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Report 'demolishes' Chancellor's reasons for rejecting currency union

The report, commissioned by businessman Sir Tom Hunter, states George Osborne's arguments against currency union are fundamentally flawed.

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A report commissioned by Sir Tom Hunter has said the reasons given by Chancellor George Osborne for his rejection of a currency union with an independent Scotland are "unsubstantiated" and fundamentally flawed.

The businessman commissioned an eminent professor to examine the UK Government’s claim that there cannot be a currency union.

The paper, by Prof Leslie Young of The Cheung Kong Graduate School of Business, Beijing, states that the evidence cited by permanent secretary to the Treasury Sir Nicholas Macpherson on which the UK Government based its decision on currency union is fundamentally flawed.

Based on the paper Sir Tom is writing to the Treasury as well as Mr Osborne, Labour leader Ed Miliband and Deputy Prime Minister Nick Clegg to ask them to consider the paper and review in line with its findings their positions.

In turn he will write to First Minister Alex Salmond highlighting the need for a Plan B, which the paper also recommends.

A spokesman for the First Minister said the report "demolishes" Mr Osborne’s arguments and said the chancellor “overstated the risks” of a currency union.

In the report Prof Young, criticises many of the arguments put forward by Mr Osborne for his rejection of a monetary union with Scotland in the event of a Yes vote in September’s referendum.

It brands the references to the Eurozone as a guide to how the currency union may turn out as "misleading" and brands the claims that Scotland would be an unreliable partner in such a union as "unsubstantiated".

The report goes on: "Its (The Treasury) claim that Scotland’s financial system is "far too big", and would therefore expose UK taxpayers to heavy burdens, is unsubstantiated.

"Its claim that the “asymmetry” between the economies of rUK and Scotland makes the exposure of UK taxpayers to “Scotland’s financial system and sovereign” especially inequitable is not merely unsubstantiated: it is the reverse of the truth.

"Its claim that the likely misalignment of the fiscal policies of the UK and an independent Scotland would put “intolerable pressure” on the currency union is evasive — and unsubstantiated."

The report also claims that the Treasury failed to substantiate any of its reasons for the ruling out of a currency union and added the reasons were based on "loose analysis and misleading exposition" which have "diverted the debate on a grave constitutional matter onto non-issues".

The report even claims the Treasury misled itself as a result of "its own confused thought".

It adds: "No chapter in the Eurozone story is at all likely in a currency union between Scotland and rUK. They would start from very similar political and business cultures, hence very similar macroeconomic and business structures and financial parameters.

"So currency unification would not bring on the tensions that drove the Eurozone crisis. Were a financial crisis to arise, the two governments and the central bank could quickly agree to head off any downward economic spiral with decisive action, given their shared values and culture, virtually identical business, financial and fiscal systems, and the familiarity, goodwill and respect that obtain between their electorates."

A spokesperson for the First Minister said: "This report totally demolishes the Treasury’s argument against a shared currency.

"As the Fiscal Commission Working Group has pointed out, the UK Government analysis to date has overstated the risks but failed to fully capture the benefits of formal monetary union.

"With the Osborne-Balls alliance, Project Fear has been losing the political argument. Now they’re losing the fiscal argument too."

Read the report Scotland: September 18

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