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How to Start a New Country

How to Start a New Country

a practical guide for Scotland

Published by CommonPrint

111 Union Street, Glasgow, G1 3TA, Scotland

CommonPrint is a trading name of Common Weal Ltd.,

www.allofusfirst.org

First published 2018

Copyright © Common Weal 2018

Cover design by Fiona Hunter

All rights reserved. This book is sold subject to the condition that it shall not, by way of trade or otherwise, be lent, resold, hired out or otherwise circulated without the publisher’s prior consent in any form of binding or cover other than that in which it is published and without a similar condition including this condition being imposed on the subsequent purchaser.

British Library Cataloguing-in-Publication Data are available

ISBN 978-0-9930965-7-0

Printed and bound in Great Britain by

J Thomson

14 Carnoustie Place

Glasgow

Contents

Introductory notes

1

Becoming real

5

Three years ahead

7

Keeping things moving

12

Getting things done

16

Be prepared

20

Talent-spotting 23

Paying for transition

28

Risky business...

30

Foundations for the future

33

Money, money, money

40

Getting central banking right

56

Backing our new currency

64

Being a citizen

69

Getting the digital state right

76

Scotland’s democratic institutions

86

Scotland’s national security

92

Scotland’s social security

106

Paying for the good society

114

Communications and the media

120

Powering the new nation

128

Where Scotland meets the world

133

Looking outwards to the world

144

Fairness in separation

160

Summary of costs

174

Conclusion 177

Sources 178

A note from the author

This book and the work behind it have taken up much of the last 18 months of my life – but it is almost all based on the work of others. Common Weal has relied on the invaluable support and contribution of an enormous

number of people in many different fields of life in Scotland. They have written policy papers for us, written detailed notes for us to work from, sat patiently with me talking me through subjects as diverse as professional approaches to complex project management to the intricacies of EU trade

law. I have had to learn the meaning of concepts from Transmission System Operators (the organisation that manages how electricity flows round the national grid) to ‘roulement cycles’ (a military strategy for troop rotation). It has been one of the most intense and enlightening projects I have ever had the pleasure to be involved in.

In writing this book I have tried to take the many expert pieces of

work and fit them together into a coherent plan for creating an independent nation state. This has meant some slight adaptations in detail and creating some new solutions for managing the process. One of the most difficult

things for me has been always to stick to the brief of not projecting into the work my own hopes for a more innovative, radical future for Scotland and instead present (as best as possible) a ‘future neutral’ option which largely leaves innovation and radicalism for the years after our independence day.

In trying to do all this it is my sincere hope that I have accurately captured the meaning of what the many experts have told us must happen (and in

most cases the text of the book has been checked with those experts). Any failures to capture that meaning properly are mine alone, as is the blame for any errors in how things have been phrased or summarised. So while I am

the author of the words in this book, I do not truly consider myself to be its author but more honestly its editor.

It has been a privilege and (at many points) a pleasure to have had

this opportunity – though if I never again have to try and disentangle some

issues like the complex web of European Union regulations I shall be grateful.

Writing it has helped me to understand much better the mechanics behind

my long-standing belief in Scottish independence. It has been sobering to realise just how much needs to be done and the overwhelming need for good preparation and effective management of the transition to independence.

But perhaps above all, it has galvanised my belief that this is an opportunity we should grasp. Between the lines of the detail I have seen emerging a

picture of a future nation state of which I very much want to be a citizen.

I hope that, whatever your political or constitutional belief, this work will be taken in the spirit in which it is intended. And I hope that it will prove useful to you as you think for yourself about the options for Scotland’s future.

Robin McAlpine

With sincere thanks to...

I fear that in trying to produce a list of names of all the people who have helped to make this project possible I will inevitably omit someone given how many people helped with advice and other kinds of support. However,

I do wish to offer very sincere thanks to the following people:

Bill Austin, Keith Baker, Elliot Bulmer, Mark Butterly, Jim and Margaret Cuthbert, Mike Danson, Rafe Fitzpatrick, Sean Halligan, Peter Henderson, Ewan Hunter, David Kelly, Alice Kinghorn-Gray, Karin Lee-Hansen, Isobel

Lindsay, Kenneth MacArthur, Gary MacDonald, Gordon Morgan, Richard

Murphy, Tim Rideout, Peter Ryan, Drew Scott, Megan Stamper, Alex Stobart, Iain Wright.

Thanks are also due to a number of people who provided invaluable

advice and guidance but whom it is difficult for me to name because of their professional position.

I would like to offer my endless gratitude to the many donors who

make Common Weal possible in the first place and to our Board who have

all offered support and advice throughout this process.

Finally, I can’t give enough thanks to Common Weal’s Head of Policy

Ben Wray and Head of Research Craig Dalzell who did so much of the work

behind this book. I also want to thank Head of Campaigns Max Wiszniewski for all his help and, of course, to our Operations Manager Tiffany Kane

without whom nothing would work...

Introductory notes

The purpose of this book is to explore the practical steps that Scotland would have to take if it wanted to become an independent country. It will take as its starting point the day after a referendum at which a majority of the population of Scotland have voted for that independence. It ends, three years later, on Scotland’s independence day.

But it is perhaps as important to explain what this book is not. It is not a final statement of the precise series of actions which would be necessary.

Inevitably, there are some things we simply cannot know. Perhaps foremost among those (at the time of writing) is the enormous uncertainty about the UK’s relationship to the European Union once the Brexit process has been completed. This will have substantial consequences for a whole range of

trade and regulation issues – the closer the UK remains to the European

Single Market, the easier it will be to resolve this range of policies. And of course there are economic factors which change constantly and so may well not be the same in three years as they are now. So this book could not be the final word, even if it sought to be; the world will change between now and Scottish independence and as it does, so will the steps Scotland needs to take on its path to full nationhood.

Nor is this book intended as a final word on the exact shape and nature

of an independent Scottish state. It is based on the work which has been done as part of Common Weal’s White Paper Project. While this project set itself the demanding aim of being as ‘future neutral’ as possible (ensuring that different political futures are equally possible in setting up new systems), it is impossible not to bring principles, prejudices, preferences and other baggage to the task. This book envisages an internationalist Scotland set up on the basis of liberal human rights and within the European model

of a social democratic welfare state. That in itself means it may not be exactly the model of an independent Scotland every person who votes for

independence envisages.

