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Challenge on independence ‘cost’

The Treasury has challenged the Scottish Government to provide estimates for the cost of independence as it prepares to publish its own price tag for a Yes vote in the referendum. In a paper to be published this week, the UK Government department assesses Scotland’s fiscal position, should it become independent, from 2016 to 2035/36.

It says it will put a figure on the amount which will be saved by people in Scotland if “avoid the public spending cuts and tax rises that an independent Scottish state would have to undertake, in order to offset the fiscal impacts of independence by 2035/6”. The figure would effectively represent the UK Government’s view of the cost of independence over the next 20 years.

The Treasury says if such a fiscal adjustment was not undertaken by the Scottish Government , “the size of the required public service cuts or tax increases would grow with time and the risks around the fiscal position would increase”.

Treasury Chief Secretary Danny Alexander said: “The Scottish Government is trying to leave the UK but it won’t tell anyone how much the set-up surcharge is for an independent Scotland.

“As part of the UK, Scotland gains from a strong and stable tax and benefits system and our comprehensive analysis, published this week, sets out how much better off Scottish taxpayers are; that’s why we’re better off together.”

The Treasury’s analysis considers a variety of economic impacts including oil revenues, the ageing population, the costs of creating the new state, Scotland’s fiscal starting position and the Scottish Government’s policy commitments.

Its projections found that an independent Scotland “would face a substantially greater fiscal challenge than if the country remains a part of the UK”.

The analysis looks at the costs of creating a new state and considers research by the Institute for Government (IfG), the London School of Economics (LSE) and Professor Robert Young.

Prof Young’s research, which was based on Quebec setting up a new state, estimates that it could cost up to 1% of a country’s GDP to establish the new systems required to run a newly independent state.

In Scotland’s case, 1% of its GDP would see taxpayers face a £1.5 billion tax bill – equivalent to £600 per household, the Treasury said.

The IfG and the LSE have published independent analysis which puts the average cost of setting up a new policy department at £15 million. Applying this figure to 180 new departments for Scotland totals £2.7 billion.

The Treasury said that, while it had used a more conservative figure in its own analysis, the £2.7 billion costing was “reasonable”.

UK Government analysis has also put the costs of a new benefit system at £400 million, and setting up a new tax system at as much as £562 million.

Meanwhile, it estimates the costs of implementing key independence policy proposals such as childcare, and cuts to air passenger duty and corporation tax at at least £1.6 billion each year.

A spokesman for Scotland’s Finance Secretary John Swinney said: “Scotland is one of the wealthiest countries in the world, more prosperous per head than the UK, France and Japan – but we need the powers of independence to ensure that wealth properly benefits everyone in our society.

“This is deeply flawed analysis, underlined by the ludicrous and palpably false claim that an independent Scotland would need 180 government departments – something we have never claimed.

“Much of the infrastructure needed for an independent country already exists, and Scottish taxpayers already pay their fair share for all devolved and reserved services – while Scotland also stands to inherit a fair share of joint assets, valued at around 1.3 trillion dollars.”

First Minister Alex Salmond called on the Treasury to withdraw its “misleading claim”.

He said: “The Treasury are either guilty of a horrendous blunder or it is a deliberate and deeply dishonest attempt to deceive – either way, it leaves the Treasury’s analysis without a shred of credibility, and either way they should withdraw this misleading claim.”

Scottish Conservative finance spokesman Gavin Brown said: “Look through the Scottish Government’s discredited white paper and you will search in vain for any set-up costs for an independent Scotland. It’s yet another issue that simply hasn’t been factored in by the Nationalists.

“People in Scotland are entitled to know what these costs are before they go to vote in September.

“But the truth is that Alex Salmond is so obsessive about separation that he won’t deal with the facts and the costs involved.

“It means the choice facing people is a secure future with the UK versus the complete uncertainty of a post-independence Scotland.”

A UK Government source said: “‘This is an own goal by the Scottish Government. Their own White Paper says an independent Scotland will need 180 public bodies. The analysis simply reflects that.”

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