Dunleavy Report the true costs of UK split revealed

Leading economics expert reveals it could cost billions and take 10 years to negotiate Scotland’s split from the UK.

The clearest picture yet of how much it will cost to separate Scotland from the UK can today be unveiled by The Sunday Post.

With just 87 days to go until the referendum, SNP ministers have come under fire for refusing to say how much cash will be needed to set up vital state infrastructure until after September 18.

But this newspaper has commissioned the London School of Economics academic recognised by both sides as the leading expert on the subject to do the work now to give voters a better idea of what any transition would look like before they go to the polls.

Professor Patrick Dunleavy’s detailed report on the transition to independence lays bare the true costs, savings and challenges that would face an independent Scotland in its first years.

He concludes:

Initial set-up costs to duplicate core Westminster functions will be just £200m, but hundreds of millions of pounds more will be needed to build the government IT systems needed to go it alone.

Scots could face up to a decade of transition from a Yes vote, paying to continue to share some agencies such as the DVLA up until 2022.

The long-run viability of a Scottish state “looks strong” and the “main uncertainty” over start-up costs comes from Westminster’s refusal to do any planning on the possibility of independence.

Full control to vary taxes and welfare could take years to transfer from Westminster.

A definitive answer on costs will come down to the “poker game” of any post-Yes vote talks with any “hostile approach” from Westminster sending costs soaring, while EU and NATO membership will come down to “complex negotiations”.

A beefed-up Scottish Government would require 27,000 civil servants, though fewer than 60 new departments or agencies would be needed.

Big savings can be made from this streamlining and policy decisions such as dumping Trident.

Better Together last night welcomed the report saying it shows hundreds of millions of pounds would be “wasted” recreating things that exist as part of the UK.

Alex Salmond said the assessment showed The Treasury had been caught “red-faced and red-handed” after it initially suggested start-up costs could reach £2.7 billion.

The Scottish Government’s White Paper states March 24, 2016, would be “independence day” but the Dunleavy report says there are grounds for arguing such a swift transition is “unrealistic”.

Pressed on this issue Dunleavy told The Sunday Post the timetable was “demanding but just achievable”. He added: “I suspect Salmond might be prepared to trade on dates but this one [2016] is tricky because of election timing.

“Later phasing on other things I think are easier to concede. He seems very realistic on defence systems taking a good while to be in Scotland’s real control.”

The report shows disentangling costs will exist for both parties if there is a Yes vote as there will be a need to de-merge all of the Government databases and back-office processes that have existed for decades at UK-level.

“Negotiation is crucial to Scotland’s eventual number here,” says the report as London will be looking to get a 50/50 split but Edinburgh is likely to push for a population share split, so 90/10.

Dunleavy makes clear transition costs “depend very heavily” on how both Governments approach any negotiations. A tough stance by the rest of the UK during talks, which would have to break for the 2015 General Election, could increase costs for both countries, warns the report.

On the other negotiations needed, the London School of Economics report warns: “There would be complex negotiations to secure Scotland’s place in the EU and NATO, and the Scottish Government could not assume these would be easily or routinely assured”.

The report makes clear the biggest initial spending challenges will be in defence and security services. It states: “Scotland’s defence needs are heavily concentrated in capital intensive areas of spending, a navy to patrol its long coastline and extensive sea areas and oil fields, and an air force to cover the country’s huge land mass and big northern air sector”.

No price tag has been put on these start-up costs because so much hinges on negotiations, but any Westminster refusal to hand over fighter planes and navy vessels could leave Scotland with a multi-billion pound headache.

According to the research, the central Scottish Government would increase from around 5,000 civil servants in six departments to 27,000 staff across nine.

Dunleavy said he expected most of the UK Government civil servants to move across to the Scottish Government and any job losses could be made without the need for redundancy given the length of the transition period.

The report points out that initially the Foreign Embassy network of an independent Scotland might have to share offices with other EU countries including what remains of the UK. The number of Cabinet Ministers would also increase to 15. In the event of a Yes vote, negotiations over a share over the UK’s £1.3 trillion of assets would get under way.

The Dunleavy report says it is likely the likes of land and buildings would “lie where they fall” so that Scotland would acquire, at zero cost, all UK Government buildings north of the Border.

But unfixed assets or those abroad, such as the French Embassy, would likely see Scotland give a part-cash payment. The SNP has long associated this asset sharing process to the issue of start-up costs but Dunleavy said the two should “never be linked”. Instead he suggests any cash receipt should be put into long-term investments or the creation of a sovereign wealth fund.

Dunleavy uses his report to reflect on the “rather visceral” referendum debate dominated by start-up costs, claiming Danny Alexander is demanding Alex Salmond, “produce cost data for things that could only have numbers attached to them by someone with prophetic powers of the Delphi oracle”.

The academic lays into Treasury estimates of start-up costs at £1.5bn and concludes the “main current uncertainties arise from the London Government’s apparent reluctance to do any planning for, or to make clear to Scottish voters, how a transition to independence would be handled at their end.”

Lastly, Dunleavy points out the money spent on new IT systems should be classed as investments and not just “set up” costs.

A spokesman for Better Together said: “Professor Dunleavy is clear that breaking up the UK and setting a new separate state would be very costly for Scotland. We would be wasting hundreds of millions of pounds recreating things that exist today as part of the UK.

“The nationalists might want to pretend it can be done on the cheap, but this report makes clear that isn’t the case. Alex Salmond wants us to believe everything would be done and dusted within 18 months, with no complications. As Dunleavy’s analysis points out, this isn’t credible. It could take us at least a decade of risk and uncertainty to make the transition, including complex negotiations on NATO and the EU. That’s a risk we don’t have to take.

“Alex Salmond must be straight with Scots about what the cost of independence would be. Keeping it a secret from everybody until after the vote isn’t acceptable.”

A spokesman for the First Minister said: “The Treasury’s figure of £2.7bn has been blown out of the water by Professor Dunleavy.

“The Treasury estimate has been exposed as a total fabrication, and we demand an immediate retraction. This was much more than mis-briefing, and it is unprecedented to have the Treasury caught red-faced and red-handed.

“The No campaign’s arguments have been totally demolished, and we need a retraction both from the Treasury and the No side. The UK Government is responsible for creating uncertainty for refusing to negotiate. But once the votes are in, under the Edinburgh Agreement, that will change.

“As for IT costs, these are not immediate set-up costs, and Scotland has contributed to both the capital and running costs of IT systems that are used currently and so is entitled to use of them.”