But even within that broad model (which has very much been the

1

How to Start a New Country

dominant vision for an independent Scotland) there are many, many variations and questions still to be answered. Those closely involved with the White Paper Project will be very aware of lengthy debates on much of the details.

What degree of political independence should a central bank have? Should the financial regulatory function sit with the bank or a stand-alone regulator?

How should a bank’s governors be appointed – and by whom? Each major

task ahead contains within it dozens of questions, and there are few of them which have only one possible answer. Both in terms of broad outline and fine detail, there is plenty of scope to agree with the broad purpose of this book but to have differences of opinion over this aspect or that.

This book is not an attempt to downplay or gloss over the hard work

which will be required of Scotland if it wishes to become an independent country. In fact, quite on the contrary, this book seeks to be as comprehensive as is reasonably possible, setting out honestly and transparently the amount of work ahead. The book begins with the assumption that those reading

it do so seeking a true picture of what the years after an independence

vote would look like. It absolutely does not seek to take a doom-mongering approach of presenting the tasks ahead as torturous or unbearable. It clearly does not present them as insurmountable or unachievable. But it will not pretend that they are negligible or ‘matters of mere detail’.

In fact, the driving spirit of this book is that most people, when voting in the 2014 Scottish independence referendum, did not have a clear sense of what the weeks, months and years after a Yes vote would look like. It seeks to be an optimistic book, but it seeks this optimism from an honest assessment of achievable hard work. Throughout, it will aim to be clear

about the difference between ‘hard’ and ‘difficult’.

Digging a large hole is hard work, but it does not involve complex

skillsets or intricate decision-making. If one decides to dig a hole, it is a matter of determination and commitment, not of complexity. Hitting a

target with an arrow, on the other hand, is not particularly taxing work in terms of exertion or time – but it is difficult. It requires skill and practice.

Any able-bodied person who wishes to dig a hole will eventually succeed if they work, but not everyone would be able to hit a distant target no matter how much they tried. This book seeks to persuade that establishing Scotland as an independent country will be hard work but that, on the whole, each individual task is not difficult to achieve. It begins from the premise that any nation state which wishes to set itself up as an independent country will eventually succeed, given determination and commitment.

What this book will not seek to do is to suggest that any of this is

‘easy’. Often what must be done is straightforward, easy to understand,

routine even. But telling people that the route ahead is ‘easy’, nothing for them to concern themselves about, is the wrong approach. In 2014

Scotland’s electorate showed great maturity in how they engaged with an

2

a practical guide for Scotland

independence debate in which many eventual No voters simply felt unable

to make a decision because they lacked an understanding of the road ahead of them if they voted Yes. So this book is an attempt at an optimistic but honest look ahead at that road.

This book is obviously not able to predict, let alone provide guarantees about, how others will behave. It is possible (though unlikely) that the UK, or the EU or the UN would act utterly unreasonably and irresponsibly. It is also possible (and in this case likely going on certain) that they will claim or pretend to be unreasonable and obstructive, either as part of a referendum campaign or as a negotiating tactic in the period after a vote for independence.

And it is important to be clear that being irresponsible and unreasonable is entirely the prerogative of these bodies, so long as they remain within the law. So if the remainder of the UK was determined to erect razor-wire fences for the length of the Scottish border and they did so on their own territory, there is nothing Scotland could do about it, just as Scotland would have the right to do the same. If almost all obstructive behaviour is at least theoretically possible it becomes impossible to propose any way forward.

This book shall therefore assume a degree of reasonableness from those

with whom Scotland is negotiating. This means that while it is not possible to promise what outcomes will be agreed through negotiation, it is possible to propose an outcome which is fair and reasonable to both sides. That is what this book will seek to do.

Finally, what this book is not is an attempt to assuage the more

energetic critics of independence. If, fundamentally, you do not believe in Scottish independence or strongly believe in a united Britain, then there are no technical arguments one way or another which are likely to change your mind. And if you are a anti-independence activist then you will no doubt continue to believe that every word on every page of everything ever written by a supporter of independence is false, fatuous, dishonest and stupid. You will continue to claim that Scotland is an aberrant national formation, unlike every other nation which has its own state, and so unable to follow any

of the paths or precedents set by those countries. If everyone else needs a foreign currency reserve of a certain level, Scotland will need twice as much, three times as much. Sure, lots of countries which aren’t Great Britain have access to BBC programming, but Scotland is different and so won’t be allowed. Scotland will be a magnet for foreign invasion so simply couldn’t build enough warships to protect itself even if it wanted to.

This book does not believe in ‘Scottish exceptionalism’. It does not

believe that life will be easier or more forgiving to Scotland than it is to any other nation. It does not believe that the world is waiting to do Scotland a giant favour. It does not believe that Scotland is somehow ‘special’. But nor does it believe the corollary – that Scotland is somehow a nation cursed with the inability to exist.

3

How to Start a New Country

So this book is for two kinds of people. It is for those who believe in

Scottish independence but want to understand better how it would happen.

And it is for those who are open-minded (even if they begin sceptical) and simply want to be able to make a personal assessment of the merits or

otherwise of independence based on an understanding of what would

happen next.

Where there is uncertainty, this book will be open about it. It will

explain the cause of the uncertainty and make the best assessment it is able to make. Where there are policy or value choices to make, it will explain what choice was made – and what choice rejected. It cannot know the

future and so where it is projecting ahead it can only work from where we are now – it will avoid guesswork about what is going to happen and instead behave as if this was all being done now in circumstances we can verify. It is inevitable that there will be some aspects of the finer details of setting up a nation which are not covered here; the book is not intended to be utterly comprehensive but rather to give a clear overview of the main challenges.

So... let us begin. It is Monday morning. At the end of last week Scotland voted in a legally binding referendum approved by both the Holyrood and

Westminster Governments. The result was a win for the pro-independence

campaign. The weekend has been a celebration (for many at least). Now the proper work must begin.

4

Becoming real

The first step is both practical and symbolic – and that is to gain legal personality. Legal personality simply means that something is recognised in law as being an entity fit to engage in legal activity. It means that somebody or something is capable of holding legal rights and obligations. A citizens has legal personality – they can hold bank accounts, have recourse to the law, can enter into contracts, can be jailed and so on. A constituted organisation (from a local club to a multinational corporation) has legal personality – they can sue and be sued, can borrow money and be put into liquidation if debts are not paid. A nation state has legal personality – it can enter into treaties, join international organisations, is subject to international law, has the right to set domestic law.

