Osborne in Scotland: right message, wrong messenger

The Chancellor is on strong ground when he highlights Scotland's difficult currency options but his toxic reputation could damage the unionist cause.

Which currency would an independent Scotland use? Alex Salmond's answer to that question used to be the euro. Back in 2009, the Scottish First Minister quipped that sterling was "sinking like a stone" and argued that euro membership was becoming increasingly attractive ("the parlous state of the UK economy has caused many people in the business community and elsewhere to view membership favourably"). But that, to put it mildly, is no longer the case and so Salmond has changed tack. The SNP leader's new preference is for Scotland to retain the pound in a formal currency union with the rest of the UK after independence is declared. 

But that isn't as simple as it sounds. As a new Treasury report makes clear, the UK would only agree to a currency union were significant constraints to be imposed on Scotland's tax and spending policies, the lesson of the eurozone crisis being that monetary union is inherently unstable without fiscal union. Were Scotland to reject such restrictions, it would be left with three options: to continue to use sterling unilaterally (rather like Panama uses the dollar and Kosovo uses the euro), but without any say over monetary policy, to adopt the euro (if it is able to join the EU) or to form its own currency, a hazardous path at any time for a small country but most of all during a global economic crisis. 

George Osborne, who will launch the Treasury paper in Glasgow today with Danny Alexander, made the essential point on the Today programme this morning when he remarked that "If Scotland wants to keep the pound, the best way to do that is to stay in the UK." Why, at a time when economic insecurity is hardly in short supply, create even more? The polls suggest it is an argument the voters readilty accept. But while this is the right message, one doubts if Osborne is the right messanger.

The reputation of the man who has presided over a double-dip recession and may yet preside over a triple-dip does not improve (nay, it worsens) if one travels north of the border, where the Conservatives still have just a single MP and typically poll around 15 per cent. A recent Ipsos MORI poll showing that support for the coalition's economic policies plummets when Osborne's name is mentioned was a warning to the "submarine Chancellor" to remain below the surface. His decision to take the fight to Salmond allows the First Minister to cast himself in his favoured role as the resistance to the English Tories. 

Since the independence campaign began, David Cameron has wisely taken a backseat as Alistair Darling and other centre-left figures have led the charge. If Osborne wants to help rather than hinder the unionist cause, he should do the same.  

George Osborne addresses the CBI Scotland annual dinner on September 6, 2012 in Glasgow. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.