Scottish Government

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

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

The costs of independence and the work required to set up new governing systems

Stephen Richard — Tue, 26 Oct 2021 14:24:21 +0000

The costs of independence and the work required to set up new governing systems Stephen Richard Tue, 10/26/2021 - 15:24

Author or Creator

Common Weal

What are the cost implications of independence for Scotland?

All of this being the case, what is the financial impact on Scotland of independence?

There are three aspects to this – the initial debts inherited, the cost of the work to become independent and the ongoing financial position of Scotland after independence. The last of these is not part of the process of establishing a new country and so has not been considered here.

So what is the debt aspect of this?

As was discussed under negotiations above, that is not something we can know until negotiations are complete, but there isn't really a scenario where Scotland's debt liability is any higher than it already is inside the UK and there are a number of scenarios where it could be less – and even significantly less. As we have seen through two periods of very large scale 'quantitative easing' right across Europe and indeed the wider world, debt size in comparison to the size of the economy when you are in charge of your own currency is not a major concern. The issue is the cost of servicing it which will not be higher than it currently is for Scotland.

But these questions reveal a lot of set-up costs do they not?

Yes, but this should be put into perspective. If you add up all of the above costs then the total comes to about £25 billion and this is not particularly large when we think about the bank bailout or the emergency Covid measures. And it is dominated by two major costs – the cost of setting up a Foreign Currency Reserve and cost of setting up a Scottish Defence Force. The first of these is a cost but it is also an asset (this is real money you can spend and invest) and the second would be spent over a decade and much of it would come from annual spending on defence which would actually be less than what we are spending at the moment as part of the UK. These are all one-off costs and in the end are no more than a small proportion of how much Scotland's share of the bank bailout cost.

So that is how much the national debt would rise by to become independent?

No, that is the total cost of the set-up and doesn't include Scotland's likely share of the UK's assets. About £15 billion of the £25 billion total would come to Scotland as a share of assets (or would be subtracted from debt). The additional cost to Scotland which would be borrowed is only £10 billion which, as a one-off, really isn't that substantial.

How would we pay for it?

To go back to the beginning, the National Commission would be given bond-issuing powers so would use this to borrow the money as it does its work. At the end this would be consolidated and added to the national debt.

What do we get for our money?

Well, our own country – and a giant economic stimulus. An awful lot of the money it would cost to set Scotland up as an independent country would be spent on goods, services and wages inside Scotland would would help to boost Scotland's economy.

And then?

What happens after all of this set-up is done?

Whatever we want. Then we will be a normal nation, nation number 196 – just like the other 195. The citizens of Scotland will vote for governments and whatever government we vote for will steer the nation until the next election. The possibilities are limited only by what we demand of our governments and we will have no-one else to blame for our decisions. In other words, we will be independent.

Keywords

Scottish Government

Cost of independence

A Holyrood you trust or Westminster you do not? Open Minds on Independence #23

Stephen Richard — Sun, 10 Oct 2021 17:29:05 +0000

A Holyrood you trust or Westminster you do not? Open Minds on Independence #23

Primary Author or Creator

The National

Stephen Richard Sun, 10/10/2021 - 18:29

Additional Author(s) / Creators

Believe in Scotland

Date Published

Sat, 05/01/2021 - 12:00

Building Scotland’s future now: A new approach to financing public investment

Stephen Richard — Tue, 07 Sep 2021 07:14:51 +0000

Building Scotland’s future now: A new approach to financing public investment

Primary Author or Creator

Iain Cairns

Stephen Richard Tue, 09/07/2021 - 08:14

Additional Author(s) / Creators

Christine Cooper, Andrew Watterson, Ben Wray, Common Weal

Alternative Published Date

2017?

A Citizens’ Assembly for the Scottish Parliament

Stephen Richard — Sat, 04 Sep 2021 09:41:01 +0000

A Citizens’ Assembly for the Scottish Parliament

Primary Author or Creator

Common Weal

Stephen Richard Sat, 09/04/2021 - 10:41

Additional Author(s) / Creators

Sortition Foundation, New Democracy

Alternative Published Date

2020?