Robin McAlpine: This is how much it will really cost to build an independent Scotland

CommonSpace columnist and Common Weal director Robin McAlpine has spent 18 months with his team working out the building blocks of an indy Scotland - and the results are in

ALL has been madness at Common Weal – after 18 months of hard work we're nearly at the end of the White Paper Project. And it ends with a book which tries to walk through the entire process needed to go from a vote for independence to actual independence day.

How do we build our new systems and infrastructure? How do we negotiate with partners? How do we pay for it all? How much will it cost? The book will be available for pre-order from next week, but let me kick off with what is likely to be a headline issue for unionists – the cost.

We asked 'if we were starting from zero, assuming that Scotland inherits only the fixed and mobile assets which are currently in Scotland and had to do all the rest ourselves from there, how much would it cost?

Our answer is 'about £25bn'. Now some people will immediately argue that that is unrealistically low, others will gasp that it seems incredibly high.

Our answer is 'about £25bn'. Now some people will immediately argue that that is unrealistically low, others will gasp that it seems incredibly high.

And to be honest, both would be right. On the 'too low' front, the £25bn isn't actually all the money that would be needed – it's the money that would have to be spent. There are other parts of the set-up where the money would be sourced from routes other than direct public expenditure.

For example, in building up foreign currency reserves (to support a new Scottish currency) we will need a large amount of Sterling. But the Bank of England will want to cover its exposure to the new currency as well so will want a pretty large number of Pound Scots.

So we would expect a 'currency swap deal' – effectively the central banks of Scotland and rUK would 'print' £10bn pounds of new money and swap them. Because these sums are for reserves they don't create inflation and it is in the mutual interest of both banks for both currencies to be stable.

More would come in 'seignorage' – the money central banks make when they print money for commercial banks. And there are a number of other sources of money of this sort.

My estimate is that the total spend in creating an independent Scotland would be about £40bn - £25bn is just the amount which isn't coming from an identified source.

My estimate is that the total spend in creating an independent Scotland would be about £40bn - £25bn is just the amount which isn't coming from an identified source.

Then to those who think this looks like far too much – you're of course right. This number assumes no share whatsoever of the UK's assets. Now this would be a very attractive outcome for Scotland because if we weren't getting any assets, we wouldn't be liable for any debts either.

If Scotland started life with a national debt of only £25bn, it would be one of the world's least indebted countries. However, this is probably not what's going to happen.

Rather, Scotland will probably end up with some balance of being given a value share of UK assets and some kind of share of UK debts (a complicated issue considered at some length in the book).

If we look at the £25bn alone then well over half of that would come in Scotland's share of the relevant assets. The two big ticket items are foreign currency reserves and defence and Scotland's share of these two UK assets alone would come to just short of £15bn.

We've looked at this quite hard and concluded that it is very difficult to say anything certain about the national debt of Scotland if it became independent.

So now we're only having to find £10bn to build everything. But this does not take into account the value of Scotland's share of the UK's other assets. Let us assume that apart from defence and currency reserves the UK in total has assets of £100bn. Scotland's share would then just about pay for the entire set-up cost of independence.

So Scotland would be a new country for free? No, because the corollary of that is that Scotland would have to accept a share of UK debt.

Last time round we were far, far too quick to accept a full population share of UK debts. There are many arguments for why we shouldn't. For example, the UK is determined in its belief that the UK's debt is seen as a current fact but all questions of how it was derived should be considered 'ancient history'.

Except it isn't. A very large amount of UK debt was borrowed to be spent in the south east of England (and London in particular). Should Scotland really accept all the debt for spending which brought economic gain to London but not Scotland?

I'm aware of some historical research being done just now on the historic flows of money between Scotland and the rest of the UK. One thing which stands out is that for the vast majority of the 300 years of union, the UK seems to have extracted more money from Scotland than it gave back.

But I fully expect the annual cost to Scotland of servicing that debt will be at least no higher than it is currently paying to service UK debt.