The Scottish Government has legal personality in domestic law but

Scotland does not have international legal personality – which means

it is not recognised internationally as having the rights and obligations of a nation state. This means that a Scotland which has recently voted to become independent still has no ability to begin to talk to other nations or international organisations. This book proposes a fairly short timescale for achieving full Scottish independence after a successful referendum vote, but to achieve that it must be able to progress a range of issues quickly and in parallel. To do this it will be extremely helpful to be able to begin negotiations with international partners as soon as possible. This is especially the case for discussions with the European Union and potentially the countries

which make up the European Free Trade Association (EFTA), but may also

be relevant to some trade negotiations, as well as initial exploration of full membership of the United Nations.

It would of course be unreasonable for Scotland to demand status as an

entirely independent country without going through the proper negotiations with the remainder of the UK with the aim of achieving an outcome acceptable to all parties. But it is possible for the UK to agree to recognise Scotland as a autonomous nation-state-in-waiting, subject to final negotiations. If this was 5

How to Start a New Country

agreed, it would grant Scotland international legal personality which would in turn make it possible for discussions with international organisations to begin. Ideally, an agreement on this form of legal personality could be agreed before the vote (that the UK would recognise legal personality for Scotland in the event of a pro-independence referendum result). Either way, it should be sought as quickly as possible.

And, of course, this would be an important symbolic moment for

Scotland. It would not be the moment Scotland became its own country, but it would be the first moment Scotland was clearly recognised as being on its way to being its own country.

6

Three years ahead

In 2014 the Scottish Government set out an ambition to make the official date of Scottish independence 18 months after a successful Yes vote. This was acknowledged by many at the time as being potentially an optimistic

goal. It was probably achievable, but it could only be achieved through

negotiations to share a substantial amount of the UK’s infrastructure for an indefinite period after independence. This meant that by far the most substantial element of a post-2014 independence process would have been

negotiation.

As well as dividing up and settling assets and liabilities respectively and agreeing international relationships between Scotland and the remainder UK

(to be referred to here in the shorthand rUK), Scotland would need to agree a deal for a currency union, access to the Bank of England and protocols around revenue, deficit and macroeconomic policy – as well as a number of smaller sharing deals such as the BBC and the DVLA. This approach avoided some of the more time-intensive tasks that would face a proto-independent Scotland and therefore did reduce the amount of time necessary to reach

independence day.

However, this had a number of substantial side effects. First, and

most obviously, it meant that while Scotland would be an entirely legally independent nation, it would have chosen to accept a high degree of

dependency on another nation state to maintain core national infrastructure.

This could be argued to have substantial perceptional impacts – on the

one hand appearing to minimise disruption while on the other making an

independent Scotland seem substantially less independent than it otherwise would be. In the aftermath of the 2014 campaign there is substantial reason to believe that of these two perceptional impacts the latter was more

significant; people do not report a reduction in their level of uncertainty as a result of the ‘sharing strategy’ but do report a sense that Scotland would have remained overly-dependent.

There are other reasons that reliance on UK institutions can be seen

7

How to Start a New Country

as detrimental to the transition process. Perhaps prime among them are

the limitations that would be placed on the fiscal approaches to setting up a new nation with a rUK likely to seek restrictive approaches to borrowing, tax policy, development of the many governmental systems which would

interface with or rely on UK systems, the knock-on impact this would have on developing an IT strategy for an independent Scotland and more. In all of these cases, the set-up process for an independent Scotland would be

much more flexible if Scotland was to develop self-sufficient infrastructure.

Certainly, soon into the existence of a Scottish nation state governments would constantly discover that dependency issues would substantially restrict what those governments could do. It is likely that pressure would grow

almost immediately to reduce the restrictions by reducing the dependency.

But there is another equally important issue here – which is that the

more you are seeking from negotiations, the weaker your hand in those

negotiations. The weaker your hand, the less you will get out of negotiations and the longer they will take, in part because there is more to negotiate and in part because the other party can string things out much longer if they seek to be obstructive or even simply to extract the most beneficial deal possible (or alternatively, set very tight deadlines to put Scotland under maximum pressure to reach agreement). The rUK is unlikely to want to

see negotiations for Scottish secession extend indefinitely or be rushed, but there may be real incentives either to slow the process down as much as

possible or place arbitrary deadlines on Scotland.

Therefore, throughout this book the approach taken is, as far as possible, to establish Scotland as a fully autonomous nation state in charge of its own infrastructure and core systems and policies in line with most other independent nation states. This means having control over currency, central bank, full taxation systems, international relations with a consular network, a unique citizen identifier (to replace National Insurance numbers) and so on. This does not mean that Scotland would not be a collaborative nation

– there are a number of smaller issues where agreeing a non-controversial sharing process may make sense. For example, few would probably find any concern in an agreement to share the UK DVLA if it was felt that this was the easier solution. However, having an alternative option (such as simply being ready to set up our own) would be of great benefit during negotiations.

On other collaborative issues, naturally Scotland will want to participate in an interconnected world. Whether that is access to the European Single Market or full EU membership or joining the many international treaties

Scotland would wish to participate in, Scotland, like any other nation state, would voluntarily cede aspects of its sovereignty to international agreements.

However, it is primarily assumed throughout that this is done along the lines of other fully autonomous nations – that Scotland is designed to function effectively alone and independently and then cedes aspects of its autonomy 8

a practical guide for Scotland

to shared agreements. This will put Scotland in a substantially stronger negotiating position throughout the independence process than it would be if it was wholly reliant on these negotiations simply to be viable.

This all strongly suggests a ‘maximalist’ approach to Scottish

nationhood, with proper investment of time, money and effort being put

into creating a central bank, a currency, an integrated public IT system and so on. The effect would be to extend the technical set-up period but to reduce both the importance of and the time taken to complete negotiations with rUK (as much less would remain to be negotiated).

This in turn raises the question of what timescale is necessary to complete a proper set-up process for Scottish independence. On the assumption that Scotland does not go into the transition period entirely ‘cold’ but rather has done a little basic preparation, it should be possible to begin the nation-building process fairly quickly after a referendum (the preparation required will be considered in the next two chapters). It is assumed that the many tasks required to achieve full Scottish independence will run in parallel –

while one project team is creating a central bank, another is building a tax collection system and another developing defence infrastructure. Defining the necessary length of a transition period therefore comes down to

identifying the most time-consuming of the individual tasks and ensuring that it can be completed in time (allowing for the inevitable interaction with other tasks and perhaps especially the impact on IT systems).

