Lies, Damn Lies & Cost Estimates

A brief post for a change, with some observations on the recent rather fraught debate about the "one-off costs" of independence.

Neither side has made (or at least shared) a robust analysis of the potential costs 

[Look out for "could be" and "up to" and "as little as" in the quotes below]

• HM Treasury has thrown around numbers based (explicitly) on some extremely crude assumptions (below from treasury press release)¹
• "Independent research ... estimates that it could cost up to 1% of a country's GDP" = £1.5bn
• 180 departments x £15m per department = "up to £2.7bn"  -- the sources of the £15m per department have distanced themselves from this way of using that figure
• UK government "has already published analysis which calculates that a new benefit system could cost £400m alone, and setting up a new tax system could be as much as £562m."  (I haven't yet chased down this analysis)
• The Scottish Government has not been forthcoming with any analysis of their own; ducking the question or leaning on others' estimates
• SNP Finance Minster John Swinney has resolutely refused to offer any figures -- hear him fail to answer the direct question thirteen times here
• In the recent kerfuffle - some say stramash - Lone Wolf² Prof Dunleavy has been cited as "estimating instead that the one-off set-up costs would be £150 to £200m" 
• The next day Alex Salmond claimed the costs "could be as little as £250m" citing "London School of Economics expert Patrick Dunleavy, who has put the cost at between £150m and £300m"
• There has been much noise made about the £575 - £625m figure apparently attributable to Swinney per the "leaked paper" below.  To be fair it is simply a "would on this basis be" estimate -- so if there were subsequent robust analysis leading to a different answer it would be reasonable to discard this early estimate. If. 
  
• ICAS are one of our RIBs (Respected Industry Bodies: See Who We Can Trust ... I rate RIBs above Lone Wolves) have said in Scotland's Tax Future: Taxes Explained
• "Examples from other countries can point towards the scale of costs which might be incurred. In New Zealand, for example, changes to the tax system which are less complex than those for an independent Scotland are costing around £750m. The cost for an independent Scotland could be significantly greater, especially considering the scale and the complexity of the legacy systems which might be inherited from the UK. What it is really going to be, and how it is to be paid for is a question that still needs to be answered"
• Note the quote above is referring to Tax systems only, not all government departments require

1. Those who accuse the treasury of "lies" are wide of the mark. If the Treasury had said "we've done thorough and detailed analysis" and then been discovered to have actually just multiplied 180 x £15m, well that would have been lying. In fact they showed their working - it was in the press release - the figure was presented with no pretence to being anything more than a "could be up to" estimate

2. By referring to Prof Dunleavy as a "Lone Wolf" I do not mean to imply he can't be trusted; just that his is one person's opinion and should be treated as such (rather than as "the truth" because he is "an expert"). I explain further here > Sources: Who Can We Trust

The lack of good analysis by HM Treasury is disappointing; but the failure of the Scottish Government to come up with any robustly substantiated figures this late in the day is, quite frankly, astounding.

Its worth remembering that we are discussing unknowns here, that there is no truth (or to paraphrase Foucault: truth is at best plural). All we can ask for is honestly realistic estimates; I doubt we will get that from either side.



It might inform the debate to consider how accurately these sort of costs estimates normally turn out in reality.  When was the last major public project you can remember that ended up costing less than the initial estimate?  I offer two (admittedly not strictly comparable) examples for contemplation ..

• Scottish Parliament Building:  Initial estimates £10 - 40m  ... final cost £414m
• Edinburgh Trams: initial estimate £375m ... final cost expected >£1bn

So my conclusion?  We don't know what the "one-off" costs of independence would be ... but we can safely assume it would be a lot more than the Scottish Government are admitting to.