Transitioning to a New Scottish State - PD

8/11/2019 Transitioning to a New Scottish State - PD

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Transitioning to a newScottish state

Immediate set-up costs, how the handover will

work, and the long-run viability of Scottishgovernment

By Professor Patrick Dunleavy, with Sean Kippin and Joel Suss

blogs.lse.ac.uk/politicsan


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Transitioning to a new Scottish state

About this e-book

Democratic Audit and the LSE Politics and Policy blog have bothbeen at the forefront of coverage of the Scottish independence

referendum, oering epert academic analysis of the economic,

policy and geopolitical implications! This e"boo# aims to be

another contribution to this debate, which provides a conclusive

answer to the much discussed $uestion% how much will it cost to

set up a new Scottish state&

About the author

Patric# Dunleavy is Professor of Political Science at the London

School of Economics! 'e is also co"Director of Democratic Audit,

the (hair of the LSE Public Policy )roup based within the School*s

)overnment department, and the )eneral Editor of the LSE

Public Policy )roup*s award"winning blogs! +oel Suss is managing

Editor of the LSE*s ritish Politics and Policy blog! Sean -ippin is

.anaging Editor of the Democratic Audit blog!

Democratic Audit is an independent researchorganisation, established as a not"for"pro/t company,and based at the London School of Economics PublicPolicy )roup! 0ur core ob1ectives are to advanceeducation, enhance democratic engagement and tounderta#e and promote research into, the $uality andeectiveness of 2- democracy! 3e produced our most recent audit of2- democracy in 4564, and manage a blog with publishing daily postswith new research and opinion from democracy eperts andpractitioners! www.democraticaudit.com

The ritish Politics and Policy is a multidisciplinaryacademic blog run by the London School of Economicsand Political Science! 0ur central aim is to increase thepublic understanding of ritish politics and policy byproviding accessible academic commentary andresearch! 3e have no editorial 7line* beyond acommitment to communicating social science research andcommentary in ways that enhance public debate and understanding!www.blogs.lse.ac.uk/politicsandpolicy


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!ublished by "emocratic Audit

And #S$ !olitics and !olicy

Twitter% &democraticaudit

S$!olitics'log

$(ecutive Summary

An independent Scotland would face immediate set"up costs of up to 8455 million in

creating new administrative structures that duplicate 2- institutions, but could also

streamline many public bodies! During the transition process, the Scottish

government could agree contracts or service deals with London to maintain eisting

bac# o9ce support system :mainly involving ;T< in collecting taes, paying bene/ts

and organi=ing comple defence systems! ;n the medium term :by 456> to 4546

collaboration networ+5. 2ntil SS( could prove that it could +eep important secrets and also #enerate

reliable intelli#ence information of its own, it could not be a part of these lin+s on the same basis as the

23. 6he operations of the Scottish constitution in intelli#ence matters would also need to be established.

'erhaps five years of effective operation would be needed for this situation to chan#e

On the other hand, Scotlands ris+ profile in the intelli#ence area mi#ht well be much reduced compared to

that of the 23. 6he Scottish #overnment could draw on some si#nificant talent in this area. (nd to startwell it could afford to offer #ood pay and interestin# opportunities to attract hi#h calibre staff, and to fund

state of the art equipment and facilities while its defence spendin# is buildin# up. !inally Scotlands

national police force means that the SS( would need to do a #ood deal less than MB in terms of

homeland security.

6he Scottish &efence Force and &efence &irectoratewould have perhaps the hardest tas+s of any.

Scotlands defence needs are heavily concentrated in capital intensive areas of spendin#, a navy to patrol

its lon# coastline and e$tensive sea areas and oilfields, and an airforce to cover the countrys hu#e land

mass and bi# northern air sector. 6he Scottish #overnment envisa#e startin# out with essentially two

fri#ates and one fast "et squadron and a maritime patrol capability, and with a small army. Over the first

term of the new Scottish parliament to /0/0, these capacities would essentially double in siGe, and Scotland

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would pro#ressively ta+e over 4or inte#rate within "oint or *(6O structures5 more of the command and

control, bac+ office and procurement systems from r23s Ministry of &efence.

6he ScottishForeign #ffairsdirectorate would build on the e$istin# small e$ternal affairs capability, and

could draw immediately on an e$istin# overseas networ+ of / Scottish trade dele#ations, many of which

mi#ht be up#raded into embassies. 6he priority for overseas representation would be for Scotland to start

out with +ey representation in international or#aniGations, such as the ?uropean 2nion, *(6O, the 2nited

*ations and so on. 6here would be comple$ ne#otiations to secure Scotlands place in the ?2 and *(6O,

and the Scottish #overnment could not assume that these would be easily or routinely assured. ?qually

appointin# +ey ambassadors and #ettin# overseas representation in B0 main countries would be a

considerable challen#e, but one for which Scotland could draw on an e$tensive talent pool.