Having looked at all the necessary tasks and assessed the likely

timescales required to complete each, probably the most time-intensive is the establishment of a Scottish currency. As we shall see, this requires the creation of a digital version of the currency, a central bank, new payment systems, the production of printed money and its distribution and the

replacement of Sterling, among other tasks. A lot of this work is perhaps the definition of ‘hard, not difficult’. For example, all vending machines need to be adapted to take the new coinage. This is time-consuming. However, this is a task that is completed UK-wide on a regular basis every time the UK issues a new or replacement coin (at the time of writing one of these processes remains ongoing as the UK adapts to the introduction of a new design of

pound coin). There is very well established expertise on how this is done –

there is nothing mysterious about it.

Of course other aspects of currency set-up do fall into the more difficult category – the creation and management of foreign currency reserves will require more technical skills and specific knowledge. But even here we’re dealing with technical skills which are fairly widespread and well-understood.

As we shall see, achieving this task and many others like it is primarily a recruitment issue of finding the right people with the right skills to complete the work.

Taking into account each of the stages which would be required to set

9

How to Start a New Country

up and transition to a Scottish currency (to be explored in depth later in this book), a period of three years appears achievable (though is not overly generous). There appears to be no other major aspect of the process of

achieving independence which cannot be achieved in the same timescale

– other than negotiations to join various international organisations

which may take longer but which do not hamper the process of reaching

independence day. It is therefore proposed that Scotland should set a tight but achievable timescale of three years from the start of independence-building to the day that Scotland announces its final independence. How

quickly the independence-building process can begin is purely down to

preparedness and focus – if a reasonable amount of work is done in advance of an independence referendum such that a number of strands of project

work are ready to go in the event of a vote in favour, there is no reason processes could not start shortly after the vote is cast.

However, there is one final factor which should be at the forefront

of our minds throughout this; the success of Scottish independence will

depend in large part on how well we achieve the building process. It might well prove faster simply to hand over the process of setting things up to a large ‘accountancy consultant’ like KPMG or PwC. They might be able

quickly to knock up exactly the kind of failing corporate-friendly tax and monetary systems which Scottish independence is an opportunity to leave

behind. There are no end of reasons why this approach should not be taken.

Impatience will simply not make Scotland more independent – in fact, it is almost certainly the case that more haste will mean less independence. It is also crucial that Scotland is designed in the interests of its citizens and not the corporate clients of an international consultancy company. Replicating the failings of the UK is not the vision many people have for an independent Scotland.

But there is a final, very compelling reason that this approach should

not be taken. If Scotland is to become independent it will require a

substantial investment in time, effort and money. If the profile of the spend of this money and the impact of the investment in time and effort is geared towards parachuting in predatory international corporations, the value of the investment will be captured by those corporations and expropriated for the financial benefit of their shareholders. In that model, the money spent by Scotland establishing itself as a new nation will be lost to Scotland. It will create substantially less economic benefit here, it will not allow anything like as many Scottish businesses to grow and establish themselves, the

skills which are developed in the independence-building process will not be Scotland’s skills but the imported skills of a multinational.

It is important that in the early years of Scottish independence there

is successful economic performance. This will coincide with a period where Scotland will be spending substantial amounts of money on a once-in-a-10

a practical guide for Scotland

lifetime project of a scale the nation hasn’t seen in many years. If these two processes – the building of a post-independence Scottish economy

and the investment in building the infrastructures and systems of a new

Scottish state – are not coordinated, each to offer the maximum benefit to the other, they must be managed not as tendered service contracts but as a core national project. Getting this process right will mean that the money spent to create a Scottish state acts as a very substantial direct investment into the Scottish economy during a period where that investment will

be particularly important. If we can source the maximum volume of the

work and workers required to create this state in Scotland, for Scotland, the process of state-building could be one of the most substantial Keynsian demand-side stimulations seen in a generation.

There are thousands upon thousands of jobs to be created in creating

this new Scotland; the economic development potential this represents must be taken seriously and managed carefully. To spend all the money Scotland is going to spend and not see a real boost in the Scottish economy would be first-order negligence. Time and care must be taken in the run-up to

the three-year building process and throughout those three years to ensure that every penny of value that can be retained in the Scottish economy is retained.

11

Keeping things moving

Everyday life does not cease just because Scotland has decided to go for independence. Throughout the three years that will be required to achieve independence, children will still require to be educated, patients cared for, policing managed and overseen, roads repaired, bins emptied. The work

involved in creating a Scottish state should not be underestimated. If we do this right, it will involve a very big investment in time, effort and focus. But, for a generation of Scots, this focus on the future cannot be at the expense of the focus on their lives and needs. It is therefore important that we find a way to manage successfully three aspects of the overall governance of

Scotland at the same time.

The first is the business of domestic politics. At whichever point the

referendum is held, there will be an incumbent Scottish Government which has stood on the basis of a manifesto stating what it will do with Scotland’s devolved powers. That government will have a democratic mandate over

education, health, transport, criminal justice and so on. However, that

government will have no mandate over subjects which are currently reserved at Westminster – such as much tax and macroeconomic policy, foreign policy, defence, most of social security and so on. There is a separate government which has a mandate over those issues, which is the one elected at a UK

General Election. Eventually, on full independence, decisions about all those currently reserved matters will come under the jurisdiction of Holyrood. At that point all policy – currently devolved and currently reserved – will fall under the remit of the Scottish Government of the day.

There is an important democratic principle in this transition; a

government should not wield broad powers over policy areas without a

clear mandate. An individual voter’s decision over which government to

vote for to look after health and education in a devolved parliament inside the UK system might not be the same decision they would make on which

government they trust with wide tax-raising powers, the right to start wars, the power to set unemployment benefit. There is only one democratically

12

acceptable way to deal with this contradiction and that is to hold elections based on the full powers of an independent Scottish Parliament either soon before or soon after independence day (of which the latter makes more

sense). At those elections political parties can set out their proposals for how they will use all the powers available to them and electors can make a judgement on that basis. It is therefore proposed that elections for the first government of an independent Scotland be held within not more than six

months of independence day.

The implications of this for the three-year process of state building

depend on when the election cycles fall. It is possible that the set term of a Scottish Government already covers the entire three-year period, meaning that the existing Scottish Government (at the time of a referendum vote) already has a full mandate to remain in power for the full three year period.

