How Will Independence Affect Scottish Taxpayers?

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September 22, 2012 by Nash Riggins

Scottish First Minister Alex Salmond blasted Work and Pensions Secretary Iain Duncan Smith this week after asserting that an independent Scotland would be financially unable to maintain many of its current welfare programmes.

According to Mr Duncan Smith, the Scottish government would be unable to meet the cost of adequately supporting those who cannot work without cutting social services or raising taxes. Mr Salmond, on the other hand, dismissed the claims as “offensive, nonsensical rubbish.”

“The man responsible for that has got the audacity to come to Scotland and tell us we couldn’t afford to have a compassionate and proper welfare protection,” Salmond countered. “We could have less borrowing, more spending and we would certainly be able to sustain a position where we didn’t reduce people with blindness to penury, as Iain Duncan Smith is currently doing in Scotland.”

Yet regardless of Mr Salmond’s anecdotal evidence that a blind man was ‘reduced to penury’ as a direct result of Duncan Smith’s welfare cuts, the facts and figures may rule in favour of the Work and Pensions Secretary.

According to the UK’s Treasury Public Spending Analysis, the Scottish government shells out £9,940 every year on each of its citizens – which is a whopping £1,409 more per head than in England. Scottish Nationalists counter that this figure is an unfair argument to bring forth, as ‘the public sector’ in Scotland includes water and sewage, more spending on education, a greater reliance on agriculture, free four-year university tuition for residents and dozens of public services that are unavailable in England.

According to the Government Expenditure and Revenue Scotland (GERS) report for 2010-2011, the consequences of these additional services have not gone unnoticed:

“In 2010-11, the estimated current budget balance for the public sector in Scotland was a deficit of £14.3 billion (12.0 per cent of GDP) excluding North Sea revenue, a deficit of £13.6 billion (11.2 per cent of GDP) including a per capita share of North Sea revenue or a deficit of £6.4 billion (4.4 per cent of GDP) including an illustrative geographical share of North Sea revenue.

In 2010-11, Scotland’s estimated net fiscal balance was a deficit of £18.6 billion (15.6 per cent of GDP) when excluding North Sea revenue, a deficit of £17.9 billion (14.7 per cent of GDP) when including a per capita share of North Sea revenue or a deficit of £10.7 billion (7.4 per cent of GDP) when a geographical share of North Sea revenue is included.

In 2010-11, the equivalent UK position including 100 per cent of North Sea revenue, referred to in the UK Public Sector Accounts as ‘net borrowing’, was a deficit of £136.1 billion (or 9.2 per cent of GDP).”

Unfortunately, these figures clearly unfold the tale of a devolved government facing substantial deficit – although perhaps not a deficit proportional to that of Westminster. In fact, First Minister Alex Salmond recently countered to the BBC that Scotland contributes “9.6% of the UK’s taxation, with 9.3% of the spending and just over 8% of the population. That is a relative surplus of about £2.7 billion in 2010/11, or £500 for every man, woman and child in the country.”

Are these numbers indeed accurate once general taxation has been factored into the equation? Absolutely so. What’s more, it cannot be denied that an independent Scottish government would find itself with a whole lot of pocket-money should a portion of its people’s taxes no longer be deferred to Westminster; however, unionists suggest the introduction of those funds should be deemed irrelevant. The Scottish government needs an average of £9,940 per person in order to provide its current level of public amenities – not a measly £500. As a result, it’s fair to say that, as matters currently stand, the Scottish government relies almost entirely upon financial subsidies from Westminster with regards to maintaining the majority of all public welfare services.

Yet even if all public tax revenue was sent directly to an independent government at Holyrood, said output would undeniably fail to pay for all current public expenditures. GERS figures indicate that in past years, the UK Treasury has regularly  spent around £54 billion per year on Scotland, but only receives £43.5 billion in Scottish revenue; therefore, how would an independent Holyrood scrounge up the additional £10.5 billion in tax revenue that would ensure a continuation of its currently enviable level of public services? A noticeable rise in government taxes, full stop.

Like it or not, the Work and Pensions Secretary knows more about work and pensions than does Alex Salmond. Mr Duncan Smith is absolutely correct in his assumption that an independent Scotland will face either a substantial rise in taxation or a decline in public services – because at the end of the day, money doesn’t grow on trees.