Ta!es and benefitsn many ways the most important problems mi#ht not lie with the brand new Scottish

functions. nstead they mi#ht occur in the directorates controllin# ta$ and social security, which wouldhave lar#e and often senior staffs used to the 23 way of doin# thin#s, and not used to the Scottish

#overnments or#aniGation patterns and culture. (s with many company mer#ers, #ettin# new and old

or#aniGational cultures to mesh to#ether could be a challen#e.

7owever, Scottish 'eenuealready e$ists as a new unit in ?dinbur#h and has already ta+en over the

collection of a land fill ta$ and stamp duty equivalent. ?qually, on benefits Scottish local authorities

already handle all the administration of one of the most comple$ and costly of all welfare payments,

namely housin# benefits.

6he&ebt (anagement )ffice for Scotlandis an e$ample of a smaller a#ency that none the less has a +ey

function. n addition to ta$es, states raise lon#-run borrowin# by issuin# bonds in financial mar+ets,especially to fund investment spendin# and capital pro"ects. 6he Scottish #overnment intends to ta+e on a

share of the 23s national debt 4the siGe to be ne#otiated5 and its &MO would at first underta+e

repayments and financin# of these past liabilities. (s it establishes a sound reputation in bond mar+ets, and

be#ins payin# down its share of 23 liabilities, so the &MO would be able to be#in issuin# new Scottish

debt. Scotland has a #reat deal of financial e$pertise to draw on here.

On the wider ran#e of*ublic bodiesit is worth loo+in# at "ust a couple of e$amples. !irst, to fund

university research pro"ects, the 23 runs si$ different research councils, four in the sciences, one each for

social sciences and the humanities, and one to do the bi##est capital pro"ects. n Sweden by contrast 4twice

as lar#e as Scotland5 there is "ust a sin#le @esearch ouncil that runs all the same functions as the 23 in

one or#aniGation. 6his is an e$ample of a medium siGe a#ency remodellin# and the streamlinin# that should

be feasible with a fresh canvas.

Second, ta+e a small public body li+e the ?lectoral ommission, which has a bud#et of I/1 million and

re#isters political parties and supervises how elections are conducted. Scotland would need only a very

small equivalent body, a set of commissioners and a small staff, perhaps costin# I/ million a year to run.

6here would be some set-up costs here, but they would be tiny as for most of the public bodies covered

in !i#ure / above.

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,. Scotland)s assets #and liabilities+

efore we leave financial numbers behind for broader issues, it is worth notin# that after a )es vote there

would also have to be important ne#otiations between Scotland and London to divide up 23 public assets

4and also #overnment liabilities li+e the national debt and pension costs5. 6he #eneral principles here are

clearF

- !i$ed assets 4land, buildin#s etc.5 will #enerally


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spendin#, or runnin# a full-spectrum diplomatic service, or desi#nin# and contractin# for comple$ 6

systems in policy fields for which Scotland has no le#al standin# at present. 6he Scottish #overnment has

hired some #eneralist planners, and convened some stron# e$pert committees to prepare for transition, but

without havin# detailed information or interactions with :hitehall.

ronically too, 23 ministers li+e &anny (le$ander, and unionist parties in the Scottish 'arliament, have

repeatedly pressed the Scottish #overnment to specify transition costs that are many years down the trac+

and will depend e$tensively onF

- how Scottish voters choose MS's in /01K

- which #overnment is formed thenK

- what policy decisions Scottish M's then ma+e.

Most important of all, these transition costs depend very heavily not "ust on the Scottish #overnment, buton how the r23 conducts ne#otiations. London ministers could ta+e a hard line that apparently cares little

or nothin# for the future welfare of Scottish citiGens 4as perhaps with their declared stance on monetary

union5. 6his would force throu#h a complete transition quic+ly even thou#h such a course dama#es the

r23 itself economically, ma$imiGes costs in r23 #overnment, and creates ris+s for r23 citiGens. n this

case Scotlands transition costs would be much hi#her, and the ris+s of service #aps openin# up would be

#reater.

)et if ne#otiations do become a tou#h po+er #ame, the Scottish #overnment still has some bi# chips that it

mi#ht play. !or instance, (le$ Salmond has insisted that the !aslane nuclear submarine base must close by

/0/0 which he must +now is an infeasible deadline for the r23s Ministry of &efence to meet. Similarly,

the 23 #overnment has already had to announce to bond mar+ets that in the event of Scottish

independence it #uarantees the whole of the 23s e$istin# public debt so that 4in theory5 Scotland could

launch debt-free as a nation.

(lternatively, in ne#otiations London ministers could a#ree to share services with Scotland durin# a well-

phased and "ointly planned transition period, disentan#lin# services in an orderly sequence, with Scotland

meetin# the interim costs to 23 ta$payers. 6his is what the Scottish #overnments plannin# and :hite

'aper essentially assumes. n this case Scotlands transition costs would be much lower. t would have to

spend mainly on new investments rather than on


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4. The longrun viability o& a Scottish state

Over many decades, how a state is set-up and how it wor+s can have enormous implications for its society

and economic well-bein#. n 1D00 (r#entina was one of two states with the hi#hest levels of %&' per head

in the world 4the other was (ustralia5. )et decades of political corruption, 'eronism, military coups and

dictatorships and stron# social inequality saw (r#entina tumble down the %&' ran+in#s throu#hout most

of the twentieth century.