However it is also possible that the term of that government would naturally end during that three year process. It is difficult to see any merit in holding a major set of elections during the transition period, given that there are going to be full national elections immediately after independence. The

most obvious solution to this is simply to extend the term of whichever

government is in power at the time of a referendum vote.

This would probably be uncontroversial in the event that this meant an

extension of an extra year or so. It might be more contentious if the existing government was right at the end of its fixed term at the time of a referendum vote. There are circumstances in which this would mean a government

being in power for a full eight years based on one election. Particularly if for any reason this was a government which had lost popularity or lacked public support, it might be more difficult to gain public or political support to extend that administration for a further three years. Any outcome would need to be negotiated and agreed by all political parties sitting in the Scottish Parliament at the time of an independence vote. If there was real opposition to extending the term of an individual government there might need to be an exploration of some form of ‘national government’ or coalition for the transition years. It is difficult in advance to predict exactly the means of ensuring continuity government for the extended period of transition simply as a factor of electoral timing issues. However, a devolved government with continuing responsibility for devolved policy matters must be ensured. It would be for that government to maintain and indeed improve all public

services for a transition period.

There are also some unknowns in relation to the UK Government over

this period. It might well be that a UK Government has been elected with a mandate to serve for all three years of the transition period. If so, that government would retain power over all reserved matters for the transition period. However, it would be expected that no policy actions would be

taken during that period which would prejudice or substantially change the 13

How to Start a New Country

circumstances a soon-to-be independent Scotland would inherit. To this end, a date would be established prior to the independence referendum which

would be taken to represent ‘the status quo’. That date might be six months or one year prior to the actual vote. This would prevent a hostile Westminster government from sabotaging Scotland’s interests either in negotiations or for the early days of independence. For example, if a UK Government proposed changing the designation of assets from being national (to which Scotland would be entitled to a share) to being England-only (meaning Scotland

would not be entitled to a share), then this would be overruled on the basis that at the date given for baseline comparison (the date to be taken as the moment of ‘status quo’), those assets were designated in the former way.

This prevents undue interference in a fair and equitable secession process.

But it is equally the case that a scheduled UK General Election could

fall during the three year transition process. This would create anomalies in whichever way it was handled. For example, if there were UK elections with only a year to go to Scottish independence day, it might be sensible for Scotland not to take part in those elections. This would mean that for a period Scotland’s reserved matters would be run by a government over

which Scotland had no say.

On the other hand, if Scotland did take part in those elections, that

democratic anomaly would disappear only for another to occur. Because

while Scotland would then (perhaps only for one year) have a say in the

last Westminster government to rule over it, immediately after Scottish

independence that government would lose 56 of its MPs as Scottish MPs

withdrew from parliament. If there were substantial different voting patterns in Scotland and England during that election, this could lead to the fall of one government only a matter of months after it was formed. For example, if Labour was elected with a narrow majority based on Scottish votes, it would fall once those Scottish representatives withdrew. A potentially even more anomalous outcome would be if SNP MPs were supporting a coalition

government at Westminster, which would mean that there would be a strong possibility that the same political party would be nominally part of both sides of the negotiating table, which is clearly not appropriate. Without knowing the exact circumstances and timings involved it is very difficult to provide a single, comprehensive solution to this issue.

Whatever the resolution to these issues turned out to be, they would

ensure that there would be administrations in London and Edinburgh which would continue to manage the full range of policy matters during the transition period – Westminster and its agencies continuing to manage reserved

matters, Holyrood and its agencies managing devolved ones. However, it

is inevitable that there will be issues which crop up in either parliament which could have a substantive impact on independence negotiations, the

process of building up a Scottish state or the autonomy and viability of an 14

a practical guide for Scotland

emerging Scottish state. As a matter of good government it would therefore be wise to establish a transition committee made up of representatives of the Scottish and UK governments (and potentially also of parliamentarians from non-government parties). This committee would examine, negotiate

and coordinate on any issues emerging which were identified as ‘problem

issues’.

These arrangements would ensure that two of the three major political

and governmental tasks required of a transition period were fulfilled –

maintaining both devolved and reserved government. Let us turn our minds now to the third task.

15

Getting things done

There are a lot of individual tasks and projects which must be completed and delivered to achieve Scottish independence – creating new government departments, establishing a new currency and central bank, negotiating

with various international partners. It would be unwise to underestimate the volume of work required. Scotland has an effective civil service, but there are three very important aspects to that civil service which must be understood. First, the ‘Scottish’ civil service is not a separate entity from the UK civil service but rather is simply the UK civil service in Scotland.

The nature of the civil service has changed since devolution and the lines of responsibility for Scotland increasingly terminate in Scotland, and more of the HR function for Scotland is managed here.

But there is limited policy control over the civil service in Scotland.

This means that in the inevitable event of there being elements of conflict of interest between a developing Scottish state and the existing UK state, civil servants in Scotland are put in a difficult position. For example, unless there were some sort of immediate structural change, the UK civil service would be facilitating both sides of the negotiations over Scottish independence – a civil service effectively negotiating with itself.

A second issue is that there is a range of very important tasks to be

completed for which the Scottish civil service simply doesn’t have the

specific skills. For example, since Scotland has virtually no influence or policy involvement in monetary policy which is handled exclusively in

London there is little expertise in the policy issues involved in setting up and running a new currency. Finally, it is simply not the case that Scottish civil servants are sitting around, twiddling their fingers and looking for something to do.

There have been many warnings raised during the Brexit process

that the sheer volume of work required is overwhelming government. In

Scotland, the transition to independence would be even more overwhelming if we behaved as if this was ‘just another government policy to deliver’. In 16

terms of autonomy, expertise and capacity, the civil service in Scotland can’t have this task just dropped on it.

There are a number of possible fixes for this. For example, some kind of rapid division of the UK civil service (at least in terms of lines of responsibility if not full HR policy) could be considered. There would then need to be a substantial recruitment process – but much of it would be fixed-term since many of the roles would cease to exist after independence. However, there are problems with this. The UK civil service is not known for successful rapid reorganisation, and doing this might well reduce the capacity to continue to deliver existing domestic policy. It is not obvious that this is the best vehicle for delivering the work needed, or that it would be possible to do this without the risk of harm to any other of the responsibilities falling on civil servants.