“Due to the reliance on the old heavy industries in many parts of the country, it makes perfect sense that we need to spend more money per head of population on welfare support in Scotland. I have no problem with that,” Duncan Smith explained yesterday. “Thankfully, due to the United Kingdom and the commitment of the Westminster Government, we are able to ensure that money brought in, whether it be from the City of London or from North Sea oil, can be pooled and directed to wherever it is needed most.”

Indeed, Scotland receives a lot of financial help from Westminster by way of funding its public welfare services – and, because Mr Salmond has so gingerly asserted that those public amenities are funded purely via general taxation, reason tends to suggest that a financially independent Scotland cannot have its cake and eat it, too. This shouldn’t be an argument for or against Scottish independence, because true nationalists should maintain that higher taxes are a small price to pay in order to make Scotland a better nation. Yet in the meantime, Alex Salmond would do well not to publicly embarrass himself by ignoring facts and statistics whilst arguing with other politicians who are vaguely familiar with the nature of addition and subtraction.

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12 thoughts on “How Will Independence Affect Scottish Taxpayers?

  1. scotbychoice says:

    Can I ask whether these calculations take into account not having to pay for Trident or foreign troop deployment, or the fact that the very act of setting up the replacement agencies we’ll need is going to provide more employment within Scotland, and therefore a higher amount of tax revenue and lower benefits bill? It sounds like there is a built-in assumption that spending will stay the same and unemployment will stay the same as well, and I don’t see how either is true.

    • Iain Reeves says:

      Fair point. I think for the first few years, an independent Scotland would be in the hole while establishing a new NHS, reshuffling its military industrial complex and general shared infrastructure. But after a few years of hardship, those overpriced one off investments will have paid off and Scotland will eventually be in the black and more well off than anywhere. Whether that takes 5, 10, 20 years…who can say??

      • scotbychoice says:

        How would Scotland have to re-establish its NHS since its NHS is already completely independently run and organised? Much of the infrastructure required is already in place, either because they were always independent (health, law and education) or because they were set up during devolution (civil service, parliament); there would be a transition phase where we had to shift tax collection and pension/benefits payments to be fully under the Scottish remit, but there are already people doing these things in Scotland (there’s an HMRC office at Haymarket, for example), so it’s not like new buildings would have to be built or a complete ground-up reconstruction of the systems performed. It would be more a matter of transferring existing structures to the Scottish government as part of negotiations with Westminster. That doesn’t have to put us so deeply in the hole as it sounds. Basically, my problem with the figures above is that it seems they are calculated with Scotland’s proportional contribution to the entire UK budget, rather than the sort of spending that would realistically take place in an independent Scotland, and are therefore completely inaccurate. I hope the author will correct me if I’m wrong.

      • Catriona Smith says:

        scotbychoice, do you think the existing nhs infrastructure would just magically pass hands? if the country splits in half, logic dictates the nhs will, too…why would they just give everything to alex salmond just because he asks nicely? the scottish government will have to pay for it, and its those kinds of things that are going to take the place of trident or foreign troop deployment for a few years..making what wasn’t scottish scottish. it wont be cheap. is it better in the long run? i personally think so, but its stupid to say that it wont cost money that we dont currently have.

      • scotbychoice says:

        Catriona, perhaps you didn’t read my post, but the Scottish NHS IS ALREADY INDEPENDENT. It is completely run and funded by the Scottish government and is not connected AT ALL to the NHS run by Westminster. Therefore that will not be an additional expense, as we already pay for it in its entirety. The education system is also already completely funded and run in Scotland. These are not the things we’ll have to pay for, but things like setting up the treasury and inland revenue. As I said, much of the infrastructure for such things already exists, so it would be a matter of transferring them, whether by a straight buy-out or in exchange for other assets during negotiations, or whatever. Please, before you go telling people that they’ve said something stupid, perhaps do some research on whether what you are saying is correct!

    • Nick Somerville says:

      You bring up a fair point with regards to the NHS and existing infrastructure, and no one should try and argue that (because the NHS is funded by the Scottish government in full, look it up). But I think the main point of this article is the line “the UK Treasury has regularly spent around £54 billion per year on Scotland, but only receives £43.5 billion in Scottish revenue.” Where will the rest of the money come from? I get that Alex Salmond thinks an independent Scotland would get out of NATO and taxpayers would no longer be paying for missles to be fired at people in the Middle East, but I don’t think that will be the case. I hope I’m wrong, but I feel like an independent Scotland will be a lot more lonely on the world stage than it thinks, and will get talked into taking part in a whole lot of alliances of this nature in order to increase its influence. Money is always going to get spend on stupid things like foreign military interventions and bailing out neighbours and propping up banks like RBS. That isn’t accounted for in the GERS figures that this author used, either, because you can’t predict things like that very well. But it’s much easier to predict the way our future leaders will behave. They’re always going to find a reason to blow taxpayers money on foreign wars and new battleships and foreign bailouts, so I personally think it’s a little naiive to assume that an independent Scotland will automatically have all of this extra pocket money because we’ll no longer be involved in NATO. But again, you bring up good points that the author of this particular article hasn’t really taken into account.

