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Next September, we Scots will cast the most important vote of our lives.
It won’t be a vote that decides on the politician or the party that will represent one constituency for the next four or five years;
And it certainly won’t be a vote that we can change our minds on next time around.
It will be a one-off decision that decides what sort of country our children and grandchildren will grow up in;
And as such, it is absolutely crucial that before we cast our votes – before we decide whether or not we remain part of the United Kingdom – the people of Scotland have access to the right information to make an informed decision.
That’s why the Chancellor and I are here today;
And that’s why we are publishing the second in this series of papers that set out in detail the benefits of the UK and the implications of independence.
These papers will – I’m certain – play a crucial role in the ongoing debate.
[Because] Where much of the debate so far has been based on assertion, these papers provide information.
And where much of the debate so far has been based on emotion, these papers provide analysis based on facts.
[Of course] There are those who’ll claim that in setting out the facts we are being negative.
That giving people information is somehow ‘scaremongering’ or ‘talking Scotland down’.
But establishing facts is not negative.
It is the responsible thing to do.
And this programme will set out clearly why the current currency arrangements are the best for Scotland, and why if you want to keep the pound, keeping the UK is the best way to do it.
The case for the union
[And] As the Chancellor has explained, our analysis demonstrates that all four alternative currency options would present our country with short term costs and long term uncertainty; that none would be better for Scotland than the current arrangements.
More importantly, the paper also shows that our current currency arrangement works.
This morning I’d like to talk about why it works.
Why we are in what is known as an ‘optimum currency area’;
Which has been to the benefit of Scotland.
And I’d like to set out how keeping the current arrangements ensures that Scotland will be best placed to face any future challenges.
Put simply, the UK is the most successful political, fiscal and monetary union in history. It works for Scotland, it works for the UK, and it would be bad for Scotland to throw it away.
So why is the political and fiscal union between Scotland and the rest of the United Kingdom of such benefit?
Firstly, within the UK Scotland’s business cycles are very well aligned with the rest of the UK, and the structures of our economies are incredibly similar.
This means that during the good times, we both benefit economically;
And it also means that when economic shocks occur, we are affected in a similar way, and we have the scale and resilience to get through economic difficulties together.
As such – and as mentioned by the Chancellor – the monetary policy set by the Bank of England is as well suited to Scotland as the UK as a whole.
But even very similar economies can be hit by very different shocks;
And our economic and fiscal integration puts us in an excellent position to deal with those.
For example, our borderless trade arrangement ensures that Scottish producers can continue to export to the rest of the UK should demand fall either in Scotland, or in their main export markets.
[Many people here will remember that] At the beginning of this century, the bursting of the dotcom bubble had a huge impact on Silicon Glen; causing Scottish exports to the rest of the world to fall by 8% over a three year period;
But during that same period, Scottish exports to the rest of the UK grew by 19%, which provided crucial help in compensating for that loss of trade.
Foreign investors also recognise the attractiveness of our large and stable domestic market.
Last year alone, 6,000 jobs were created in Scotland by foreign investments, and one of the main reasons that those investors chose to locate here was the size of our domestic market.
The free movement of the labour force across our country ensures that people can look for work opportunities right across the United Kingdom;
And people benefit from that freedom in both the bad and the good times.
I’ve worked on both sides of the border, as – I’m sure – many of you in the audience have.
In fact, last year alone, 33,000 people of working age moved from the rest of the UK to Scotland, and another 35,000 moved in the opposite direction.
The fact that people can move across all parts of the UK, taking their qualifications and their pensions with them offers a huge boon to our economy.
Our integrated financial system ensures that the financial sector can continue to provide liquidity to all parts of the currency union, rather than pulling out of places hit by local shocks;
And our fiscal integration ensures – crucially – that tax revenues from across the UK can support regions and areas where tax receipts are declining.
Yes, this means that the rest of the UK benefits from the strong performance of certain Scottish industries.
And yes, it means that the wider UK benefits from our natural resources.
But it also means that Scotland – in turn – benefits from the diversity, scale, and resilience of the UK economy as a whole.
And nowhere was this more apparent than when the UK taxpayer stepped in to recapitalise the Royal Bank of Scotland.
Our strong macroeconomic framework, as part of a full monetary, fiscal and political union was key to our weathering of the recent global crisis;
As Governments that are able to borrow in their own currency, and governments that are allowed to make their own political and economic decisions, are able to borrow more cheaply.
And Governments with clear political accountability can quickly respond to a financial crisis.
Our framework has been able to respond flexibly to the crisis, and our Government is carrying out major reforms so that we can respond even more flexibly in the future.
Our Review of the Monetary Policy Framework has updated the remit of the Monetary Policy Committee, reaffirming the inflation target of 2 per cent and clarifying the trade-offs involved in inflation targeting, giving due consideration to output volatility and asking the MPC to consider the potential role of intermediate thresholds in forward guidance.
The UK’s credible fiscal framework, and our unrivalled track record of meeting our debt obligations has helped to underpin our creditworthiness in international financial markets.
This has helped to keep our costs of borrowing among the lowest in the world.
An independent Scotland would have to create its own framework – not have one to improve on – and wouldn’t have any track record. As a result it would likely face higher borrowing costs.
And the coordination between the UK Government and the Bank of England, under the current UK framework legislated for by the UK Parliament, has played a key role in supporting the stability of the financial sector.
Thanks to the Financial Services Act, which has clarified the respective roles of the Government and the Bank of England in any future financial crisis, we will continue to support that stability.
And stability will be a vital pre-requisite to growth, as the whole of the UK faces up the financial challenges of the future.
Scotland benefits enormously from this stable framework, and these strong institutions. An independent Scotland would face uncertainty and instability instead.
I’d like to finish now by highlighting two of the largest financial challenges that Scotland will face in the future;
The first is that of declining North Sea Oil Revenues.
[Now] The way in which the assets, and liabilities, of the North Sea would be split in the event of a vote for independence would clearly be a matter for negotiation.
But whatever that split, the OBR forecasts that by 2016-17 North Sea tax revenues will be around half the average of recent years.
While this decline could be managed by the broader and more diverse UK-wide economy; a halving of North Sea revenues would equate to a significant reduction in Scotland’s total revenues. Somewhere in the region of £4 billion.
As I said in my lecture in Stirling last week, this fiscal gap is equivalent to a third of Scotland’s health budget or half of Scotland’s education spending.
[And] For income tax to fill this gap, receipts would need to increase by more than a third.
Alongside this decline in receipts, we are also due to see acute demographic challenges in Scotland – with the proportion of the population over 65 expected to rise from just under 27 people for each 100 of working age today, to almost 52 per 100 of working age in 2060.
In other words, by 2060, Scotland is expected to have fewer than two people of working age for every person over 65.
This is a huge demographic shift, which will be much better managed within the United Kingdom than as an independent nation.
An independent Scotland facing these particular pressures, would have to put in place a very different fiscal policy regime. And these choices in time would lead to a divergence of economic policies between Scotland and the rest of the UK, adding further stress to whichever of the currency options an independent Scotland agreed.
And this is just one of many reasons why I firmly believe that we are better together;
That the current arrangement is not only the best for Scotland, but that it is the best for the UK too.
That is why I am stood alongside a Conservative Chancellor launching this paper.
And it is why I am working hard with Alistair Darling on the Better Together campaign.
Because, to paraphrase a very famous Scot, – a Scot who made his living south of the border – this referendum isn’t about politics.
It’s much more important than that.
Thank you for listening.