Public finance

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

The Barnett formula

Stephen Richard — Mon, 18 Oct 2021 22:06:32 +0000

The Barnett formula Stephen Richard Mon, 10/18/2021 - 23:06

Author or Creator

J. R. Cuthbert

The overall effect of the new Barnett funding system is to place Scotland in a vulnerable position, where it is at much greater risk of falling into a cycle of economic decline relative to the rest of the UK.

This paper sets out to de-mystify the effects of the Barnett Formula – the mechanism which has delivered the bulk of the funding for Scottish domestic services over the past forty years. There has always been considerable ambiguity about the effects of the formula: with some holding that it is a mechanism which would eventually deliver converging levels of per capita spending in the different countries of the UK: while others held that it protected expenditure differentials. The paper explains why, partly because of the effects of relative population change, both views were correct at different times in the period up to 2015. In particular, at times of austerity, the formula operated to protect relative per capita spending levels in Scotland. Largely by accident, the Barnett Formula delivered some of the features expected in a properly functioning monetary union. After 2015, however, with the introduction of the post referendum fiscal settlement, the position is quite different. While Barnett still plays a part, the overall effect of the new funding system is to place Scotland in a vulnerable position, where it is at much greater risk of falling into a cycle of economic decline relative to the rest of the UK.

Scottish Affairs, vol 29, issue 3

Keywords

Barnett formula

Public finance

Scotland's economy

The Accounting Trick that Hides Scotland’s Wealth

Stephen Richard — Fri, 15 Oct 2021 22:10:54 +0000

The Accounting Trick that Hides Scotland’s Wealth Stephen Richard Fri, 10/15/2021 - 23:10

Author or Creator

Business for Scotland

It is common to see the report used as evidence of the size of deficit that would befall an independent Scotland but this would only be the case if one imagines public finances being set up exactly as they are within the rest of the UK. An independent Scotland would almost certainly look to control tax, spending and borrowing powers differently than the current set up, and that makes it more difficult to predict what the country’s finances would look like.

Scotland has everything that it takes to be an extremely prosperous and successful independent nation, and more. Scotland with only 8.4% of the UK population possesses 34% of the UK’s natural wealth.

This prompts the question – why does a naturally wealthy nation with a strong, resilient and diverse onshore economy, booming exports, a highly educated population, low unemployment, a wealth of oil and renewables, and a wide range of strong economic sectors have a set of accounts (GERS) that suggest that Scotland’s finances are weak? That is a trick question, it doesn’t. GERS is not a set of accounts for spending in Scotland it contains spending outside of Scotland that doesn’t benefit Scotland economy and that Scotland didn’t generate. GERS also contains clear evidence of mechanisms for removing wealth from Scotland’s accounts which then creates a phoney deficit. There are actually several hidden mechanisms for stealthily removing Scotland’s wealth.

Keywords

Scotland the Brief

Stephen Richard — Tue, 26 Oct 2021 20:19:05 +0000

Scotland the Brief

Primary Author or Creator

Gordon MacIntyre-Kemp

Stephen Richard Tue, 10/26/2021 - 21:19

Additional Author(s) / Creators

Business for Scotland

Publisher

Business for Scotland

Alternative Published Date

2020

Category

Economy

Public Finance

Type of Resource

book

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

191pp

Fast Facts

All you need to know about Scotland's economy, its finances, independence and Brexit.

More details

Scotland the Brief began as a collection of illustrated Scottish economic facts published by Business for Scotland. Over two years, those graphics generated more than four million views and shares on our website and via social media. From that foundation, we’ve produced this book.

Scotland the Brief summarises an in-depth investigation into the breadth, structure and quality of Scotland’s economy. It is written in layman’s terms by Gordon MacIntyre-Kemp and colourfully illustrated by Stewart Bremner to make it easy to understand and absorb, as well as fun to read.

Scotland the Brief answers the burning question – would Scotland prosper as an independent nation?

We also take an in-depth look into the UK Government’s economic record, which we compare to other Western and Northern European nations – with frankly shocking results. The fact is that you cannot truly understand Scotland’s economy and its finances until you have read Scotland the Brief.

Regardless of how you feel about independence, Scotland the Brief will open your eyes, engage and educate you by supplying you with the facts you need to truly inform your opinion on Scotland’s future.