      • scotbychoice says:

        But there are other figures that say Scotland provides 9.5% of revenue but receives only 9.3% of spending. My question is whether the GERS figures include spending of the UK Treasury ON Scotland only, or does it also include spending ON BEHALF of Scotland, ie, Scotland’s proportional contribution to UK expenses like Trident and Afghanistan that would not be expenditures of an independent Scotland. I believe it is the latter. I don’t see why Scotland would be any more lonely than Norway, Sweden, Finland, Ireland or any multitude of other countries that don’t take part in these sorts of actions. I think a Scottish defence force would possibly participate in UN peacekeeping forces, but in the same way that it would be ludicrous for Ireland to invade anyone, it would be just as ludicrous for Scotland to do so.

      • Nick Somerville says:

        Fair point on Ireland :P. I’m just saying that I don’t think all of those dumb sort of expenses that the majority of people don’t support can be avoided, and those are the sort of things that the UK is spending on Scotland’s behalf. And an independent Scotland will find plenty of those things to spend money on. I think this discrepancy in figures is the reason that the SNP has never very much liked the GERS reports. Figuring out the answer to your question would be a matter of going through and reading the actual report (which I’m not bothered enough to do). But you bring up an interesting question that deserves clarification…if not in this article, on the political playing field so our politicians actually know the facts they’re arguing about…because it seems like most of them have no clue.

      • scotbychoice says:

        Looking through the report, defence is indeed included in the figures. Of course there will still be some defence spending in an independent Scotland, but it would not be anywhere near the scale that the UK government spends, particularly as the nuclear weapons would be gone. Obviously an independent Scotland would find plenty of things to spend money on, and pretty much all countries run on a deficit, and Scotland would have to do so as well at least at the start because we would also inherit our share of the UK’s debt; the main point is that we would be no worse off than most other nations, and indeed better off than most (including rUK), and that it would be OUR choice on whether to spend that money on social programmes or nuclear weapons. By the way, the figures I quoted (though I was slightly wrong, it’s 9.6% of revenue and 9.3% of spending) is actually in the paragraph above the author’s quotation from the executive summary of the GERS report; the way it is presented in the article is that Alex Salmond pulled those figures out of his keester. That makes me question the author’s agenda. I also find it interesting that the drying up of North Sea oil (though it has been estimated to last another 40 years or more) is seen as immediately negative, when in fact dwindling oil resources are likely to mean significantly higher prices in the future, and thus higher revenues. In addition, the SNP has pushed strongly for investment in renewable energy and wants to make Scotland a leader in that so that when the oil does run out, we won’t be stuck. That’s more than any other major party has done.

  2. John says:

    Well said. It’s irrelevant whether our taxes go to Westminster or Holyrood. Whoever’s in charge is always gonna spend money we don’t have, be in deficit and need outside assistance to provide us with the public services we need. I’d rather that be done inhouse as it were than with a foreign country. Alex Salmond is pompous and likes to cherry-pick numbers without telling folks what may or may not be going into those numbers. I don’t trust him as far as I can throw him. Which isn’t very far.

    • scotbychoice says:

      Too bad those numbers are from the same report that the author has himself cherry-picked! Whether you like Alex Salmond or not is irrelevant to independence, and snide comments about his weight don’t really add anything to the debate!

  3. Jim Bucknell says:

    Neither Alex Salmond, nor the author of this article have cherry-picked any numbers. Salmond is 100% correct that Scotland is currently in the black (barely, but undeniably), whereas the author of this commentary is assuming that Scotland won’t be in the black once its government is paying 100% of everything a government is supposed to do. It’s a very fair point to bring up, although all he can do is speculate which he goes on to do a little too presumptuously. Whether he’s right we won’t know until years after a successful referendum, but he isn’t twisting anything or framing it inaccurately; just making a very gutsy, and *possibly* very wrong, assertion.

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