How will public finance be organised in an independent Scotland?

Public finance in an independent Scotland

Stephen Richard — Fri, 05 Nov 2021 10:11:21 +0000

Public finance in an independent Scotland Stephen Richard Fri, 11/05/2021 - 10:11

Author or Creator

Common Weal

How do we make sure that we can collect tax and pay social security benefits?

What do we need to do to be able to collect taxes after independence?

Scotland already has a body called Revenue Scotland which has the basic tax details for everyone resident in Scotland. It only collects a small proportion of taxes at the moment but extending it to collect all taxes is primarily a matter of staffing and strengthening IT systems so is comparatively routine. What is a little more complicated is collecting business taxes as these are currently largely the responsibility of the UK (though businesses with premises in Scotland will be registered for non-domestic rates). Data on companies operating in Scotland would be transferred from the UK to Scotland during negotiations and any gaps would need to be worked on during transition.

And paying social security benefits?

It's much the same issue. Scotland has the skeleton of a social security system but during the transition it would need to build up its systems and have the UK's data and responsibilities transferred to it.

What about pensions?

This is often raised as a major issue for independence but the reasons for this are political rather than technical. The UK has a revenue system of pensions rather than a contributory one so we'll be paying the same pension to the same people in the same way as in the UK. There is nothing much to disentangle.

What about people who have paid towards the UK pension their whole life?

This is a hotly-contested grey area. The current rules say that anyone who has contributed enough in National Insurance Contributions that they are eligible for a full UK pension will be paid that pension irrespective of where they are located on retirement – the UK pays the pensions of people who have retired to other countries and there is no obvious exemption which means that they wouldn't pay Scottish citizen's pensions. However, in all likelihood this is a matter that would be resolved during transition negotiations and Scotland might negotiate to have UK liabilities offset against Scotland's debt share. Either way, Scotland would be able to pay pensions as the UK does now.

So tax and social security would be exactly the same after independence?

This is one of the areas which is tricky to deal with politically. The UK tax system is unsupportably complex and its social security system aggressive and unpleasant. Enshrining these for day one of independence is very hard to justify, but any changes (even just simplification or 'cleaning up') imply political decisions. A solution might be a cross-party summit after a vote for independence to negotiate an interim solution. After that tax and social security policy will be a matter for elected governments.

How you manage all the work needed to become independent

Will it be easy for Scotland to become independent?

Well, not easy in the sense that there is an awful lot that needs to be done. But not difficult in the sense that any of it is particularly hard to achieve. It's just a lot of individual tasks that need to be managed quickly and efficiently – and at the same time.

How do we get all of them done?

Ideally we need to get started early and do as much preparation as possible, even before a referendum. And it's too much for the current Scottish civil service to do, so it needs a new body to do the work if it's not to overwhelm the normal operation of government while the work is being done. So we should set up a National Commission – like a kind of time-limited civil service that would dissolve after independence. It needs to recruit the specialist staff who will lead each bit of the work.

How important is recruitment?

It might not be an over-statement to say that nothing is more important if Scotland is going to get independence right. Tasks like setting up a currency or a customs and excise service are specialist jobs that require very specific expertise. These are not 'generalist' jobs that can be done by any policy manager. And recruitment can be a lengthy process for specialist skills – the earlier we start (ideally before a referendum to be prepared if there is a vote for independence) the better.

How do we make sure it all gets done?

It is equally hard to overstate the importance of project management. These tasks all inter-relate – you can't update computer systems for a new currency completely separately from setting up that currency. A first-rate project management team is crucial.

What happens while all this work is being done?

That's why a National Commission is so important. Scotland will still need all the public services run by the Scottish civil service and all the services run by the UK civil service. Until independence, each must stay focused on continuing to deliver what they do now if public services are not to be disrupted. Proper transition arrangements need to be put in place.

What about all the computer systems that run public services?

There will need to be significant investment in getting all the computer systems up-to-date. There will be lots of changes to how systems work, each of which may be small but which need to be done everywhere. For example, instead of using National Insurance numbers the systems will need to use the new Citizen Identifier, and instead of £Sterling the systems will need to operate in £Scots. All this needs to be done across the while of the public sector's IT.

But do IT projects not always go wrong?

