The Sunday Times commissioned an independent and politically neutral study of the likely setup costs for an independent Scotland from the Centre for Economics and Business Research; and has published its conclusions today, 31st August 2014.
The author of the researched analysis is Sam Alderson, who has, in his work, referred to:
- the work of Professor Patrick Dunleavy of the London School of Economics, who put the set up cost at £250 Million. It is worth noting in respect of this estimate of the costs of building a nation state, that the final cost of building the Scottish Parliament was officially put at £414.4 Million;
- the UK Treasury’s estimate of setup as costing £1.5 Billion;
- the cost of Slovakia’s adoption of the euro in 2009
- the Deputy First Minister’s figure of £200 Million to set up a Scottish intelligence service.
He has calculated that an independent Scotland wold need almost 200,000 civil servants – but has allowed for the fact that a substantial proportion of this number are currently deployed within NHS Scotland and Police Scotland.
Within his overall estimate of £2.4 Billion, he has quantified the following individual costs:
- £1 Billion: for Scottish tax and welfare systems and the IT systems they would need to enable their operation;
- £0.4 Billion: for the proposed Scottish Defence Force;
- £0.45 Billion: for a Scottish Foreign Office’s real estate and offices – around 100 embassies and consular offices;
- £0.2 Billion: for a Scottish Intelligence Service – Ms Sturgeon’s estimate;
- £0.06 Billion [£60 Million] to expand Scottish directorates from 5 to 9 – excluding the ‘many millions more’ to set up a Scottish department of work and pensions;
- £0.02 Billion [£20 Million] for a Scottish broadcasting service.
The total estimate of £2.4 Billion excludes the substantial costs of sterlingisation as a short term stop gap to a new Scottish Currency and the cost of setting up that currency in the near future.
Using Slovakia’s experience in adopting the euro as a template, the estimate for setting up a new currency is £1.5 Billion, covering the costs of:
- updating information systems;
- price conversion;
- dual pricing;
- currency exchange;
- training of personnel;
- public education.
Then the physical business of production and distribution of a new currency – with the necessary establishment of a Scottish Central Bank which would also act as lender of last resort – is estimated at up to £2 Billion.
The study’s genuine neutrality is clear in its assurance that the total £2.4 Billion setup costs amount to around 2% of Scotland’s GDP and would not hit an independent Scotland in a single whopping bill in its early days.
There would be substantial immediate costs but many would be spread over time, possibly over as long as a decade, smoothing the impact.
However, whilst there would be some useful smoothing of initial setup costs, the CEBR study indicates than an independent Scotland would have a more imminent funding crisis.
It would face the requirement to borrow around £12 Billion a year – or raise taxes significantly [or a mixture of the two] to bridge the gap between tax revenues and spending on public services. For a new country with a population of 5.3 million, amongst which is a modest proportion working and paying taxes, dealing with the cost of this gap between income and outgoings would obviously be a steep ask.
Of course all of this could be managed – but not with the standard of living and public services that Scotland currently enjoys. There would have to be austerity measures – in higher taxes and reduced public services. This time it would be Scotland’s own austerity. The nation has also not been readied to batten down for a decade or so. It has been promised liberation into wealth from day one. That creates a problem of unreasonably raised expectations whose consequences will have to be confronted in the aftermath if, 18 days from now, Scotland votes to go solo.
