 Felly, ddod i'n fawr i'n rhaid i'r unig o'r Ffyrdd. Mae'n fawr i'n fawr i'n ddau. Mae'n fawr i'n fawr i'n fawr i'n fawr i'ch gweithio arall a'r UK. Fawr i'n fawr i'n fawr i'ch gweithio ar y gwasgfyrdd, I can, I just remember various weekends where I'm so driving along my car around London and the telephone rings and it's Kevin Cardiff from the Irish Finance Ministry and we had a lot of conversations in strange places at strange times but I'm really pleased that we got through it and actually the one thing I'm actually certain on a basis of my own experience is that the relationship between Britain and Ireland is probably stronger than it's ever been and I think that really matters but today I want to talk about Scotland and the debate over independence and the role of the British Treasury. I'm going to talk about the economics of separation as an impartial civil servant, I'm happy to leave the politics of separation to others but in considering this issue I'm very conscious that there are precedents in the creation of the Irish Free State and it's easy to see parallels with the 1920s, a smaller country potentially leaving a larger one, a negotiation over assets and liabilities, a decision by the Irish Free State to set up a currency board to tie the Irish Punt to the Pound sterling, but I would argue it's also easy to spot the differences. Scotland represents a much larger proportion of the UK's economy I should say than Ireland did. It's economy is more complex, it has a very large financial and energy sector and perhaps most important of all the global economy itself is a very different place from the 1920s in a world of free and rapid capital movements. The security and discipline of the gold standard seems a distant memory. Now why am I involved in this? Well I come from Her Majesty's Treasury and the clues in the name. It discharges its responsibilities on behalf of the whole of the United Kingdom and it's always taken interest in the nation's prosperity whether through the promotion of free trade, sound public finances or sound money through a strong and stable currency. And actually it's always taken a close interest in the economies of both islands. I can recall a late Brian Lennon telling me about the constructive role the Treasury played both in facilitating the setting up of the Irish Finance Ministry and also impressing for the ending of the so-called economic war in our two countries waged in the 1930s. I mean no doubt for present reasons I wouldn't claim the Treasury has some great moral mission. And so it's fallen to the Treasury to inform the public in the build-up to referendum. It's done so through something called the Scotland Analysis Program which is a comprehensive cross-government programme of work to inform and support the debate on Scotland's future within the UK. The programme produced detailed evidence analysis to assess Scotland's place in the UK and how it contributes to and benefits from being part of the United Kingdom. I'd like to think our work is comprehensive and robust and open to scrutiny when it's published. And it's sought to provide people in Scotland with the facts and figures that are currently unknown or taken for granted. So far we've published 15 papers covering issues as diverse as defence, security, borders, citizenship, but also in the main on economic issues and actually our very own Chief Secretary to the Treasury, Danny Alexander, is in Edinburgh today publishing our concluding paper. The Union between England and Wales of Scotland has lasted for 307 years. I would argue that in economic terms it's been an extraordinary success. And I think again contrasting Scotland's experience with Ireland, it's worth recalling that much of the imperative behind the creation of the Union was commercial. It gave Scotland access to the new markets in North America from which it had been barred through the 17th century. It also helped bail out the Scottish elite who had lost their fortunes in the failed attempt to colonise Panama in the 1690s. And if you don't know about the Darian scheme, I strongly recommend reading about it. It's one of those extraordinary disasters from beginning to end. And actually again it's worth pointing out that the Union was affected on financially advantageous terms for the Scots. And subsequent history has vindicated that decision. Scottish industry grabbed the opportunities offered by access to the extraordinary markets provided by the British Empire. And subsequently those offered by the tariff reductions in the period since the Second World War through the European Union and other trade agreements. And I speak from family experience. Some of my ancestors went out to India and Salon in the 18th and 19th century and others went to the Dutch East Indies in the 19th and 20th century. And our analytical papers have a strong recurring conclusion. Of course small countries can have very successful economies providing they pursue the right policies and the experience of Ireland over the last 50 years bears that out. But the fact is that being part of a large integrated domestic economy also has very significant economic advantages for Scotland. Going back as far as the data will allow, Scottish economic growth per head has outperformed the average of the UK. Over the past 50 years economic growth per head in Scotland has been 2.2% which is stronger than the 1.9% of the UK as a whole. And as part of the UK Scotland has the highest employment rate of all the nations in the United Kingdom and higher I think than any country in the G7 certainly higher than the United States. I'd just like briefly to talk about four critical areas from which Treasury analysis suggests Scotland benefits from being part of the UK. And I'm going to start with trade and the high levels of trade with the rest of the UK that is only possible as part of an integrated economy. Scotland trades more with the rest of the UK than it does with the rest of the world. 