And there is a further issue of principle; setting up a new country is

not best understood as a party political act. If a new Scotland is to emerge which is created in a way which is to best meet the needs of all its citizens and the many businesses and organisations which exist here, it should be built collaboratively and inclusively. The Scottish civil service is getting much better at collaborative working, but its core purpose is still to deliver the will of a single government. And, as has already been noted, unless that government has put the full details of its plans on how an independent

Scotland would be established in a manifesto and stood on that manifesto in an election, it has absolutely no democratic mandate to complete this work alone.

It is therefore proposed that rather than trying to drop this workload

and responsibility onto an existing civil service without the capacity and government without a mandate, a new structure should be set up to

undertake the work of building a Scottish state. A National Commission for the Creation of a Scottish State might be thought of as a task-specific, time-limited, mutually and democratically governed civil service. It would be an agency set up to deliver all the tasks required of creating a Scottish state, from recruiting personnel to managing finances to facilitating negotiations.

As soon as its tasks were completed, it would dissolve.

Part of the purpose and aim of a National Commission would be to

generate the maximum amount of trust among all Scottish citizens. It would be important that it was seen not to grant unequal access or influence to any one political party, business interests, pressure group or any other grouping. Rather it would be structured in such a way that all of Scotland’s many interests – political, social and commercial, urban and rural, young and old – all get a fair hearing and have the best possible chance of having confidence in the nation-building process.

There are three ways in which this should be achieved. First, the National Commission should begin with clarity. In the next chapter it will be argued that a substantial amount of preparatory work needs to be done before an 17

How to Start a New Country

independence referendum if there is to be a successful and swift transition.

The National Commission can’t be asked to begin with a blank sheet of

paper on day one of the transition period. Indeed, it would be best by far if there was a good understanding of at least the skeletal structure of proposed independent Scotland during the independence referendum. This would

mean that people had voted for independence with a good understanding

of what they were voting for – and the work of the National Commission

would be much easier both to trust and to judge if people understood fairly clearly what it was seeking to implement. It would also make the work of the Commission much easier if it had a clear blueprint to implement. Clarity greatly aids trust.

The second factor in creating trust in the building process is to ensure transparency and that the process is participative. Clear reporting on

progress as work is done is essential – and the many practices which tend to create mistrust (commercial confidentiality exclusions, advice to ministers exclusions and so on) should be avoided. The Commission should be

constituted not only to enable it to be transparent but to compel it to be so.

And it must be designed to have the maximum number of opportunities for

citizens to participate. Some of its tasks – such as developing a constitution –

should be entirely participatory (this will be discussed below). Others should involve serious use of deliberative and consultative practices which help to gauge citizen’s views of many aspects of the nation state being developed.

The third factor in developing trust is to ensure that there is broad and open governance of the National Commission. There are many governance

models which might be appropriate here, but it is important that whatever is chosen is mutual, multi-party and multi-stakeholder. Whatever the final governance structure, no one grouping should have majority control of

decisions. A final decision-making body – a Council – should be established and this should have balanced representation from different political parties and a balance of representatives of different interests groups such as business groups, trade unions, local government, poverty campaigns and so on.

No individual person should have the power to appoint this entire

Council, possibly allowing different sectors to select their own representatives.

Clearly there will need to be a lot of specialist and expert advice and so it is likely that many ‘expert panels’ would be set up to advise on specific and technical aspects of the overall programme. But it is important that this does not become an issue of ‘capture’ – the technical skills needed to set up a new currency are of course important, but they should not be considered

alone without considering social and economic implications of decisions

made. Again, the easier it is for citizens to monitor what is being done and how and why decisions are being made, the more likely they are to have

trust in those decisions.

Once the foundations for trust and confidence are in place, it is for

18

a practical guide for Scotland

the National Commission to deliver on the plans it is given. A substantial proportion of the success of a National Commission will be based on how

successfully it recruits personnel. Many of the core tasks are ones which rely on the quality of the people carrying out those tasks (recruitment issues will be considered later). They will also rely on good project management skills and effective risk management (which will also be considered later).

Effective access to and management of finance will also be essential (and this too will be explored later). Delivering the actual work is then a matter of project managing good people with access to proper resources working to a coherent plan in an effective and transparent matter.

This would create the core infrastructure required for a transition

process. For three years the Scottish Government would be wholly responsible for devolved policy and the UK Government responsible for reserved policy (with a Transition Committee coordinating between them on matters which

impact on the establishment of a Scottish state) and a National Commission would be wholly responsible for the one-off steps necessary to achieve

independence. These would include designing and creating new government

departments, designing and putting in place new infrastructure, facilitating negotiations with external bodies and managing the finances of the building process. Getting this structure right will enable citizens to feel confident that their interests are being served in both the immediate and long terms.

19

Be prepared

At this point it is worth taking a step back. So far this book has been

premised on looking at the steps that need to be taken after a successful vote for Scottish independence. However, it is patently absurd to suggest that the best approach to Scottish independence is to wait until after a vote to make all the key decisions. There are all sorts of reasons for this, and not least among them is the democratic imperative. One of the most commonly

reported factors raised by people who voted No in 2014 is that they simply did not properly understand what they were being asked to vote in favour of.

The idea of independence is one people understand immediately, but what

that would look like in practice is quite another matter.

There was a White Paper last time which explained in broad

terms what the then Scottish Government was proposing as the post-

independence constitutional settlement. But it included a lot of ‘coulds’

and ‘mights’, made a lot of assertions which weren’t fully fleshed out and relied heavily on positive behaviours from the UK Government (and others) which were not willing to offer those positive behaviours. Both tactically (for independence supporters) and democratically (for everyone who is

interested in democracy), this did not work sufficiently well. There are very strong strategic and democratic reasons why it would be much better to

present a clear, unambiguous statement of exactly what will be done to

create a Scottish state, and that as far as possible that statement will stick to actions which it would be entirely in the power of a soon-to-be independent Scotland to do, relying on assertion and promises that it will ‘be OK’ as little as possible.

However, there is an equally solid reason for presenting such a plan in

achieving the challenging three year transition period. The more that plans and proposals have been pre-negotiated and thought through prior to a

referendum, the less negotiating and head-scratching will be required after a vote for independence. It is generally assumed that broad decisions need to be made and communicated about big issues like what currency we will use.

There is much less of an assumption that the details of these big decisions 20

will be agreed in advance. Instead there is a rather lazy tendency to assume that questions such as ‘how will the immigration and customs service be

created?’ can be answered at a later date. And, of course, they can – but at a substantial cost. And that cost is that either Scotland will be underprepared for independence day and the process of emerging as a nation state risks becoming a scrappy and drawn-out affair as a lot of core work has not been completed in time, or the transition period will be extended and therefore Scotland’s independence day delayed, potentially substantially so.