There is a poor track record of IT projects in the public sector but there are many simple to understand reasons for this. One of the most important is that right across the public sector different standards are used in different departments, agencies and councils. This is largely because the public sector outsources all its IT so different bodies pay different companies to do the same thing but not in the same way, so it ends up a mess. And the people procuring the work often don't have the level of expertise to manage the implementation process. Since there needs to be investment in adapting IT anyway this is a wonderful opportunity to create a Public IT Company which employs highly-skilled people and does all IT infrastructure in the public sector. It would use simple standards (ideally based on open-source code) which would be consistent across the whole public sector and implementation would be managed by the people doing the work, avoiding much of the reason for past IT failures.

How long will it take?

Common Weal created a flow-chart of everything that needed to get done and how long it would take. Our conclusion was that doing it all properly would take about three years start to finish, so long as you do some proper preparation before a referendum. You could speed this up a little if you do a bit more of the work before a referendum, but it is enormously preferable to take our time and get it right.

Keywords

Public finance

Scottish Government

Independence negotiation

How small independent countries create a better, more equal society

Stephen Richard — Fri, 05 Nov 2021 12:25:05 +0000

How small independent countries create a better, more equal society

Primary Author or Creator

Believe in Scotland

Stephen Richard Fri, 11/05/2021 - 12:25

Alternative Published Date

2021

Category

Social welfare

Type of Resource

Article

Fast Facts

It has become clear that small, independent countries largely outperform the UK and offer greater security to their citizens. This includes pensions, income distribution and public social spending.

More details

State pension

As we have already shown, the state pension is a gloomy aspect of the UK’s welfare system. So, how much exactly does the UK offer to old age pensioners?

The UK former state pension consisted of two tiers – the basic state pension (£137.60 a week) and an earnings-related additional state pension. The new state pension provides a flat-rate pension worth up to £179.60 a week.

The figures highlight that small, independent countries offer a much greater state pension (including full entitlement) than the much larger UK. Therefore, it’s more likely that an independent Scotland would follow a similar path as its European neighbours. Indeed, the SNP has said that an independent Scotland would work to increase the Scottish state pension to match the EU average, effectively doubling it.

Net pension replacement rate

The net pension replacement rate is another interesting way of analysing and comparing the state pension schemes across various countries.

The Organisation for Economic Co-operation and Development (OECD) defines net pension replacement rate as “the individual net pension entitlement divided by net pre-retirement earnings, taking into account personal income taxes and social security contributions paid by workers and pensioners.”

The net pension replacement rate measures how effectively a pension system provides a retirement income to replace earnings as the main source of income before retirement.

The data demonstrates that the UK’s net pension replacement rate is significantly worse than several of the small independent countries across Europe. In fact, the only country that offers a state pension that constitutes a lower percentage of pre-retirement earnings is South Africa.

Public social spending

Public social spending is another important factor that should be considered when analysing the effectiveness of a country’s social support system. Public social spending includes health, old age, incapacity-related benefits, family, unemployment and housing, among other things.

The figures highlight that, with the exception of Ireland in this case, Scotland’s Northern European neighbours with a similar population size outperform the UK in terms of public social spending. Indeed, both Norway and Denmark spend a significantly great share of the country’s GDP on public social services than the UK.

Income distribution

The OECD provides an Income Distribution database that monitors the performances of countries in the field of income inequality and poverty. This is measured using the Gini coefficient, which is based on the comparison of cumulative proportions of the population against cumulative proportions of income they receive (ranging from 0, in the case of perfect equality, and 1, in the case of perfect inequality). Therefore, with reference to the OECD’s database, we have compared the case study countries of this article.

The data, again, shows several small independent countries across Europe outperforming the UK. Indeed, Ireland, Norway and Denmark all provide greater income equality than the UK.

By analysing these various social support factors, it has become clear that small, independent countries largely outperform the UK and offer greater security to their citizens

Conclusions

This article has drawn upon data from various countries across Europe, including the UK, Ireland, Norway and Denmark. By analysing these various social support factors, it has become clear that small, independent countries largely outperform the UK and offer greater security to their citizens. This includes pensions, income distribution and public social spending. Overall, it can be suggested that an independent Scotland would behave similarly to these small European countries and the Scottish Government has already set out various goals for an independent Scotland to prioritise social wellbeing factors and match European targets.

