The National:

I MAKE no apologies for returning, yet again, to the subject of the currency that Scotland might use after independence. It is what everyone in the independence movement in Scotland that I speak to seems to want to talk about at present.

If I read things correctly, not that many people are worried about the currency that they use for day-to-day spending in Scotland after independence. In fact, many people in Scotland think it already has got its own pound precisely because it does not share notes with England and Wales. That is wrong, of course, because those notes are directly backed by the Bank of England. The point is important though. First it shows that people think that the new Scottish currency should be called the pound. Second, it shows that people can already handle the fact that Scotland’s currency is not quite the same as that in the rest of the UK.

There are, however, limits to this tolerance that have to be addressed if the essential argument on the currency is to be won, which I think is the precondition for a successful independence referendum result. The first of these issues concerns mortgages and the second relates to pensions. The answers are different in each case.

Mortgages are, in many ways, the easier of the two. I agree with Dr Tim Rideout that in the first weeks following independence the Scottish government must peg the value of the Scottish pound against sterling. In other words, one Scottish pound would be guaranteed to be worth one pound sterling.

During this period everyone in Scotland should be given the option to switch their sterling bank accounts into Scottish pounds, but no one would be forced to do so. The value would be exactly the same after switching into Scottish pounds as it was in sterling.

Amongst the accounts that might be converted would be mortgages on Scottish properties. I would strongly recommend that the Scottish government makes it a condition that any mortgage provider wanting to continue to operate in Scotland after independence must provide the option for any Scottish mortgage account holder to switch their mortgage from sterling into Scottish pounds during this initial transition period after independence. The conversion would be at the rate of one Scottish pound being equivalent to one pound sterling.

I also suggest that the new Scottish government should require that any mortgage lender should allow any existing terms and conditions attached to that mortgage to continue for at least two years after independence. In other words, the rate would not be changed if it was a fixed rate deal, and nor could the repayment period.

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Why do I suggest two years? Simply because I think that anything longer will be unfair to everyone. Market conditions do change. Two years is long enough for everything to adapt to independence whilst providing guarantees to mortgage holders for a reasonable period, after which we know that anything can change in the economy anyway.

So what about pensioners? The first thing to say is that many pensions will be paid in Scottish pounds. That will include all state pensions, and all pensions paid to former public employees, where the liability will shift to the Scottish government or Scottish local authorities. I really do not think that there should be any doubt about this. This is part of what independence means.

In this case the only question is whether the Scottish government could afford to pay these pensions, which are the majority of all pensions paid in Scotland. Given that I have no doubt that Scotland will be a thriving country after independence, I am optimistic that the Scottish government could meet all its obligations. That is the only question that need be asked with regard to these pensions.

What then of the private pension paid by an employer that will continue to be paid in sterling? It will be beyond the ability of the Scottish government to require that these payments by an ex employer be guaranteed to have a fixed Scottish pound value. Nothing can avoid this fact. In that case the risk within these pensions depends upon the value of the Scottish pound at the time when it is allowed to float against the value of sterling and other currencies.

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Those who worry about the value of their private pensions paid in sterling after independence do so because they think that the value of the Scottish pound will increase when compared to sterling after independence takes place. If that happened these pensioners would get fewer Scottish pounds as a pension after independence then they equivalently get in sterling now. That is because if the value of the Scottish pound increases against sterling a pension paid in sterling will buy fewer Scottish pounds, leaving the pensioner worse off.

If the pensioner, alternatively, thought that the value of the Scottish pound would fall when compared to the English pound after independence then they would in comparison to the rest of the Scottish population, be better off by having their pension paid in sterling.

So, the real question with regard to pensions comes down to one thing, and that is whether or not the Scottish pound will be worth more, or less, or the same as sterling after independence. Many economists expect the value of the Scottish pound to fall because of the fear that Scotland will run deficits, and so have to borrow money from international money markets. If so, that would leave pensioners paid in sterling better off than the rest of people in Scotland.

I admit that I am not sure that I share that view. I think that independence, with its own currency, will release a new vibrancy in Scotland that will also reveal its actual government deficit to be much smaller than has been shown by GERS, for example. I think as a result that the Scottish pound may well be worth as much as sterling after independence, or possibly very slightly more, most especially if good relationships with Europe were established.

However, I have to be honest. No one knows for sure what will happen. But, the only pensioners who are facing any real risk as a result of independence only face that risk if independence is really successful. That will be a really bizarre reason to oppose it. It may also be a good reason why the Scottish government might agree to provide a pension guarantee for a few years after independence to cover that risk, because it could afford to do so.

The fact is then that mortgage account holders need face little risk from independence unless they are one of the few on very long-term fixed interest rate mortgages, whilst for pensioners the only risk is that Scottish independence might be really successful. Are either of these issues real impediments to independence in that case?