Sunday, 19 December 2021

What devolution of DWP functions tells us about the likely costs of Independence

A few days ago I tweeted about the lack of serious analysis from Scottish nationalists when it comes to the question of what it would cost to replicate the costs of our currently shared machinery of state:

To illustrate this issue, I decided to look at what the Scottish Government estimate it will cost to take on the adminstration of 11 DWP benefits being devolved (representing about 15% of DWP spending) alongside 5 new benefit that will be delivered through the Scottish Social Security Programme [see Social Security Programme Business Case - "Scotland is taking responsibility for around 15% of DWP’s benefit spending"]. So what we're looking at here is a sub-set of just one of the currently reserved functions listed in my tweet.

Before looking at the estimated set-up costs of the Scottish Social Security Programme, let's remind ourselves that during the independence referendum in 2014 the SNP claimed it would cost just £250m to set up a newly independent nation. This was pointed out as being a patently ridiculous claim at the time, but the Yes campaign defended it to the hilt [see Dunleavy and the costs of independence]. More recently, in 2018 the SNP's Sustainable Growth Commission (SGC) suggested:

"An independent Scotland would face total transition-period costs of around £450 million in the two years leading up to independence and the first three years immediately afterwards, in creating new administrative structures that duplicate UK institutions." - SGC, B5.17

Dig a little deeper and we see that within that figure, just £25m was assumed for the transition costs of Social Security and Pensions.

Now let's take a look at The Scottish Government's Social Security Programme Business Case published in Feb 2020. This estimates a Total Implementation Investment of £651m will be required to take on just a sub-set of the functions currently performed by DWP.

So the Scottish Government are saying it will cost £651m to do a fraction of the work that their own Sustainable Growth Commission suggested would cost just £25m! 

Now let's turn to the operating costs question (the point of my tweets). That same Scottish Government business case suggests the annual operating costs for the programme in steady-state will be £216m pa.

But in GERS Scotland is currently allocated just £350m pa. as its population share of all DWP operating costs:

So taking on the adminstration of just 15% of the benefit expenditure administered by DWP will cost more than 60% of the total DWP costs Scotland is currently allocated in GERS.

Now consider that the SNP's Sustainable Growth Commission assumed that 100% of DWP functions could be replicated in an independent Scotland for an operating cost less than the amount curently allocated to Scotland in GERS, and you can perhaps see why why I argue that the independence movement hasn't made even a half-hearted attempt to be realistic about the economics of separation.

Remember: what we've looked at here is just a relatively trivial subset of the challenges that would face an independent Scotland. 

If it costs £650m to recreate just some of the currently reserved DWP functions, what will it cost to recreate not just the rest of DWP, but also HMRC, HM Treasury, Home Office, Cabinet Office, Foreign & Commonwealth Development Office, Department for International Development, Department for Business, Energy & Industrial Strategy etc?  The SNP would have you believe the total figure to establish all of those departments for an independent Scotland would be "around £450m" - and we're expected to take them seriously?

I've asked this question before and I'm sure I will ask it again: if there's an economic case to be made for separating Scotland from the rest of the UK, why don't nationalists make it instead of resorting to such obviously ridiculous claims?



The £350m allocated to Scotland in GERS for the operational costs of DWP is predominantly driven by DWP employee costs. 9.7% of DWP employees are currently located in Scotland [see Civil Service Statistics 2021] compared to the 8.2% of those costs allocated to Scotland in GERS. Knowing that, the assertion made by SGC [B4.58] that all of these costs could be "transferred to Scotland" (with an associated fiscal multiplier benefit) is, like so many of their claims, clearly ridiculous.

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