Economics of Independence Westminster Mismanagement

Scotland’s £3.5 billion independence dividend

Written by Michael Gray

1504997_770680619609517_1400505445_nAn independent Scotland will save money that can be spent on building a better economy. This is because with independence Scotland will no longer fund services in London or policies that Scotland doesn’t need.

The main areas which lead to savings are nuclear weapons and defence, the London civil service, border services, tax administration, security services and the House of Commons and Lords.

Together these areas can save Scotland between £3 to £4 billion over a parliament. This is a substantial saving, the equivalent of £600-£800 for every person in Scotland. This is a far larger saving than any estimated ‘set-up costs’ of an independent administration.

As Professor Patrick Dunleavy of the London School of Economics wrote, “Cumulated over a decade, such policy savings might quickly dwarf set-up costs.”

How is it broken down?

Nuclear weapons, defence and security services are the most substantial saving areas for potential savings.

Scrapping Trident nuclear weapons would save Scotland around £200 million a year. This equals almost £1 billion over a Parliamentary term.

This saving is included in overall defence savings. The Scottish Government White Paper on independence proposes a defence spend of £2.5 billion, which is £500 million less that the £3 billion that is taken from Scotland’s accounts for Westminster costs. Over a five year Parliament Scotland would save £2.5 billion on defence in total.

Other military analysis went further and suggested Scotland could create an effective military with a spend of £1.8 billion a year. This would create a £6 billion saving over one Parliament. However, the actual spend is likely to follow the £2.5 billion figure in the early years of independence.

As previously explained on Business for Scotland, Scotland suffers from a defence underspend. This means that Scotland can invest in better defence infrastructure, protect jobs and save money.

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London Treasury building

Civil service costs

Scotland contributes to UK civil service costs. In the last five years £2.1 billion has been subtracted from Scotland’s accounts in the GERS reports for this reason.

However, there are several reasons why costs in an independent Scotland would be lower.  Salary costs are higher in London, as are property rates. Dan MacDonald, of MacDonald Estates, calculated that property costs in Scotland would be one-third lower and only 3-4 million square feet would be required. This compared to the 99 million square feet of property in London that Scotland contributes to.

Scotland’s £2.1 billion currently contributes to pan-UK costs, whereas an independent Scotland would have the continuity of pre-existing DWP (social services), HMRC (taxation) and MoD (military) assets in Scotland.

tax collection costs

HMRC performs well below countries like Estonia, Sweden and Switzerland in the efficiency of its tax collection

Tax collection

It’s worth considering some specific administrative areas.

The UK spent £3.84 billion on tax administration last year. This is because the UK’s tax administration costs are based on an less efficient model of tax collection than some other medium sized countries. The main spend is on large-scale IT projects.

Scotland’s current population share of these  UK costs is around £323 million. Following sensible reports (Mirrlees and Beveridge) could save Scotland significant amounts in administration costs.

Even Professor Patrick Dunleavy – who was cited by the UK Government on set-up costs- said that “cost gains” are “feasible” by following models such as the Swedish tax system. An independent Scotland would update it’s IT system around 2020, at which point significant savings can be made.

Border services

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The UKBA has a high spend on ‘Enforcement’

The UK spent £1.6 billion on the Border Agency. £416 million is spent on ‘Crime and Enforcement’. Scotland’s current share of UK costs is around £133 million.

A Scottish Border and Migration Service would require lower spending on security for airports, ports, coastal regions and in police support. Scotland, for instance, would not require the same level of intense policing that takes places between Dover and Calais and spending money on campaigns of intimidation like ‘Go Home Vans’.

Ireland’s ‘Irish Naturalisation and Immigration Service’ cost only £38.1 million in 2014. (£79.7 million if you include the migration accommodation budget) ((Source: Revised estimates for public services, page 94.))

In comparison to the Irish model, Scotland’s savings could be up to or even beyond £50 million a year.

Security services

Last year the UK spent £2.1 billion on its security services. Scotland’s spending contribution is approximately £180 million. Other countries within the 5 Eyes network spend far less than this per captia. (New Zealand, £41 million or £9.25 per capita; Australia, £215 million or £9.48 per capita, Canada, £281 million or £8.06 per capita)

Professor Patrick Dunleavy highlights that Scotland would have an integrated system and already have a national police force to take on security issues. An above average spend of £80 million/year or £15.1 per capita would maintain an effective service and free up a further £500 million in savings for the Scottish tax payer over a single Parliament.

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The Palace of Westminster

Scotland will save £60 million a year in no longer paying Westminster’s expenses for the House of Commons and Lords. This may seem like a small number within a national budget – but over 5 years £300 million would be a significant sum of money for extra spending, lower debt and lower taxes.

Investment policies focused on London & PFI

Westminster investment projects are disproportionately focused on London and the South East. Scotland still contributes in tax for these projects, while the returns remain unidentified.

£5 billion is earmarked for Crossrail 2 in the South-East from central Government. The refurbishment proposal for the Palace of Westminster is estimated to cost up to £3 billion. Public Finance Initiative obligations to the UK Government also equal £149.4 billion and £42.3 billion in interest.

Scotland future cost share of these projects is huge. On a head of population basis this would costs Scotland £400 million (Crossrail 2), £250 million (Westminster refurbishment), £12.5 billion (PFI obligations) and £3.6 billion (PFI interest). In total this costs £16.75 billion.

Conclusion

Over the course of a Parliament Scotland would make significant financial savings. Even moderate savings of £30 million and £20 million in tax and border administration equates to £250 million over a Parliament.

When added to £2.5 billion in military savings, £300 million in Westminster savings, and £0.5 billion in security service savings, Scotland would be at least £3.55 billion better off with independence.

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About the author

Michael Gray

Michael is Head of Research with Business for Scotland.

A graduate from the University of Glasgow, he has carried out a series of interviews with academics, politicians and the public in Denmark, Iceland and Ireland. Michael's on twitter @GrayInGlasgow.

4 Comments

  • All you guys do a great job, I look forward to your savings of Independence, in part at least, improving Scotland.

  • Well done on the BBC tonight – just wondering if at the outset, Alistair Darling did not want to head up Better Together campaign – Has he been “sacked”? Is there tension within the Better Together camp? Has anybody in Scotland or anywhere else seen Alistair Darling in the last few months? – Darling maybe missing in action…………..

    I also attending some meetings and event in London around this subject – there seems to be more public support the media is willing too acknowledge. i also find the correlation between only people resident in Scotland can vote for independence, but when people in Crimean doing the same, then the vote is invalid and not up held by other parts of the world. It’s almost like – democracy is different in different places.

    It’s easy to say there is a silent majority, about anything you to find your favour too, – that’s why we vote.

  • While I admire the attempt to make these calculations and I appreciate that people want to make a case for independence with hard numbers, from an academic standpoint you have to be very careful about making these kinds of claims.

    There are some key costs which haven’t been mentioned. For instance, transport spending is significantly higher in Scotland than the rest of the UK per capita because it costs more to maintain our rural road/rail network than it does in other parts of the UK.

    You also have to factor in things like our access to credit. We currently have very favourable rates at which we can borrow on the bond markets. A small variation in that can lead to very large economic consequences (far larger than relative trifles such as paying Westminster’s upkeep costs). That’s why any open and shut economic case for/against independence has to be taken with a pinch of salt. Nobody can predict how the bond markets will react, yet that one issue alone can be the difference between bankruptcy and an economic boom – as, for example, Spain shows.

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