Resource Address (URL)

https://www.believeinscotland.org/how-small-independent-countries-create-a-bett…

Keywords

social welfare

Income distribution

Public spending

Language English

This is why the Westminster myths about independence are wrong. Open minds on independence #18

Stephen Richard — Sun, 10 Oct 2021 10:18:19 +0000

This is why the Westminster myths about independence are wrong. Open minds on independence #18

Primary Author or Creator

The National

Stephen Richard Sun, 10/10/2021 - 11:18

Additional Author(s) / Creators

Believe in Scotland

Date Published

Wed, 04/14/2021 - 12:00

Category

Independence

Type of Resource

News Media

Fast Facts

This looks at three myths about Scottish independence:

MYTH 1: You'll have had your referendum.

MYTH 2: Scotland has a huge deficit because we spend too much on public services.

MYTH 3: The costs of establishing Scotland as an independent country will be huge.

Resource Address (URL)

https://www.thenational.scot/news/19230554.westminster-myths-independence-wrong/

Keywords

Public services

Public Debt

Independence referendum

GERS

Language English

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Stephen Richard — Mon, 04 Oct 2021 18:20:41 +0000

THE IMPACT OF SCOTTISH INDEPENDENCE ON TAX, PENSIONS AND FINANCIAL SERVICES

Primary Author or Creator

Clifford Chance

Stephen Richard Mon, 10/04/2021 - 19:20

Alternative Published Date

August 2021

Category

Taxation

Pensions

Finance

Type of Resource

Assessment report

Length (Pages, words, minutes etc...)

7pp

Fast Facts

The most likely overall outcome for taxation is that rUK would treat Scottish individuals and companies in the same way as it treats any other country's individuals and companies (and vice versa). Scotland will need to establish its own financial regulator and resolution authority and make arrangements for continuing the licences and supervision of Scottish firms. Arrangements for pension investments and payments will be required.

Resource Address (URL)

https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2021/08/the…

Keywords

Taxation

Financial regulation

Pensions

Language English

Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland

Stephen Richard — Sat, 02 Oct 2021 17:54:39 +0000

Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland

Primary Author or Creator

Paul Hallwood

Stephen Richard Sat, 10/02/2021 - 18:54

Alternative Published Date

2020

Category

Public Finance

Type of Resource

Academic Paper

Fast Facts

Argues for federalism in public funding where taxation is devolved. Proposes that this financial autonomy would provide a better connection between democracy and public finance.

More details

Propositions from the theory of fiscal federalism are used to argue for closer matching of taxes raised in Scotland and spending by the Holyrood government. Incentives would then be enhanced for Holyrood to provide public goods and services in quantities Scottish taxpayers are willing to pay for. Empirical evidence shows that this increase in vertical balance improves rates of regional and national economic growth. Two sequential games are used to show that whether Scotland chooses first or second in the public spending game with Westminster it still ends up with overly-generous funding. The argument is made that in fairness to taxpayers in the rest of the UK (increased horizontal balance) Scottish fiscal autonomy should be moved to.

IN: Hallwood P. (2020) Minimizing the Cost of Union: Fiscal Autonomy and the Case of Scotland. In: Interpreting Historical Sequences Using Economic Models. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-53854-5_8

Paywall

Resource Address (URL)

https://link.springer.com/chapter/10.1007/978-3-030-53854-5_8#citeas

Keywords

Democracy

Financial autonomy

Devolution

Language English

The Politics of Scotland’s Public Finances

Stephen Richard — Sat, 02 Oct 2021 17:46:49 +0000

The Politics of Scotland’s Public Finances

Primary Author or Creator

David Heald

Stephen Richard Sat, 10/02/2021 - 18:46

Additional Author(s) / Creators

Michael Keating,

Alternative Published Date

2020

Category

Public Finance

Type of Resource

Academic Paper

Fast Facts

The early operation of the 2016 Scottish Fiscal Framework and the divergence of UK and Scottish income tax rates highlights the practical issues of devolved tax policy in the context of UK fiscal centralization.