70% of Scotland's exports go to the rest of the UK whereas just 10% of the rest of the UK's exports are with Scotland. The freedom to trade goods and services across the UK supports greater productivity through knowledge sharing specialisation and economies of scale. A separate Scottish state would have to establish its own macroeconomic and institutional framework. Divergence between the Scotland and the continuing UK would lead slowly but inexorably to a weakening of economic integration. Of course goods will still be traded over the border just as they are between the Republic and the north of Ireland. But international evidence shows that flows of trade, labour and capital are much larger between two regions of the same country than between two otherwise similar regions of two different countries. External estimates suggest that the border reduces trade between Canada and the United States by some 44%. The Treasury has estimated that the emergence of an international border between Scotland and the UK would impact on both countries national income. In Scotland's case the effect would be proportionally greater at some 4% of GDP or £2,000 per household. Outside of the UK the impact of trade would hinge importantly on the terms Scotland negotiated for rejoining the European Union. How long Scotland took to rejoin and crucially under what conditions would depend on negotiations with and the agreement of all other EU states including of course Ireland. It raises interesting wider questions about whether Scotland could secure a rebate on its contributions to the EU budget and whether it could avoid any commitment to join the euro. Clothly related to the high levels of trade the successful Scottish sectors that are supported by being part of the UK is striking that those sectors that are strong in Scotland are those that benefit from being part of a large fiscal and economic union in particular financial services, defence and North Sea oil. Professor Brian Ashcroft estimates that over 400,000 jobs in Scotland are either directly or indirectly dependent on trade with the rest of the UK. That's not to say that all those jobs would be lost but just as trade would be affected so would the sectors that are underpinned by that trade. Over time the Scottish economy would shift to a new equilibrium and to use an economic term, a new comparative advantage. For example the defence sector in Scotland is heavily dependent on public procurement decisions taken in London. The financial services industry supports directly and indirectly more than 200,000 jobs in Scotland which is something like 8% of Scottish employment. The Scottish financial services industry estimates that 9 out of 10 of its customers for many of its products are located in the other parts of the UK. Being part of the larger UK market gives regulators, firms and individuals confidence in managing funding and financial risk across a larger population. Greater competition provides customers across the UK with greater choice at a lower cost. For all efforts to create a single market in services cross-border sales of financial products are limited and where markets are smaller they tend to become more concentrated. Treasury analysis has contrasted the number of participants in the Irish and UK motor insurance markets with its associated implications for the level of premiums. International investors value the fact that large financial firms based in Scotland are part of the UK wide regulatory framework. This single framework could not continue if Scotland became independent. That simply flows from the European treaties. The Scottish banking sector would be exceptionally large compared to the size of an independent Scotland's economy making it more vulnerable to financial shocks. The assets of the whole UK banking sector including Scotland's banks are around five times the size of the UK's economy. By contrast Scotland have assets titling more than 12 times the size of an independent Scotland's economy. To put this into context drawing on your own experience in this country Ireland's equivalent before the crisis was nearly nine times. So you may have thought you were overly dependent on banking but if things weren't to change Scotland is even more so. Now again I speak from experience I was there when the Scottish banks collapsed and we were able to support the sector but this was only possible due to the scale of the UK, the strength of the UK's institutions and the UK's credibility in financial markets. An independent Scotland's financial sector would have to change firms would either face higher costs or they would choose to relocate to the continuing UK. Our analysis suggests that either scenario is likely to make an independent Scottish financial sector smaller but perhaps nowhere is the benefit of the UK more tangible and quantifiable in relation to the public finances. Recent Treasury analysis shows the benefit for people in Scotland of remaining part of the UK what Treasury ministers have dubbed the UK dividend and we estimate that's worth around £1400 per person over the next 20 years. This is the amount that each person in Scotland would be better off by every year from lower taxes and sustained public finances. There are a whole lot of independent experts out there who are independent of the British government who forecast that Scotland's deficit in the year it would become independent. 