While this research is still underway, it may be the case that only in the brief period from the set up of the welfare state to the discovery of North Sea oil did more money flow into Scotland than left (up until austerity kicked in, of course...).

Another point to be made is that there is a mindset which says 'us in the UK built up all this debt building and sustaining all the infrastructure of a nation state – and we're going to keep it all but make you take the debt. Oh, and we're also going to leave you to pay for your own national infrastructure.'

Well, there's a good argument which says 'hold on, if you're paying nothing to be a viable nation state, why should Scotland have to pay all those debts and then incur those costs too?'. I certainly think we should aim to subtract the cost of basic infrastructure set-up from any debt agreed.

But I've always accepted that while there is no legal requirement for Scotland to accept any of the UK's debt, there is a strong moral case. And that is when the numbers become sobering, because any cost of setting up Scotland as an independent country will be dwarfed by any share of UK debt.

We've looked at this quite hard and concluded that it is very difficult to say anything certain about the national debt of Scotland if it became independent. But I fully expect the annual cost to Scotland of servicing that debt will be at least no higher than it is currently paying to service UK debt.

Think of the possibilities for tax reform, social security reform, reform of energy systems and markets, the ability to have a Scotland-specific foreign policy.

So, if we for a second accept that actually £10bn isn't even all that much money when it comes to sovereign debt, why should we bother? Why go through it?

It is here that the numbers keep on coming. That £25bn total builds us a lot. Really, a lot. For example, the UK customs service hasn't had an intercept boat in Scotland for 30 years. This plan assumes a fleet of cutters for a proper customs system.

Conservatively it would be reasonable to expect that this would generate a billion pounds of income for Scotland a year – and probably more.

Or the currency reserves. These cost us – but are a permanent national resource with many uses. And our plan estimates the annual cost of servicing that debt as about £70m. We're currently paying £500m (from Scotland alone) to capitalise the UK's reserves. So we'd get currency reserves but save nearly half a billion a year.

Think of the possibilities for tax reform, social security reform, reform of energy systems and markets, the ability to have a Scotland-specific foreign policy (and our own extensive consular network). A real written constitution and a proper relationship with Europe.

Imagine the ability to regulate Scotland's communications systems (including broadband); our own department of trade and industry; a central bank; the capacity to regulate monopolies and mergers.

Imagine the ability to regulate Scotland's communications systems (including broadband); our own department of trade and industry; a central bank; the capacity to regulate monopolies and mergers; armed forces which are able both to properly defend our coastline and strategic interests and make a real contribution to civil life (our soldiers wouldn't be stationed overseas...) - which costs us £1bn less per year.

We could have an immigration service that works for the Scottish economy, and a border we can keep open and accessible to people from other countries. We could have the chance to have proper media regulation.

We get all of this and an awful lot more. There would be a minimum of £3bn injected into the Scottish economy in the purchase of goods and services (probably much more). Tens of thousands of jobs would be created, significantly increasing the tax revenue in Scotland.

To be honest with you, what Scotland would get for its £25bn (even if it was that much) would open a lot of eyes.

So I fully expect that by this time next week a hostile media will be crowing about 'indy-supporting think tank says independence will cost a fortune'. To which I have three responses.

We get all of this and an awful lot more. To be honest with you, what Scotland would get for its £25bn (even if it was that much) would open a lot of eyes.

First, public finances aren't like being treasurer of your local amateur dramatic society. £25bn isn't even a particularly big number.

Second, yes, it's time the independence movement stopped trying to pretend that it isn't a big task to build a better country, nor that we won't have to make serious investment. It was never going to be done with a bit of loose change and some sleight of hand.

But third – I honestly can't think of a better deal that Scotland could get for its money. A fresh start as a modern nation properly equipped to change our social, environmental and economic direction? I mean, how much is that worth to you?

Picture courtesy of Documenting Yes

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