Independence negotiation

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

Negotiating independence

Stephen Richard — Thu, 28 Oct 2021 15:45:17 +0000

Negotiating independence Stephen Richard Thu, 10/28/2021 - 16:45

Author or Creator

Common Weal

How does Scotland handle negotiations with the UK?

How important are negotiations?

Negotiations are absolutely crucial. If Scotland gets its negotiations wrong we may be living with the consequences for many years – if we get them right it can get an independent Scotland off to an ideal start. The mess off the negotiations around Brexit is a case study on why it is essential to approach negotiations utterly prepared and with a strong and coherent strategy.

What makes the difference?

The key to good negotiation is proper preparation – and ensuring that negotiations are carried out by skilled people. Put in its simplest terms, the party who wants more out of a negotiation is in a stronger position, so the less Scotland wants from England the easier the negotiations. It will be advantageous if Scotland can develop a plan for independence which is as self reliant as possible. It is also important to see negotiation as a profession – and so to recruit a negotiating team accordingly. The strategy may be set by politicians but the detail of negotiation should be carried out by experienced professionals. Negotiation is a profession with a long history and many very well understood good practices. Making sure that a negotiating team is never blind-sighted because it didn't properly consider an eventuality is very important indeed. Negotiation must be driven by a strategy and 'making it up as you go along' (which appears to have been the case with Brexit) is a recipe for disaster.

So what are the key elements of a strategy?

Very roughly there are three broad areas that need to be resolved; the division of assets, the division of liabilities and arrangements around sharing and mutual relations. There is likely to be a fair degree of shared interest in the last of these but not in the first two.

What are the key elements of mutual relations?

These have been discussed under various of the headings above. Both sides will want properly-functioning border arrangements, a UK free travel zone, effective trade relationships, consistent national security arrangements and so on. This does not mean that we can assume that the terms on which these are sought by either side will be the same, but both will want a mutually-supported outcome.

What about the division of assets?

This is not as divisive as some may assume. There are international precedents for this and a global treaty governing divisions of assets when a nation splits, but the UK is not formally signed up to these. But for assets the basic formula is reasonably straightforward – with few exceptions fixed in-country asset would be inherited by the country they are in (Scotland gets Scottish-located hospitals, the UK gets UK-located hospitals and so on) and mobile and other assets (say gold reserves or military hardware) would be shared on a per-captia basis. It isn't quite as straightforward as that since there may be some dispute around which is which, what the share is and what the value is. And there is likely to be trade-offs since it is not necessarily the case that Scotland would want a share of certain assets or in some cases that dividing those assets isn't possible (you can't inherit nine per cent of an aircraft carrier...). So during negotiation these would generally be offset against liabilities.

So what about the division of liabilities?

Liabilities can include legal agreements (the promise to do certain things in the future) and may include treaty obligations (which may also promise certain future actions). But by far the most contentious issue is the division of the national debt. Here we are little helped by international precedent because the UK may not accept it. Generally if the UK wishes to remain the 'continuity state' (i.e. wants to continue to be recognised as the UK and maintain its international position and rights over its currency and so on) then Scotland would be a successor state and so would have no responsibility to the liabilities of the UK. On that basis Scotland could negotiate from a 'zero model' where it walks away with no debt (after all, legally the debt would be the UK's in that scenario). But the UK might then contest the share of assets (though actually there are few assets Scotland would want). The UK would argue that Scotland must accept a full share of the debt and that it should be able to keep the currency, central bank, membership of the UN and so on. This is one of the major elements of the negotiation which requires a strategy. Putting the above together, the less Scotland seeks in negotiations the stronger its hand and the closer to a zero option it is able to negotiate. But there is no way to know the outcomes.

What will make the difference?

There will be a few key issues which either sides holds which the other particularly wants. In the end Scotland really only wants full recognition and sensible agreements on things like borders. Scotland might want to try and take an aggressive stance on the UK's pension commitment to Scots who have contributed National Insurance payments for their entire lives. The UK will want Scotland to take as much of the debt as it can force us to take and will also want to continue to station nuclear weapons in Scotland. These issues, the quality of negotiators, the effectiveness of the negotiation strategy and the degree of preparation is what will tip the result in either direction. But in the end, there is no reasonable a scenario where Scotland would be worse off in terms of assets and liabilities than it currently shoulders as part of the UK, and it does not want to continue to use Sterling or the institutions of the UK so there is no reason to expect that a desirable outcome for Scotland is unlikely.

