Scotland could lose the pound if it votes for independence - George Osborne

Osborne pounds Scottish nationalists with sterling threat

Osborne pounds Scottish nationalists with sterling threat

Scotland could lose the benefits of the pound and face higher interest rates if it voted for independence, George Osborne has warned.

The chancellor did not hold back in a speech to business figures in Glasgow as he warned that a UK without Scotland would be unlikely to leave those north of the border better off.

Osborne suggested Scotland would not be permitted to continue to retain the benefits of Britain's low interest rates – and warned it was "very unlikely that the government of an independent Scotland could borrow as cheaply".

"It's the interest rate on government bonds that is one of the key determinants underpinning the cost of all credit in the economy," he said.

"So there would be higher interest rates: a sobering thought for all Scottish households with mortgages and all Scottish businesses."

The chancellor said the eurozone crisis showed the weaknesses of the Scottish government's plans to keep the pound by remaining in a 'sterling zone'.

He said the nationalists' ideas seemed incompatible with the decreased fiscal and political links that would be the result of independence.

"In a world in which a separate, independent Scotland wished to pursue divergent economic policies, what mechanism could there be for the Bank of England to set monetary policy, as it does now, to suit conditions in both Scotland and the rest of the UK?" he asked.

"As chancellor of the exchequer, I have seen no such credible mechanisms proposed by those advocating independence. I am not clear they exist."

On regulation, the chancellor pointed out that it was British government coffers which had prevented the total collapse of RBS – the Royal Bank of Scotland.

"A disorderly collapse of Scotland's banks would have been devastating for depositors, jobs and growth in Scotland," he pointed out.

"That's why I argue that the whole of the UK benefits from having a government with the necessary fiscal firepower, backed by a credible central bank, which can deliver an effective coordinated response to a major bank failure."

Osborne's speech came before crunch talks between London and Edinburgh over the terms of the independence referendum, which the Scottish National party won a mandate for by securing an overall majority in Holyrood last year.

Scottish first minister Alex Salmond reshuffled his Cabinet earlier this week, handing former health secretary Nicola Sturgeon responsibility for the referendum.

She said after moving into the job she fully expected the referendum to take place in autumn 2014, the SNP's preferred date for the vote. Westminster's three main parties, which all oppose independence, want the referendum to take place sooner.