Modern political science shows that runnin# an advanced state now involves all the thirteen critically

important functions shown in !i#ure . (ll of these components must be in place if the state is to succeed

and flourish. n Scotlands case most of the bo$es already loo+ fine. 6hose that remain to be established are

shown by one star 4denotin# some e$tra capacity needed5 or two stars 4denotin# ma"or capacity needed5.

:e comment briefly on each of the elements.

Figure 3: Thirteen essential &eatures o& statehood 5 and the areas where Scotland needs to build up

4shown by s5

*otesF Lar#e capability #ap to be made up in Scottish #overnment Some capability improvement needed in Scotland

SourceF '. &unleavy, /01;. (vailable atF httpFEEeprints.lse.ac.u+EB;D/E

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#+ The state as a stream of ta! reenuesunderpins everythin# a #overnment machine does. n Scotlands

case the Scottish accountants 4(S5 have produced a lon# academic report dwellin# in a rather va#ue way

on the comple$ities of runnin# a ta$ system. ut with a stable 23 ta$ re#ime in place in the country for

many decades, and plenty of stron# e$pertise for the Scottish #overnment to draw on, there seems every

reason to believe that Scotlands revenue stream will continue as before. ndeed


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/+ The regulatory stateis well set-up in Scotland for almost all social and economic issues, reflectin# its

le#al soundness and public service stren#ths. 6he Scottish #overnment proposes to establish a sin#e

economic re#ulator, which should cut costs and improve policy cohesion. 6he only area of wea+ness

concerns financial system macro-re#ulation 4see (A above5.

F+ The elfare statein Scotland is already mostly operated by the devolved #overnment, drawin# on stron#

23 traditions and with some moderniGation. 7andlin# social security raises some new 6 challen#es and

policy issues, but the &:' local offices on the #round will transfer across. :elfare issues become

somewhat less comple$ at a smaller scale and in a more defined set of area conte$ts.

+ The security state is well established on the policin# front, aided by recent reforms. reatin# a new

intelli#ence a#ency, and then developin# its international reputation to #row co-operation with other

countries are +ey challen#es for an independent Scotland discussed above. 6he new written constitution

mi#ht constrain the a#encys efficacy. (lternatively, it mi#ht help citiGen and business confidence, byresolvin# the myriad privacy ri#hts etc left lar#ely unresolved in the 23s uncodified constitution.

+ The defence stateis the most important area where a new Scottish #overnment needs to prove itself.

(ttractin# service personnel to a smaller, inte#rated defence force may pose difficulties. )et Scotland can

also draw on stron# military traditions and a considerable pool of talent and motivation.

"+ The national identity stateis crucially important for the coherence of a society around its #overnin#

system. Scotlands e$istin# sense of national and identity is very stron# indeed, with a distinctive social

culture that is world famous and a characteristic politics with limited internal factionalism. 3ey unifyin#

institutions, such as the monarchy, would remain. 6he li+elihood seems stron# also that after a somewhat

divisive referendum campai#n, Scots would stron#ly pull to#ether in the event of a )es vote.

+ The coalitional,bloc stateis vitally important in modern world affairs, especially so for smaller states.

(lthou#h #reat power incursions in ?urope had seemed to lar#ely recede, the recent @ussian occupation of

rimea and destabiliGation of 2+raine over a lon# period show that si#nificant threats remain for any

isolated state, even in the modern world system. Scotland, however, has stron# alliance positions within the

?2 and *(6O, that will need to rene#otiated, but do not seem to be in any lon# term doubt

Summin# up across all these dimensions, the future viability of a Scottish state #enerally seems hi#h. Once

some limited new capacities are developed, the prospects seem set fair for #enerally #ood #overnance over

the lon# term.

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6onclusions

:e can say with some confidence that Scotlands immediate set-up costs are li+ely to be constrained

perhaps up to I/00 million in creatin# new versions of a few but bi# e$istin# 23 department capabilities.

eyond that, the 23 6reasury has cited a report based on anadian studies that su##ests a ran#e of other

transition costs from as little as I00 million at the low end 40.; of 1 per cent of Scotlands %&'5, up to

I1.B billion 41J of Scottish %&'5 at the hi#h end. 6his is a very wide mar#in, and the study itself was of

Nuebec some years a#o, and not of Scotland now.

6he 23 6reasury has also su##ested that Scotland could face disentan#lin# costs, 6 and new

administration costs in ta$ation and benefits of perhaps as much as ID00 million. ut if anythin# li+e these

amounts were to be incurred, it would be in a phased way by the Scottish #overnment creatin# new and

moderniGed 6 and administrative systems that would endure for many years. 6hey hence ta+e on thecharacter of investments, where future runnin# cost savin#s would also be sou#ht.

Scotlands transition costs are also li+ely to be si#nificantly offset byF

- some si#nificant

Transitioning to a New Scottish State - PD

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