Scottish independence: Will people in Scotland be better off?

Being better or worse off in an independent Scotland is the million dollar question - and both sides of the referendum debate claim to have the answer.

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The UK Treasury published a report saying there was a £1,400 per person, per year reason why voters north of the border should remain in the Union.

Countering that argument, and those figures, was a document from the Scottish government saying that after independence, Scots would be £1,000 per person, per year better off.

Here, I dissect the figures........

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Why are the two sets of figures different?
Man piling money up

Well, it's because they are looking at different things and of course they're each trying to prove a very different point, and you can prove either side of this debate depending on which numbers you use.

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What are the Treasury figures based on, and are they correct?
Colour money piggy bank

The team from the UK Treasury have put together what they are calling the cost of independence made up of five different elements.

They say;

  1. Scotland is currently spending more than it takes in taxes, and that's a bigger difference than the rest of the UK. That's known as the fiscal deficit. The figures are based on an average of £1,000 per head in the first year of independence. Figures from the Scottish government, the IFS, Citigroup, and the CPPR all agree that there will be a deficit in the first year of independence. The Scottish government is hoping to reverse this position over the longer term.
  2. Oil revenues are declining, and that's a really big chunk of what Scotland's finances are based on. The Treasury figures are based on the OBR's forecasts, which are much lower than the Scottish government forecasts, and they point out that even the much lower projections from the OBR have been too optimistic in previous years.
  3. The white paper has already promised a lot of policies that would be expensive to deliver, like increasing childcare provisions. The Treasury estimate that those costs would be £1.6bn per year. They admit there will be a "small offsetting" due to extra taxes the government would take in with these policies. The Scottish government say in the long-run the policies would pay for themselves.
  4. There are fewer working age people and more pensioners in Scotland, and it'll cost a lot to make sure Scotland can keep paying pensions at the same rate. The Treasury say the population would have to grow by 24,000 a year over 20 years to sustain current spending. That's the same as the total population of Edinburgh. This is based on research by Eurostat, which says that the population is only growing by about 5,000 a year at the moment which leaves a shortfall of more than 17,000 a year which would have to be met by migration. The Scottish government agrees that they will need to increase migration, and they have policies which they say would encourage that.
  5. Finally, they say it would cost a lot to set up the structure of a new state. This has been the most controversial figure as the Treasury pre-released two figures, one of which has been roundly disregarded. They said it could be £2.7bn, but this was based on a miscalculation of the number of new departments, and LSE research, which the author professor, Patrick Dunleavy, said had been misrepresented. The Scottish government have successfully brushed this figure off the table. The second figure they suggested was £1.5bn, based on Prof Robert Young's research into Quebec, suggesting it would cost 1% of GDP to set up a new state. The Scottish government have not come up with their own figure for how much it would cost to set up the bodies needed to run a new country.

Independence: Treasury view

Each person in Scotland

£1,400

a year better off in UK

  • 13% more tax needed to maintain independent Scotland public services, or...

  • 11% cut in public services needed to keep current tax levels

  • £1.5bn-£2.7bn estimated cost of restructuring Scotland's institutions

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What are the Scottish government figures based on?
Pile of money

On a per capita basis annual tax receipts in Scotland have averaged £10,000 over the past five years, £1,200 per person higher than the UK as a whole. This is based on the GERS economic figures, which is guaranteed by the UK Statistics Agency. This figure is often disputed because it all depends on how many years you cover, last year Scotland had a bigger deficit than the rest of the UK, but over a five year period it's slightly smaller.

They say that Scotland's economy is the 14th wealthiest country in the world. Now, that is true, but it's based on OECD figures looking at GDP per person by country. It's essentially measuring how much money is created in the Scottish economy each year, rather than how much the government takes or spends.

The Scottish government say Scotland will benefit from a share of £1.3 trillion of UK assets. There is agreement that an independent Scotland would get a chunk of all the things belonging to the UK, which is likely to be offset against Scottish debt. However, the Treasury point out that until negotiations take place, the exact figure can't be known.

Scottish ministers say they will improve productivity and grow the population. The Scottish government say if they had the full powers of an independent country then they could improve productivity and population growth. This is very much the area of future possibilities. It's certainly possible to implement policies which could encourage migration and boost production, but there's no way of guaranteeing that this would happen even if it was implemented.

Independence: Scottish government view

Each person in Scotland

£1,000

a year better off out of UK

  • Onshore tax receipts will be up £5bn by 2030

  • 14% increase in oil and gas production between 2013-18

  • Tax receipts currently 14% higher in Scotland than UK

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Will we be better off or not?
People discussing money matters

The difficulty here is that it's almost impossible to know whether either figure is correct. When we're dealing with economic projections 20 years into the future, there is a huge amount of things that could make the figure go up or down.

The UK figure does not reflect any possible cuts to Scotland's budget if the amount of money Scotland gets from the UK through the Barnett formula is reduced.

The Scottish government has focussed most of its attention further down the line, saying that the tough elements for the economy could be offset by making different choices, and without giving a figure for setting up a new country.

And for both sides, it very much depends on how those crucial post-independence negotiations would pan out.

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