Scottish independence has been seen largely as a political issue.

Indeed, some independence supporters have talked in terms of providing

specific details about a future Scottish state as being against the spirit of a referendum which is only asking ‘do you want to be an independent

country?’. In that version of the progress to independence, the job of citizens is simply to answer in principle whether to separate from the UK and the final meaning of that vote can be debated and discussed forever more once Scotland is independent. However, this is simply a recipe for a slow and painful national birth.

It may well be nice to think of a nation state as being almost nothing

other than the will of its people, but in reality it is more than that. It is a set of institutions and laws which are supposed to express the will of citizens as expressed at a ballot box. If those institutions and laws are not in place, the will of the citizens has little meaning as it has no agency through which it can be realised. Both ending up with a sloth-like transition process that drags on for years or stumbling rapidly into life as an ill-prepared nation state would do no favours to anyone in Scotland. And if there are difficult battles to be fought or at least complicated questions to be argued over, the more of that which can be completed before the plan those battles and questions are shaping is needed, the better the chance of a smooth, consensual and successful transition to independence.

So Scottish independence is of course a political issue (as it is a social and cultural issue) – but if independence supporters are serious about it, it is also a major project management issue. If there is a clear, unambiguous statement of what needs to be done to build quickly a new Scottish state, then those doing the building can begin earlier, move much faster and make fewer mistakes along the way. It is almost exactly the difference between building a tower from a detailed architectural plan or making it up from scratch on site.

The optimum outcome is fairly straightforward – on the Monday

after a vote in favour of independence the process of creating a National Commission would begin and from day one that Commission would have a

fairly detailed White Paper acting as a blueprint for the work it has to do. It would not need to spend weeks and weeks interpreting what the guidance

it has received means. It would not be bogged down in lengthy negotiations 21

How to Start a New Country

on key questions. Obviously not everything can be decided in advance

and no blueprint survives translation into the real world without alteration, amendment or addition. And there are aspects of the work of a Commission which simply cannot be pre-prepared, most particularly the negotiating

process in which it is not possible to know in advance the position to be taken by the people with whom you’re negotiating. But the more that can

be done beforehand, the faster and more successfully the transition to

independence can be achieved. So if the premise of this book begins after a vote for independence, it will be enormously beneficial if the many tasks ahead are not hobbled in advance through insufficient preparation. It is for proponents of independence to get on with the job well before they go back to the public and ask for their support.

22

Talent-spotting

There are some major projects which rely heavily on specialist goods and services. If you want to build a new mobile phone you will need to secure access to the specialist IP needed to make the phone work, you will need to secure specialist supply chains to provide the complex components from which the phone is made, you will almost certainly need to find a way to break into the distribution and retail networks needed to get your product in front of customers. Sheer human intelligence, enterprise and drive will not in itself be enough; there are specific real-world barriers to achieving an outcome which must be overcome.

This is not the case when setting up a new nation state. There are

of course some real-world barriers that must be overcome, perhaps above

all the need to get successfully negotiated agreements and compromises

with other nation state (and multinational) actors. However, the means for overcoming those barriers is very human – you simply need to have very

effective negotiators and they need to prepare well for their negotiations.

There is no component you can buy which will fix the issue for you, no

software code you can install which will do the job. It is all down to the quality of the case that you take into negotiations (including how fit for purpose that case is strategically) and the skill with which negotiators operate. In tasks such as creating a new currency there are indeed some technical software and hardware requirements, but none so specialist that they cannot easily be procured. By far the most important factor will be how much confidence the process of developing that currency instils in consumers, employers and wider financial markets. That confidence does not come from software but from the ability of the team doing the work and the solidity of the detailed plan they develop. Once again, it is the human resource which will be critical in achieving a positive outcome.

There are other tasks which are more straightforward. For example,

setting up new government departments to cover areas currently reserved

to Westminster like a Foreign Office and a Department for Trade and

Industry are almost purely organisational and primarily involve creating the 23

How to Start a New Country

right structures with the right networks, providing them with the correct constitutional powers and then recruiting good staff with which to fill those organisations. There is no enormous external barrier – no-one is trying to stop Scotland setting up a National Statistics Agency or a Department of Social Security. The task is almost entirely predicated on the skill of the people undertaking the task.

Scottish independence has sometimes been presented as being, at

heart, a complex procurement issue – ‘from where will you be able to get your tanks/consulates/software systems?’. In fact, it would be much more accurate to see it as a major recruitment and human resources issue. We will need the best negotiators that we can find. We will need people with deep knowledge of currency and monetary policy issues. We will need people

who have wide experience of defence and military issues. If we are able to secure people of a high enough calibre and provide them with a solid plan to enact, we can be confident of the quality of what they will achieve.

It will also be helpful to think clearly about Scotland’s current strengths and weaknesses when developing a recruitment strategy. There are many

areas where Scotland is well equipped with people skills either of those resident here or of Scots currently working elsewhere. For example, Scotland should find little difficulty in finding many people with real expertise in foreign affairs, borders and customs, social security, trade and industry and defence. Wherever it is possible to find someone of a suitable ability from within Scotland, that approach should be pursued. It is certainly quicker and, in the early stages at least, likely to produce the most efficient outcome given their existing knowledge of the current state.

The investment which is made in setting up a Scottish state will be

substantial but it will also have very positive economic impacts in Scotland.

The more employment that can be created in-country for people who

currently live here, the greater the economic impact of that expenditure will be. However, we should also accept that there are a number of areas in which Scotland is unlikely to be well-endowed with expertise. Perhaps the best example of this would be monetary policy and experience of running

a central bank, functions which have never really existed in Scotland in the modern sense. There may well be relevant Scots working in these sectors

outside of Scotland and it may well be worth seeking to encourage them to return. However, we cannot afford to be myopic in our recruitment strategy and we should aim to bring in the best talent we can possibly find, from wherever we can find it.

This might mean looking around the world to identify people who have

real experience of doing what we’re looking for – and doing it well. It may be that they can be found in government positions in other countries. Perhaps a country which has been really innovative about how it uses its IT systems (Estonia for example) has relevant people who could be approached to, in 24

a practical guide for Scotland

part, replicate their work here. Perhaps there are globally-recognised figures who have particularly forward-looking and innovative visions for what a

modern monetary system would look like. There will be people in many

places who have extensive experience of negotiating international treaties.

