Britain to tell Scotland: Lose the pound if you exit UK

By Andrew Osborn and Belinda Goldsmith LONDON/KILMARNOCK (Reuters) - Britain's main political parties will tell Scotland in coordinated statements in coming days it cannot keep the pound if it votes for independence, two people familiar with the matter said on Wednesday. Scottish nationalists accused British politicians of bluffing and said they knew well any bid to withdraw the pound from Scotland would damage English business. They said it would mean Scotland would not shoulder any share of British debt. The drive by the three main parties, the boldest attempt yet by the British political establishment to scuttle Scottish nationalists' independence bid, reflects a growing sense that the issue of what currency a breakaway Scotland would use could be decisive in swaying undecided voters. Scots are due to vote on whether their oil-rich country of 5 million becomes independent on September 18, with polls showing just over one third favor independence. More assertive noises from London may move some toying with the idea of independence to caution but could also inflame some national feeling. "I think telling Scotland what we can and cannot do from the south could upset some people but I will still vote against independence," said Sheila Lochhead, 65, a carer in the town of Kilmarnock, one of the areas of highest unemployment in Scotland. George Osborne, Britain's Conservative finance minister, will deliver the message in a speech on Thursday, taking aim at one of the central policies of the pro-independence Scottish National Party (SNP) which argues a currency union with the UK would be the only viable option. Danny Alexander, Osborne's deputy and a Liberal Democrat, is expected to reinforce that message on Thursday. Ed Balls, the opposition Labour party's spokesman on financial affairs, is expected to say the same separately at an unspecified date. The coordinated move leaves the SNP without an immediate plan B since it has built its case for independence around being able to share the pound and has not disclosed a fallback scenario. An independent Scotland would need to apply to join the European Union before it could ask to join the euro, and the SNP has so far shown no enthusiasm for the single currency. Joining the euro or creating a new currency are seen as more expensive and potentially riskier alternatives. The currency issue goes to the heart of what has become an increasingly fractious debate as Scots say the economy is the single most important issue for them when it comes to choosing whether to end their 307-year-old union with England. "It's safe to say there's going to be movement on the currency issue," one person familiar with British government thinking told Reuters. Another source said the government would spell out its policy on the pound in clear and concrete terms. A spokesman for the UK Treasury said he said he was unable to immediately comment on the matter. 'BULLYING TACTICS' Scottish nationalists argue that Scotland's development has been stunted by a British economy focused too strongly on London, and that an independent Scotland could flourish drawing on energy resources and technological enterprise. The SNP said in a statement that the British government had lost the argument against independence and was therefore resorting to bullying tactics in panic. It said it thought the shift in position on the pound was a bluff and said it might not take on any share of UK debt in the event of independence if it wasn't allowed to use the pound, something it has said before. "Osborne's position is ... a bluff," said Nicola Sturgeon, Scotland's SNP Deputy First Minister. "It would cost their own businesses hundreds of millions of pounds a year," she said. "It would blow a massive hole in their balance of payments and it would leave them having to pick up the entirety of UK debt." Sturgeon suggested Britain would be powerless to stop an independent Scotland using the pound. "We have set out a reasonable case that we should continue to use our pound because it is ours as much as it is anybody else's," she said. "Neither George Osborne nor anyone else can stop Scotland using the pound." Analysts say an independent Scotland would not need to ask London for permission to use the pound but would then have the status of a country like Ecuador which uses the U.S. dollar but has no say over Washington's monetary policy. Royal Bank of Scotland, Lloyds Banking Group and other major financial institutions based in Edinburgh, have begun contingency planning in case of independence, Reuters reported on Friday. Industry sources told Reuters on Tuesday a key part of that planning is what they will do in the event of a currency union not being agreed. RBS, Lloyds and Standard Life declined to comment. Osborne has previously said it would be highly unlikely that the UK would be willing to let Scotland keep the pound, while Bank of England chief Mark Carney has said Scotland would have to surrender some sovereignty in the event of independence and a currency union. Cameron said last week a Scottish vote for independence would undermine Britain's global clout and imperil its financial and political stability. (Additional reporting by Belinda Goldsmith, Matt Scuffham, Kate Holton, William Schomberg and William James; Writing by Andrew Osborn; Editing by Guy Faulconbridge and Ralph Boulton)