More details

Politics and fiscal mechanics play interwoven roles in the public finances of devolved Scotland. Asymmetric devolution, in the context of divergent economic performance and relative population size and growth rates, has contributed to the longevity of the Barnett formula. Though criticized for either overfunding or underfunding Scotland, its resilience stems from its role as political convention in reducing overt conflict, and from maintaining the expenditure autonomy of the Scottish Parliament. The low level of self-financing from devolved taxes stimulated allegations that the Parliament lacked accountability and fiscal responsibility. Extended taxation powers advanced through the cautious Calman Commission to the rushed Smith Commission, and were driven by imperatives for a ‘counter-offer’ after the 2014 Independence Referendum. The early operation of the 2016 Scottish Fiscal Framework and the divergence of UK and Scottish income tax rates highlights the practical issues of devolved tax policy in the context of UK fiscal centralization. These developments have been driven by changes in Scottish political circumstances rather than by changes in fiscal fundamentals.

IN: The Oxford Handbook of Scottish Politics

Paywall

Resource Address (URL)

https://www.oxfordhandbooks.com/view/10.1093/oxfordhb/9780198825098.001.0001/ox…

Keywords

Devolution

Public finance

Taxation

Language English

Public Procurement in Scotland: The case for scrutiny, accountability and transparency

Stephen Richard — Mon, 06 Sep 2021 21:42:14 +0000

Public Procurement in Scotland: The case for scrutiny, accountability and transparency

Primary Author or Creator

Margaret Cuthbert

Stephen Richard Mon, 09/06/2021 - 22:42

Additional Author(s) / Creators

Common Weal

Date Published

Tue, 05/09/2017 - 12:00

Category

Scottish government

Type of Resource

Policy Paper

Fast Facts

Leading economist Margaret Cuthbert draws on 15 years of research on Scottish public procurement in making the case that procurement in Scotland is shrouded in secrecy and wide-ranging reforms are needed to ensure transparency and accountability.

More details

― Why is it that our public representatives are signing up to contracts where the public cannot see the terms of the contract? In the few cases where we have finally been given access to a contract and its financial model, we have found serious problems.

― Why is it, in the cases concerning public procurement, we continually have to resort to Freedom of Information requests which is time consuming, rarely frees the information requested on major public procurement projects, and of no benefit in regard to getting changes made in any existing contract? Helpful answers to requests for information concerning contracts and financial models have rarely been forthcoming.

― The third issue concerns the very powerful role that is being played by the Non-Departmental Public Body (NDPB) and the Scottish Futures Trust (SFT) in the public procurement of major projects. The SFT, set up in 2008, is a private company. It now has a major role in Scotland’s public sector build, maintenance and servicing of projects. Its presence in the procurement chain has resulted in the public finding it difficult, if not impossible, to scrutinise the decision-making process on the facility being built; the process of handing out contracts; the financial aspects of the contract; the effect that the project will have on the local community including on jobs, and on local businesses; and importantly the long term effect this is having on Scotland’s financial well-being and the ownership of what was once regarded as essential public goods.

― There appears to be no analysis of whether the methods now being used for public procurement of major projects are constructed in such a way that local businesses are missing out on the architectural work, on the maintenance and services work, and, for example, potentially innovative work that could lead to other contracts. Local businesses are involved but are far down the food chain and may not be in as advantageous a position as is desirable for them to grow and develop as they might otherwise have done.

― The fifth issue considered concerns the methods used by the Scottish Government, Health Boards, Prisons, and Local Authority Councils to raise finance for public procurement. The lack of Whole of Government Accounts for Scotland means that we have no idea what the effect on Scotland’s long term level of debt will be from these projects.

― The final issue concerns the need for a strengthening of the role which needs to be played by the relevant Parliamentary Committees in dealing with economic and financial issues.

― This paper is based on what information has been made available through published documents and through Freedom of Information and other requests on each of the above six areas. It draws on research carried out by Jim Cuthbert and I over the past 15 years.

Resource Address (URL)

https://commonweal.scot/wp-content/uploads/2017/05/Public-Procurement-in-Scotla…

Keywords

Scottish public procurement

Public procurement

Freedom of Information

Scottish Futures Trust

Public procurement finance

Government transparency

Accountability of government

Government accountability

Language English