The more fiscal powers Scotland can get the less of an issue currency becomes

When I passed through Greenock Town Hall last Sunday, the delegates to the Alba conference were having a much more expansive discussion. Perhaps it was the joy of being in a large meeting, even with mandatory testing and masks, but, as George Kerevan reported on Monday, the delegates, collectively, seemed to be exploring a new identity, and to share a common purpose.

Alba members may well be projecting their own desires onto the fledgling party, so many will be disappointed when it takes on a more definite purpose. But it was typically deft of Alex Salmond to propose a writing team for a new independence manifesto of Robin McAlpine and Stuart Campbell.

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McAlpine will produce a plethora of ideas. Campbell will give them clarity of expression. Harnessed together, they should be able to set out the case for independence imaginatively, succinctly and persuasively. The Scottish Government could do worse than ask permission to adopt their text, setting civil servants the task of making as many of their ideas serviceable in time for a 2023 referendum.

Instead, we see “top economist” Andrew Wilson (below) being rolled out to manage some of the SNP’s communications. It’s quite a while since Wilson moved from economics into public relations, and his last professional role as an economist was with RBS in the run-up to 2008.

He was simply the outrider for the First Minister’s message of “independence will be hard work”. Indeed, and that work should start now.

When Scottish Government ministers talk about the action which they plan to take, and the expenditure which they are willing to commit, quite understandably, they work within the current devolution settlement. Rather than waiting for independence, they should seek to have access to the resources needed for transformative outcomes now.

Working with other economists on a shared response to the Scottish Government’s consultation on its national transformation strategy, I was surprised by the strength of the shared belief that current limits on the Scottish Government’s borrowing cripple its ability to develop effective policies.

That is even more anomalous than the Government’s limited tax raising powers – although it is impossible to increase borrowing powers without also increasing fiscal capacity. What governments borrow, they must repay, eventually from tax revenues.

This inability to borrow makes it much more difficult for the Scottish Government to take a co-ordinating role within the economy. It can encourage organisations to act, it can bring them together and persuade them to join a common strategy. But it will struggle to fund that strategy.

The consensus among this group of – (should I say top?) – economists is that without these powers, devolution can never be stable. To be very clear – the proposal is for the Scottish Government to acquire borrowing powers, separate from the UK Government’s authority, and with no question of the UK stepping in and repaying the Scottish Government’s debts to prevent default.

READ MORE: Why Scotland MUST have its own currency immediately after independence

Putting this into the economic transformation strategy would inform the Scottish Government’s negotiating stance in the review of the fiscal framework. It can be set out as being necessary to strengthen, and stabilise, devolution. If refused, it gives the SNP a further reason to accelerate work on a referendum.

Being able to issue debt would also bypass some of the most troubling elements of the Growth Commission’s proposals, which still seems to be the basis of the SNP leadership’s economic thinking.

That failed to challenge current arrangements strongly enough. It assumed a very gentle pace for economic transformation, in which Scotland would need to wait about 10 years after independence before launching its own currency. The decision would also be subject to tests, the most important of which relate to the capacity of the Scottish Government to manage its debt, and the willingness of markets to treat Scotland’s debt as low risk.

Acquire those borrowing powers now, not in the five years or so which it will take Scotland to become independent, and it should be possible to introduce a separate Scottish currency soon after independence.

To manage this currency, Scotland will need its own central bank. This need not be a public body. The Bank of England stayed in private ownership until 1946. Even today, the Federal Reserve System in the USA is formally privately owned through a system of commercial bank shareholdings.

While I want the Scottish Government to have borrowing powers to prepare for independence, it is perhaps better if it’s not seen to be undermining the Union actively by establishing the institutions needed for independence.

At present, a small “monetary institute” would be enough to undertake the preparatory work. Its most urgent objective would be to ensure that on the day when Scottish payments systems are switched on, separate from the UK payments systems managed by the Bank of England, money flows smoothly.

The Scottish Currency Group has already set out principles which will ensure that the central bank is able to issue, and then ensure the stability of a new currency.

None of this work is especially new, or complex, and many countries have found solutions which work well for them in the last 30 years.

Yes, this is hard work. But it can start now.