He said Scotland could continue to use sterling immediately after independence but this was “incompatible” with meeting its balance of payments deficit of around 10 per cent of GDP.
Raising the necessary sterling reserves to pay this bill “would entail massive austerity policies the like of which has not been seen hitherto in the UK”, he warned.
Prof MacDonald said this would force an immediate move to the new Scottish currency “at a sharply devalued rate”.
“The latter will have key implications for public sector wages, pensions and also household and business borrowings denominated in sterling,” he said.
The economist estimated Scotland would require £35bn of reserves to stand behind a new currency, based on the value of Norway’s reserves.
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Mr Swinney’s blueprint said a separate Scotland would build up sterling reserves “if” households and businesses chose to swap their UK pounds for the new Scottish ones.
It also said Scotland would inherit a share of the Bank of England’s reserves but did not mention this would be swallowed up by the balance of payments bill.
Scotland’s deficit – the difference between total revenue and expenditure – surged to 11.7 per cent of GDP in 2024-25.
This was more than double the UK figure of 5.1 per cent and higher than anywhere else in Europe.
The shortfall remains notional while Scotland is part of the UK but would have to be tackled after independence.
However, the paper contained no policies for cutting spending or raising taxes.
Instead, it claimed that households would be more than £10,000 each better off if Scotland’s economic performance matched that of “comparable countries”.
The paper also said a new service would be set up to manage the trading impact of the hard border that would be created with England if Scotland joined the EU.
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Rachael Hamilton, Scottish Tory deputy leader, said: “John Swinney’s launch of yet another fantasy paper on the SNP’s independence obsession shows how out of touch he is with ordinary Scots.
“On his watch, Scotland’s
NHS is on life support, school
discipline has collapsed, our roads are crumbling and household bills are soaring, yet his priority is breaking up the UK.”
Michael Marra, Scottish Labour’s finance spokesman, said: “John Swinney should be embarrassed at these baseless claims which are entirely detached from reality.”