16-17 would be over 5% of GDP at a time when the UK's deficit is forecast to be less than half that level. So it would start with this gap in the public finances. The point I would make here is that Scotland faces two challenges in the coming period. One is that the oil sector is getting smaller and smaller. At its peak the revenues from oil were equivalent to 8% of Scotland's income. But the independent office for budgetary responsibility forecast those will fall to 1% by 2030. So there's this revenue problem on the one hand, but on the other hand Scotland has an ageing population. It's projected to have more pensioners. The number of pensioners is predicted to be higher in Scotland relative to the UK. So to continue to provide similar levels of public services over the next 20 years, the Treasury estimates that independent Scotland would need to increase all onshore tax revenues by 13%. To illustrate the scale of that increase this would be equivalent to setting a 28% basic rate of income tax compared to 20% now. Or to look at it another way to maintain similar levels of taxation over the next 20 years, Scotland would need to reduce public spending by 11%. And that's equivalent to almost two thirds of Scotland's health spending. But I think perhaps the issue which I think would be most important to Ireland is this issue of the currency. I think underpinning all our analysis is this issue of the currency. This shared currency that's only viable as part of an integrated fiscal, economic and political union. Detailed analysis by the Treasury shows that a currency union would not provide economic security for either an independent Scotland or the continuing UK. Currency unions, and I just want to emphasise I'm not at this stage talking about sort of sterlingisation or the regime which you had in this country up to the late 70s. I'm talking more of the sort of mass strict model. Do raise difficult issues. As Ireland's experiences demonstrate they require extraordinary commitment and a genuine desire to see closer union between the peoples involved. As the Treasury paper pointed out the great thing about the sterling union between Scotland, Wales and Northern Ireland and England is it has all the necessary ingredients, political union, economic integration and consent. And that's why I advised the Chancellor of this Checker and the Chief Secretary against entering into a currency union with an independent Scotland earlier this year. And why the three economic spokesmen of the main UK parties have ruled it out. There's no evidence that adequate proposals to enable the formation of a currency union could be devised, agreed and implemented. First the Scottish government is still leaving the option open of moving to a different currency option in the longer term. Successful currency unions are based on a near universal belief that they are irreversible. I mean just as a thought experiment imagine what would have happened to Irish bond rates at the peak of the crisis if your government had said that it was contemplating returning to the Irish punt. Secondly Scotland's banking sector is too big in relation to its national income which means there's very real risk that the continuing UK would end up bearing most of the liquidity and solvency risk which it creates. Even if the Scottish banking system were to shrink immediately after independence it's still possible for banks in small states to build up significant liabilities as we have seen any recently. Thirdly as I've already mentioned Treasury analysis suggests that fiscal policy in Scotland and the rest of the UK would become increasingly misaligned in the medium term. Meaning a shared currency and monetary policy would become increasingly inappropriate. Fourthly there's a problem of asymmetry which would be much more marked than within the Eurozone. The continuing UK would be at risk of providing taxpayer support to the Scottish financial sector and sovereign. An independent Scottish state would not face the same risk as it is inconceivable that a small country could bail out an economy nearly ten times its size. Scotland as a smaller part of the currency union would tend to see its interest outweighed by its larger partner. If the dashing of Scottish expectations were perpetually blamed on the continuing UK's intransigence within the currency union, relations between the nations of these islands would deteriorate, putting intolerable pressure on the sustainability of the currency union. Of course there are alternatives to a formal currency union. Sterlingisation either with or without a currency board. Your central bank governor, Brian Honohan, published a definitive analysis of the latter in a seminal paper in 1994 where he examined the role of, and I quote, a local in brackets slave currency maintained at a fixed rate of exchange against a foreign master currency. He said that the potential advantages including greater price stability and greater credibility compared with other fixed exchange systems. But he also summarised the drawbacks as a lack of flexibility including inability to deal with monetary and price disturbances. Then there's a different option which is to join a euro, but the Scottish economy is even less integrated with the euro area than the UK is. And Treasury analysis in 2003 concluded that it would be against the UK's interest to join a single currency. And whereas Ireland had two decades during which it achieved convergence through membership of the European monetary system, Scotland has no track record. Finally there's the option of a free floating Scottish currency that would put economic policies squarely in the hands of the Scottish government, but it could give rise to considerable volatility and would increase transaction costs considerably. Interestingly it's an option Ireland has always rejected. And it's striking that the Scottish government has yet to set out its preference amongst those options. So, just to conclude, the British Treasury is not disputing that small countries can be very successful. But on a basis of more than a thousand pages of rigorous analysis it's the Treasury's contention that Scotland can be more successful as part of the single currency area and single market which is the United Kingdom. Thank you.