Politics muddies the waters of Scotland and the pound

It's simple, until it's not.

Simon Wren-Lewis digests the Treasury's report on the relationship an independent Scotland would have with sterling and the Bank of England (rUK is his shorthand for the UK excluding Scotland):

The real problem for Scotland is that, in forming a sterling currency union, it will be dealing with a government that thinks like Germany. What is worse, although Germany can sometimes be persuaded to go against its austerity instincts for the sake of European unity, after an independence vote rUK is unlikely to let its heart strings be pulled in a similar way! The problem for Scotland is that the rUK can provide something that in fact costs it very little, but the absence of which would cost Scotland a great deal, so rUK will be able to ask for a high price. Unless the new Scottish government is prepared to pay for a Bank of England LOLR role with some of its oil revenues, it may find it has nothing to bargain with. If no agreement can be found, the Treasury paper is quite right to conclude that using sterling unilaterally would not be attractive for Scotland. So rather than accept damaging fiscal restrictions, the new Scottish government may end up with its own currency after all.

George Osborne is right to present the Treasury's analysis as a stumbling block for the SNP, in other words; but he's slightly disingenuous in pretending that he has nothing to do with that fact.

As Wren-Lewis points out, politics muddies all waters. Normally, the study of Optimal Currency Areas is relatively simple: the more alike two countries are, the greater the benefits of having a shared currency, and the lesser the disbenefits. That's why the euro is such a startlingly bad idea on paper – there's basically no possible group of countries less economically, socially and politically coherent than the eurozone. And in in nations like rUK and Scotland, which are pretty damn similar, the whole deal comes down to one basic question: is the loss of flexibility of monetary policy a worthwhile cost to pay for those benefits?

But that assumes that there is any way a currency union between rUK and Scotland could actually exist as a union. It's a political, not an economic question: what possible scenarios can we imagine in which the Bank of England would view the Scottish economy as anything other than entirely subordinate to the interests of rUK's? And, moreover, what possible scenarios can we imagine in which an actually existing rUK government – as short-termist, economically-illiterate and vindictive as they tend to be – would allow that to happen?

It may just be the case that the rUK would be better off if the Bank of England carried its policy equitably, allowing the rUK to take a hit to ensure the continued strength of Scotland, which would be on of its biggest, if not the biggest, trading partner. But it's nigh-on impossible to imagine a rUK government letting the Bank of England incorporate that rationalisation into its mandate.

Compared to questions of fair allocation of public debt, North Sea Oil and monarchs (Scotland can have em, frankly), the question of Scottish monetary policy might seem boringly technical. But it's one of the most intractable problems standing in the way of Alex Salmond's dream.

Floating away. Photograph: Wikimedia Commons

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour will soon be forced to make clear its stance on Brexit

The Great Repeal Bill will force the party to make a choice on who has the final say on a deal withg Europe.

A Party Manifesto has many functions. But rarely is it called upon to paper over the cracks between a party and its supporters. But Labour’s was – between its Eurosceptic leadership and its pro-EU support base. Bad news for those who prefer their political parties to face at any given moment in only one direction. But a forthcoming parliamentary vote will force the party to make its position clear.

The piece of legislation that makes us members of the EU is the European Communities Act 1972. “Very soon” – says the House of Commons Library – we will see a Repeal Bill that will, according to the Queen’s Speech, “repeal the European Communities Act.” It will be repealed, says the White Paper for the Repeal Bill, “on the day we leave the EU.”

It will contain a clause stating that the bit of the bill that repeals the European Communities Act will come into force on a date of the Prime Minister's choosing. But MPs will have to choose whether to vote for that clause. And this is where Labour’s dilemma comes into play.

In her Lancaster House speech Theresa May said:

“I can confirm today that the Government will put the final deal that is agreed between the UK and the EU to a vote in both Houses of Parliament, before it comes into force.”

Later that day David Davis clarified May’s position, saying, of a vote against the final deal:

“The referendum last year set in motion a circumstance where the UK is going to leave the European Union, and it won’t change that.” 

So. The choice the Tories will give to Parliament is between accepting whatever deal is negotiated or leaving without a deal. Not a meaningful choice at all given that (as even Hammond now accepts): “No deal would be a very, very bad outcome for Britain.”

But what about Labour’s position? Labour’s Manifesto says:

“Labour recognises that leaving the EU with ‘no deal’ is the worst possible deal for Britain and that it would do damage to our economy and trade. We will reject ‘no deal’ as a viable option.”

So, it has taken that option off the table. But it also says:

“A Labour approach to Brexit also means legislating to guarantee that Parliament has a truly meaningful vote on the final Brexit deal (my emphasis).”

Most Brexit commentators would read that phrase – a meaningful vote – as drawing an implicit contrast with the meaningless vote offered by Theresa May at Lancaster House. They read it, in other words, as a vote between accepting the final deal or remaining in the EU.

But even were they wrong, the consequence of Labour taking “no deal” off the table is that there are only two options: leaving on the terms of the deal or remaining. Labour’s Manifesto explicitly guarantees that choice to Parliament. And guarantees it at a time when the final deal is known.

But here’s the thing. If Parliament chooses to allow Theresa May to repeal the European Communities Act when she wants, Parliament is depriving itself of a choice when the result of the deal is known. It is depriving itself of the vote Labour’s Manifesto promises. And not only that - by handing over to the Prime Minister the decision whether to repeal the European Communities Act, Parliament is voluntarily depriving itself of the power to supervise the Brexit negotiations. Theresa May will be able to repeat the Act whatever the outcome of those negotiations. She won’t be accountable to Parliament for the result of her negotiations – and so Parliament will have deprived itself of the ability to control them. A weakened Prime Minister, without a mandate, will have taken back control. But our elected Parliament will not.

If Labour wants to make good on its manifesto promise, if Labour wants to control the shape of Brexit, it must vote against that provision of the Repeal Bill.

That doesn’t put Labour in the position of ignoring the referendum vote. There will be ample time, from October next year when the final deal is known, for Labour to look at the Final Deal and have a meaningful vote on it.

But if Labour supports the Repeal Bill it will be breaching a clear manifesto promise.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues. 

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