Keywords

Independence negotiation

Managing the work needed to become independent

Stephen Richard — Thu, 28 Oct 2021 13:45:07 +0000

Managing the work needed to become independent Stephen Richard Thu, 10/28/2021 - 14:45

Author or Creator

Common Weal

How you manage all the work needed to become independent

Will it be easy for Scotland to become independent?

How do we get all of them done?

How important is recruitment?

How do we make sure it all gets done?

What happens while all this work is being done?

What about all the computer systems that run public services?

But do IT projects not always go wrong?

How long will it take?

Keywords

Scottish Government

Independence negotiation

Public computer systems

Establishing the outlines of independence before a referendum

Stephen Richard — Thu, 28 Oct 2021 13:36:05 +0000

Establishing the outlines of independence before a referendum Stephen Richard Thu, 10/28/2021 - 14:36

Author or Creator

Common Weal

Why can't all the detail of independence be sorted out after a referendum?

What's wrong with what we did last referendum and do a quick White Paper?

In 2011 when the Scottish Parliament got its first pro-independence majority there had been next to no work done on how independence would happen in practice and the civil service couldn't start work on the subject until a full agreement was achieved with the UK. It left very little time to prepare the case so a fast White Paper was the only option. It therefore had to be both an argument for independence and an explanation of how it would work. But in reality it would have left most of the task of working out how to solve the problems until after a vote.

Wouldn't that have worked?

Well, again there was no option so it would have to have been made to work. But it set out the solutions in the broadest terms and the real bulk of the work would have had to be done during negotiations with little serious preparatory work. We now have a case study of what that looks like with the Brexit negotiations. The White Paper contains a bit more detail about how the transition would work than anything produced before Brexit, but then the task is much, much bigger since the Brexit negotiations were mainly about trade and that is only a single aspect of what would need to be agreed after independence.

Couldn't it work this time?

It would be very substantially harder to pull this off at the next referendum. The 2014 White Paper took a key shortcut round some of the most difficult questions by proposing a wide range of shared functions with the UK and assuming both Scotland and rUK would remain EU members. Since sharing options like a currency union are off the table and Britain has left the EU, there really aren't any shortcuts this time. We need to work through almost every aspect of starting Scotland as an independent country thoroughly and carefully and attempting to do that only after a referendum vote would be extremely risky.

But aren't all these decisions for after independence?

There is a profound misunderstanding about this. There are two aspects – one is how to create the 'machinery' of an independent country and the other is what we can do with that machinery once Scotland is independent. But you can't run a government, public services or a modern democracy until the machinery which makes them work is in place. For example, unless some kind of special agreement was reached with the UK it could be impossible to trade across the border until a Scottish borders and customs system is in place. Relying so heavily on a generous transition deal would be very risky, especially post-Brexit.

So is this a case for independence?

No, in that it only tells you how an independent Scotland would be set up, not whether it would be better or worse to live in. But that doesn't mean it isn't important for campaigning, because without it we will be virtually unable to answer any of the questions posed by those who oppose independence during a campaign. Attacks such as 'the currency will devalue and prices in the shops will rise' or 'there will be passport checks at the border' can't be answered unless we have made plans for how to set up and manage a currency and how borders infrastructure will be established.

Keywords

Scottish Government

Independence negotiation

Independence details

Claiming Scotland’s Assets: A discussion paper on the division of assets and debts to an independent Scotland

Stephen Richard — Sun, 12 Sep 2021 19:49:42 +0000

Claiming Scotland’s Assets: A discussion paper on the division of assets and debts to an independent Scotland

Primary Author or Creator

Craig Dalzell

Stephen Richard Sun, 09/12/2021 - 20:49

Additional Author(s) / Creators

Common Weal

Alternative Published Date

September 2016

Within Our Grasp

Stephen Richard — Sun, 12 Sep 2021 06:49:55 +0000

Within Our Grasp

Primary Author or Creator

Robin McAlpine

Stephen Richard Sun, 09/12/2021 - 07:49

Additional Author(s) / Creators

Common Weal

Date Published

Thu, 01/24/2019 - 12:00