The nation's books

What would it cost to set up Scotland's new institutions - and how would we pay?

Q: What would it cost to set up Scotland's new institutions - and how would we pay?

The scariest number ever attached to this question was disowned within days by the academic whose research produced it. The honest range for core institutions runs from hundreds of millions to around £2 billion, spread over a decade - against public spending for Scotland of over £100 billion a year. And Scotland has already built one of these institutions from scratch, so this is no longer a theoretical exercise.

The short answer

Setting up the institutions of a state costs real money - nobody serious pretends otherwise. But the honest numbers are one-off, spread over a decade, and small against the scale of what Scotland's government already spends and is already charged. The most-quoted scary figure was publicly disowned by the academic whose research it was built on. And the question of who pays has a satisfying answer: the spending happens inside Scotland, buying institutions Scotland then owns - paid for by a mix of transition borrowing, Scotland's share of UK assets, and money Scotland currently sends elsewhere to run those same functions on its behalf.

The £2.7 billion that never was

In May 2014 the Treasury announced that independence would cost £2.7 billion in set-up charges. The method: take Professor Patrick Dunleavy's £15 million estimate for establishing a single Whitehall policy department, and multiply it by 180 - the number of public bodies the Scottish Government had mentioned - as if each of Scotland's 180 bodies, down to the smallest advisory committee, were a full-scale Whitehall ministry (GOV.UK).

Dunleavy, of the London School of Economics, repudiated the figure within days, calling the Treasury's use of his research "ludicrous" and complaining that his estimates had been "woefully misapplied" (LSE). It remains one of the referendum's more instructive episodes: when the actual author of the underlying research looked at the claim built on it, he didn't defend it - he demanded a correction.

So what are the honest numbers?

Estimates vary because they count different things. Set them side by side and the picture is clearer than the headlines suggest:

Immediate set-up - Dunleavy's own estimate for establishing the core organs of a state was around £200 million, with total transition costs of £600 million to £1.5 billion over the first ten years (LSE).
The sceptical academic view - Professor Iain McLean of Oxford, no cheerleader for independence, put the realistic figure at £1.5-2 billion, concentrated where the heavy lifting is: tax collection and benefits delivery (LSE).
The Growth Commission - the SNP's 2018 commission budgeted £450 million over five years for set-up (Fraser of Allander Institute). Critics called that low - and if the benefits and tax systems come in nearer McLean's figure, they have a point. Honesty cuts both ways.
The everything-counted view - Common Weal's costing of the full journey, including a foreign currency reserve and a defence force, reaches about £25 billion. But read the small print: around £15 billion of that arrives as Scotland's share of UK assets, the currency reserve is money Scotland then has rather than money spent, and the defence force is built over a decade largely from the annual defence budget Scotland already pays into (Common Weal). The additional borrowing required: roughly £10 billion, once.

For scale: public spending for Scotland runs over £100 billion every year, and GERS charges Scotland £8.5 billion a year as its share of interest on the UK's debt (Scottish Government). Even the top of the credible set-up range is a one-off costing less than a quarter of a single year's interest charge.

We've already done this once

Since 2018, the Scottish Government has built a national benefits agency from scratch - new organisation, new IT, new local delivery network. Social Security Scotland now delivers fifteen benefits, seven of which exist nowhere else in the UK, paying around £6 billion a year to 1.2 million people (Scottish Government). Total implementation investment: around £700 million (Scottish Government business case) - less than half a per cent of the benefits it will pay out over thirty years.

Revenue Scotland, the devolved tax authority, tells the same story at smaller scale: it collects its taxes at a cost of under one penny per pound raised (Revenue Scotland).

So "could Scotland build state institutions?" is no longer a hypothetical. It's a thing Scotland has visibly done, inside a decade, under devolution's constraints, to a standard - Social Security Scotland's founding principle is "dignity, fairness and respect" - that regularly outpolls its Whitehall counterpart.

How would it be paid for?

Four mechanisms, none exotic:

Spread over the transition - set-up is not a single year's bill. Institutions are built in sequence over the negotiation period and the first decade, exactly as Social Security Scotland was.
Transition borrowing - a one-off sum, raised by bond issue and consolidated into the national debt, the way states routinely fund capital investment. On Common Weal's full costing that's about £10 billion once - set against the £8.5 billion Scotland is charged in debt interest every year under current arrangements.
Scotland's share of UK assets - three centuries of shared taxes bought shared assets: buildings, equipment, reserves, institutions. A negotiated share of those - roughly £15 billion in Common Weal's costing - arrives as an offset on the same balance sheet. Debt and assets travel together (see the debt question).
Money Scotland already spends - Scotland currently pays, through the block of UK-wide spending assigned to it, for shares of HMRC, DWP, the Foreign Office and the rest. Independence doesn't add those bills on top; it redirects them - from running Scotland's affairs out of London to running them out of Scotland.

And note where the money lands. Set-up spending is overwhelmingly wages, buildings, IT contracts and services bought inside Scotland. A tax authority, a welfare agency, a foreign ministry and the careers that go with them currently sit elsewhere in the UK. Building them here is a cost on one page of the ledger and several thousand skilled jobs on the other.

So what's the real question?

Not whether Scotland can afford a one-off cost in the low billions - a country whose government accounts already run to over £100 billion a year plainly can, and Scotland has already built one of the big-ticket institutions while holding down a devolved budget.

The real question is what the money buys. Every pound of set-up cost purchases something Scotland then owns and keeps: the machinery of a state answerable to the people who live here. The current arrangement has running costs too - £8.5 billion a year in assigned debt interest, and a standing charge for institutions Scotland pays for but doesn't control. One of these bills arrives once. The other arrives every year, forever.

Take it with you

Facts for sharing - each button copies the line, with its source and a link back to this page.

The Treasury's £2.7 billion set-up figure was built by multiplying one academic's estimate by 180 - Professor Patrick Dunleavy called the use of his work 'ludicrous' within days (LSE)
Credible estimates for core institutions run from £450 million to around £2 billion, spread over the transition years (Growth Commission, Prof Iain McLean)
Scotland has done this before: Social Security Scotland was built from scratch since 2018 and now pays around £6 billion a year to 1.2 million people (Scottish Government)
Set-up money is spent on wages, buildings and contracts inside Scotland - the institutions and the jobs that go with them, currently located elsewhere (Common Weal)