Public finance in an independent Scotland

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.

Author or Creator
Common Weal