Nicola Sturgeon has claimed only independence will allow Scotland to rid itself of the chaos shattering the UK’s economy, but admitted she does not know how long that could take.
The first minister said it was “glaringly obvious” the UK could not offer Scotland the economic strength, stability or security the no campaign had promised before the 2014 independence referendum.
Unveiling a 108-page prospectus on independence and the economy, Sturgeon said if there was a second referendum and it was won by the yes campaign, Scotland would aspire to eventually setting up its own currency and joining the EU.
Pressed by reporters at a briefing in Edinburgh, Sturgeon refused to put a timeframe on how long Scotland would need to use sterling, how long it might take to establish a new currency or how long it would be before Scotland joined the EU.
Sturgeon hopes to stage a second independence referendum on 19 October next year. She acknowledged these were central questions but said they could only be answered once the process was under way.
The Scottish National party leader confirmed, however, that after independence Scotland would use sterling for as long as necessary, although it would have no say over interest rates or monetary policy. Those would be controlled by the Bank of England in London.
It was too early, she said, to know what Scotland’s debts and costs would be at independence; it would accept its fair share of the UK’s debt mountain but also receive a fair share of the UK’s assets, including about £12.5bn in cash reserves from the Bank of England. That would help fund a new Scottish central bank.
Sturgeon said it was essential Scotland took a prudent approach to its finances as it moved towards setting up a new currency. She implied that could involve spending cuts, tax rises or extra borrowing to fund public services, in order to meet the EU’s fiscal sustainability policies.
She said Scotland would try to follow the EU’s growth and stability pact’s principles. That sets debt targets for the EU but is being reformed to cope with the economic impacts of the global disruption from Covid, the Ukraine war and inflation.
“Independence is not a miracle cure,” she said. “There are no guarantees of economic success for any country. For Scotland, like every other independent nation, our success will depend on the quality of the decisions we take. It will be hard work, but this paper sets out the reasons for believing that we can succeed.”
In the policy paper, A Stronger Economy with Independence, and during her briefing, Sturgeon confirmed that:
• State pensions will be paid by the Scottish government after independence, contradicting recent claims by other SNP figures the UK would continue to meet them.
• There would be border checks on trade after independence but only on the M6 and A1, leaving about 22 road crossings unpoliced.
• Scotland would not join the euro, even though some analysts believe the EU will require that pledge before it joins.
• Oil and gas production would end “as soon as possible” but until it ended North Sea tax receipts would flow into a £20bn growth fund to promote low carbon industries, green homes and digital technologies.
Ronald McDonald, a professor of macroeconomics and international finance at Glasgow University, who has advised the IMF and World Bank but also backed the no campaign in 2014, said it would be very costly for Scotland to set up a new currency.
Scotland’s huge post-independence debt mountain would mean the Scottish pound would be worth 20-30% less than sterling, he said. That devaluation would lead to “brutally high” borrowing costs for the government as well as family mortgages and loans.
“So interest rates will be extremely high, and obviously an independent Scotland would not be able to pay these interest rates unless it was to adopt massive austerity policies,” he said on a podcast for Gordon Brown’s thinktank, Our Scottish Future.
