2.12pm GMT

I’m dividing the summary into two sections today - one devoted to George Osborne’s speech, and another devoted to the rest of the morning’s political news.

Osborne’s speech is worth gutting in some detail because it may be one of those rare ones that really does shift opinion. We won’t know, of course, until we see what happens to the polls over the next few weeks. (Even then, if the polls do move, we won’t know for certain why - although it would be fair to assume that an intervention like Osborne’s could have had an impact.)

George Osborne’s speech

• All three main UK parties have explicitly ruled out agreeing a currency union with an independent Scotland in the event of Scotland voting for independence in the referendum in September. This is a highly significant moment in the campaign because the SNP’s vision for independence if firmly based upon Scotland having such a union with the rest of the UK (rUK in the jargon). The SNP must now either try to persuade voters that rUK is bluffing (the tactic it has been deploying this morning), or firm up alternative proposals. Osborne made the declaration in a speech in Edinburgh.

I could not as Chancellor recommend that we could share the pound with an independent Scotland. The evidence shows it wouldn’t work. It would cost jobs and cost money. It wouldn’t provide economic security for Scotland or for the rest of the UK.

Danny Alexander, the Lib Dem chief secretary to the Treasury, made a similar statement this morning. (See 10.15am.) And Ed Balls, the shadow chancellor, has also ruled out a currency union in an interview broadcast on the BBC about an hour ago. (See 1.32pm.)



• Sir Nicholas Macpherson, the Treasury permanent secretary, has taken the unusual step of signing and releasing a public letter to George Osborne saying that he would “advise strongly against a currency union as currently advocated”. While there is nothing remarkable about civil servants backing government policy - in fact, it is their job - it is not normal for them to make such a high-profile intervention on a partisan issue. MacPherson’s letter summarised the arguments set out in a 76-page analysis paper explaining the Treasury’s objections to a currency union. Osborne used the arguments in his speech.

• Osborne said the SNP’s threat to refuse to pay Scotland’s share of the UK’s national debate in the event of an independent Scotland not being offered a currency union was implausible. Alex Salmond knew that he could not take that step because the consequences for Scotland would be disastrous, Osborne said.

International lenders would look at Scotland and see a fledgling country whose only credit history was one gigantic default. And they would demand a punitively high interest rate as a result. That would be crippling for every Scottish household with a mortgage or personal loan, for every Scottish business with credit, for the public finances and therefore for public services and for taxpayers, and for the whole economy.

• Osborne said that, even if Scotland did honour its debts, the Scots would have to pay higher interest rates adding an extra £1,700 a year to the cost of an average mortgage if they voted for independence. The Treasury set out the reasons in its analysis.

An independent Scottish state would find it more expensive to borrow in financial markets as it would have: a less liquid debt market; a lack of an institutional track record and institutional uncertainty; higher economic and fiscal volatility; a larger future potential debt burden; a larger financial services sector, with larger contingent liabilities as a share of GDP; and reduced monetary policy flexibility to respond to external shocks. The National Institute of Economic and Social Research have estimated that in a sterling currency union the government of an independent Scottish state would pay an interest rate premium of between 0.72 and 1.65 per cent, relative to the price of UK Government funding.

• Osborne said he could not recommend a banking union with an independent Scotland because, with Scottish banking assets worth 12 times Scottish GDP, the potential cost of bailing out Scotland could be ruinous.

At heart this banking union would involve putting UK taxpayers on the line for banks in a foreign country. Asking them to underwrite a Scottish Government guarantee on deposits held in Scottish Banks. Asking to put their money at risk whenever Scottish authorities extend emergency support to Scottish banks. And with little prospect of any benefit flowing in the other direction – for Scotland could only make a limited contribution to supporting a big English bank. It is very difficult to see how after a ‘Yes’ vote, any UK politician could propose such an asymmetrical arrangement.

• He accused the SNP of over-estimating how much revenue they would gain from North Sea oil.

In the last Autumn Statement for example the Office for Budget Responsibility cut its forecast for North Sea revenues by almost £4bn over the next three years. But instead of needing to cut spending, the Scottish Government saw its budget rise by more than £300m.

In its analysis paper, the Treasury said it was “inconceivable” that the Scottish government would be able to “adjust its fiscal position” (ie, cut spending or raise taxes) quickly enough to enter a currency union in 2016.

• Osborne said an independent Scotland would be highly vulnerable to a cut in the world oil price.

Under independence, if the Scottish Government did not have the flexibility to cut interest rates – and lacked the fiscal risk sharing it currently has – it would have to respond to a fall in oil revenues by cutting public spending dramatically or raising taxes hugely in response. The Treasury analysis published today shows that for each 20 dollar fall in the oil price, an independent Scotland would lose 11,000 jobs, whereas if it remained part of the UK it wouldn’t lose any. To put this in context, between 2008 and 2009 the global oil price fell by over 60 dollars.

• He said the suggestion in the Scottish government’s white paper that a currency union might not be permanent meant it would be doomed to fail.

If currency unions are to succeed then the markets must believe they are built to last. Look at the massive damage to confidence and stability in 2012 when there was doubt about whether Greece would remain in the euro – despite the protestations of everlasting currency union by all involved ... The markets would try to break a Sterling currency union – knowing that, unlike with Greece, the Scottish Government were actively stressing how temporary the arrangements were. Just look at what happened to the last two nations who tried to form a currency union following separation – Slovakia and the Czech Republic. Their union fell apart after only thirty three days as capital flowed from one to the other in pursuit of the safe haven.

• Osborne rejected SNP claims that the pound was an “asset” to be shared between an independent Scotland and the rest of the UK.

The Scottish government say “it’s as much Scotland’s pound as the rest of the UK’s”. They are like an angry party to a messy divorce. But the pound isn’t an asset to be divided up between the two countries after break-up as if it were a CD collection. The value of the pound doesn’t lie in the paper and ink that’s used to print it. The value of the pound lies in the entire monetary system underpinning it.

In its analysis, the Treasury said there was “no rule or principle in international law” saying the continuing UK would have to share its currency with an independent Scotland.

• Alex Salmond has accused Osborne and his Unionist allies of bluffing and and claimed that their attempt to “intimidate” Scottish voters will backfire. (See 1.49am.)

Other news

• David Cameron has convened a special cabinet committee on flooding for the first time, with ministers being given an update on the extent of power and transport disruption caused by overnight storms.

• Two former Labour home secretaries, Alan Johnson and Charles Clarke, have called for elected police and crime commissioners to be abolished describing them as “an unhappy and unsatisfactory interlude in the history of British policing”.

• Nick Clegg has reaffirmed his insistence that Lord Rennard must apologise for his behaviour towards women if he wants to be readmitted to the Lib Dems.

• Two Labour pressure groups backed by Lord Sainsbury have been fined for accepting donations from him when he was not on the electoral register.