Scotland the Brief comes in two versions:

The standard-sized A5 book nicknamed the Maxi contains a lot more information across 190 pages, backed up with a numbered list of 418 sources for facts throughout the book. A reference copy for anyone who wants to understand Scotland economy – The Maxi book retails at £7.50.
The Mini, an A6 sized book is the quick reference copy (a 74-page abridged version of the full-sized book) it fits easily into a jacket pocket or handbag and most of the pre-orders are for people who intend to keep one to read and one give to friends and colleagues. The Mini retails at £3.50.

Resource Address (URL)

https://www.businessforscotland.com/scotland-the-brief/

Keywords

Language English

Nationalism and the politics of austerity: comparing Catalonia, Scotland, and Québec

Stephen Richard — Wed, 06 Oct 2021 09:15:33 +0000

Nationalism and the politics of austerity: comparing Catalonia, Scotland, and Québec

Primary Author or Creator

Daniel Beland

Stephen Richard Wed, 10/06/2021 - 10:15

Additional Author(s) / Creators

Andre Lecours

Date Published

Tue, 12/17/2019 - 12:00

Category

Economy

Public Finance

Type of Resource

Academic Paper

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

18pp

Fast Facts

This analysis of the impact of austerity on nationalism stresses the role of blame as it interacts with political institutions and fiscal pressures.

More details

National Identities Volume 23, 2021 - Issue 1, pp 41-57. Paywall

Resource Address (URL)

https://www.tandfonline.com/doi/abs/10.1080/14608944.2019.1660312

Keywords

Language English

The SNP must rethink its economic model for an independent Scotland

Stephen Richard — Wed, 06 Oct 2021 08:45:14 +0000

The SNP must rethink its economic model for an independent Scotland

Primary Author or Creator

Laurie Macfarlane

Stephen Richard Wed, 10/06/2021 - 09:45

Additional Author(s) / Creators

Open Democracy

Date Published

Tue, 10/27/2020 - 12:00

Category

Economy

Currency

Type of Resource

Assessment report

Fast Facts

A critique of the Growth Commission's report. "Far from being an asset to the independence cause, the Growth Commission is its biggest liability. It’s time, as we say, ‘tae think again’."

Resource Address (URL)

https://www.opendemocracy.net/en/oureconomy/snp-must-rethink-its-economic-model…

Keywords

Language English

Brexit has reinvigorated Scottish nationalism

Stephen Richard — Tue, 05 Oct 2021 11:47:12 +0000

Brexit has reinvigorated Scottish nationalism

Primary Author or Creator

The Economist

Stephen Richard Tue, 10/05/2021 - 12:47

Date Published

Sat, 04/17/2021 - 12:00

Category

Independence

Type of Resource

News Media

Fast Facts

Scottish independence is a constitutional project, not an economic one. Fixing who governs you takes precedence over an easy life for supermarkets or civil servants. Brexit has shown that a committed government, with the mandate of a referendum and an appetite for dislocation, can go a long way.

Resource Address (URL)

https://www.economist.com/briefing/2021/04/15/brexit-has-reinvigorated-scottish…

Keywords

Brexit

Independence referendum

Public finance

International trade

European Union

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

Ambiguous no more: Time to de-mystify the Barnett Formula

Stephen Richard — Sat, 02 Oct 2021 17:39:26 +0000

Ambiguous no more: Time to de-mystify the Barnett Formula

Primary Author or Creator

J. R. Cuthbert

Stephen Richard Sat, 10/02/2021 - 18:39

Alternative Published Date

2020

Category

Public Finance

Type of Resource

Academic Paper

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

19pp

Fast Facts

More details

Scottish Affairs, vol 29, issue 3

Paywall in force.

Resource Address (URL)

https://www.euppublishing.com/doi/full/10.3366/scot.2020.0333

Keywords

Barnett formula

Public finance

Language English

The Barnett Formula

Stephen Richard — Sat, 02 Oct 2021 17:28:38 +0000

The Barnett Formula

Primary Author or Creator

Matthew Keep

Stephen Richard Sat, 10/02/2021 - 18:28

Additional Author(s) / Creators

House of Commons Library

Date Published

Fri, 05/28/2021 - 12:00

Category

Public Finance

Type of Resource

Briefing paper

Fast Facts

The Barnett formula calculates the annual change in the block grant. The formula doesn’t determine the total size of the block grant just the yearly change. For devolved services, the Barnett formula aims to give each country the same pounds-per-person change in funding.

More details

House of Commons Library Briefing PaperNumber 7386, 28 May 2021

Resource Address (URL)

https://researchbriefings.files.parliament.uk/documents/CBP-7386/CBP-7386.pdf

Keywords

Barnett formula

Public finance

Language English