If we are imaginative about our recruitment process Scotland ought to be able to provide a very tempting opportunity for an ambitious professional who would see the exciting possibilities contained in a ‘blank canvas’

opportunity like setting up a new nation state.

People who have spent years trying to adapt or modernise state

systems which are no longer fit for purpose will very possibly have found it a thankless task and might find the opportunity to create these systems in an integrated way from the ground up an attractive opportunity. There is every reason to believe that Scotland, if it gets its strategy right, would be able to scour the world for talent – and be successful in recruiting that talent for Scotland. When else would someone seeking a professional and personal opportunity like this ever find a better one? It would be truly a ‘once in a lifetime’ opportunity. Of course, the process would have to be very robust to ensure both the right people made it through – and that the wrong ones didn’t.

Indeed, there is no reason why this process should wait until after a

vote on independence – and very good reasons why it mustn’t. Identifying a

‘wish list’ of leading figures who could be tempted to Scotland to lead (or at least guide) teams working on each task could and should begin well before a referendum. People could be head-hunted and approached, offered terms

conditional on Scotland agreeing to become independent in a vote. If key people were identified, recruited and prepared as much as possible it would substantially speed up the process of creating a Scottish nation state.

The process of recruiting a top team like the one Scotland will require

begins with creating clear job descriptions. These would be detailed

descriptions of exactly what set of tasks a post must achieve, what conditions and environment they will have to achieve it in and what kinds of personal and professional attributes they will require to do it well. This will create a strong profile. At this point Scotland will require a team of professional recruiters. Their first job is to convert the person specification into a list of potential targets to recruit. They will do this by using networks of knowledge and by undertaking thorough research to try and find the best possible

candidates anywhere in the world. As each new target becomes clear it

is likely also to open up new avenues of possible exploration for further targets. Eventually this will lead to a long list of possibilities.

From this a shortlist will be produced. At this stage the key is effective research about each of the potential candidates to try and establish who appears best fit for the job. It is not necessary that the recruiters be specialist in the area in which they are recruiting – it is the process of talking to 25

How to Start a New Country

others, especially those who are genuine experts in the field being worked in, and gathering information during this research and investigation phase which produces the criteria which will enable successful recruitment. Once sufficient research is done, it will be possible to create a manageable shortlist of candidates.

But this research has another important purpose; this provides the

background work which is necessary to produce a strategy for the recruitment of each individual. Secondly, the research and data gathered will also inform the wider strategy for that sector or part of the economy or infrastructure in question which will be useful in the longer term. It may not be simply the quality of the job which is an important factor in whether success in recruiting a candidate is achieved; people have many other factors in their lives. For example, the issues which may be important to a candidate with a young family could be very different from the issues important to a candidate who is older and at a late career stage. The issues which may be decisive in winning over a candidate can be very wide indeed – anything from a

personal attachment (perhaps family or friends in Scotland or a historical familial tie) to lifestyle issues (for example, someone whose hobbies are around outdoor pursuits and would be attracted to Scotland’s geography) to professional opportunities (a late-stage career professional who has always wanted that one big chance to...).

It does not matter what combination of these factors is likely to have

the strongest ‘pull’ on a candidate, the job of the professional recruiter is to identify them, put them together in the most attractive package for the individual and then to engage in a process of conversation with the target such that the package of attraction factors is the focus of the recruitment efforts.

This will not be achieved overnight. Particularly when recruiting people at a senior level, there will almost always be a long process, particularly if they are recruited from outside Scotland. And of course in this particular case there is the added complication that much of the recruitment work

can be done prior to a vote for independence in a referendum but that final appointments cannot be made until after that vote is secured. However, it should be hoped that by the time a second referendum is held there will be strong indications that there will be a pro-independence majority in advance so that it is easier to work on the principle that this project will move ahead.

Indeed, it is possible that during a campaign a sufficient proportion of the core transition team could have been recruited ‘in waiting’ and be in a

position to announce their intention to accept the job offer such that a ‘core team’ of talent could be presented to the public to reinforce the message that Scotland was very much ready to become independent.

But it is very important to be aware of what these longer lead times

mean. Let us imagine that the aim was to recruit roughly 100 top people at 26

a practical guide for Scotland

the very start of the project to put us in a position to begin quickly and stick to the three-year timescale as set out in this book. To recruit 100 people of that level of seniority might take a team of about 20 to 30 professional recruiters a period of about 18 months to complete that work. Therefore in an ideal world we’d be recruiting the recruiters at least a good year and a half before the date of a vote for independence and they would be working full-speed from that point to have a team ready and in place in time for the vote.

Failing to do this would not only slow down the process of creating

a new Scottish state after a pro-independence vote, it would fragment the process, with some parts of the project team likely to be much more ready than others. And it would also almost certainly lead to a much higher level of reliance on ‘what’s there now’ – the civil servants and ‘friends and family’

of the Scottish political scene who would have to be shuffled around one more time to make up a competent-looking transition team. For those who

might instinctively think that this is a bit of an obscure issue for people who

‘just want to achieve sovereignty’, it may be worth considering what the post-Brexit vote looked like for those who ‘just wanted to leave the EU’. Poor preparation and not having a well-prepared team in place did not increase confidence in the process which has followed. Scotland would do well to

learn from that mistake in preparing for independence.

If we see the process of developing a Scottish state not in terms of an

endless sequence of ‘problems’ but rather a sequence of plans which are

being taken forward by a world-class team of experts with full democratic oversight, the picture looks quite different. In fact, at that point independence begins to look much less like a worrying uncertainty and much more like an exciting possibility. Building the new Scotland will be a people process. Let’s make sure we’re ready to get the best people possible.

27

Paying for transition

Later in this book, when we get to some of the specific projects and tasks, some numbers will be put forward to give an indication of the amount of

investment it will require to complete them. When these are summed up it will be possible to get a rough sense of the amount of investment required to reach Scottish independence. It will also be possible to show how this investment will not only create a new nation state but at the same time

act as a very substantial economic stimulus for Scotland throughout the

transition period and beyond.

However, it is of course necessary to explain where the money for this

investment will come from. Throughout this period the Scottish budget will continue to be primarily managed by the Scottish Government (and the vast bulk of that budget will continue to be spent on domestic public services).

That money will be accounted for using the usual Scottish Parliament

budgeting process, resulting in a budget bill. However, quickly prior to the establishment of a National Commission a supplementary budget bill will

be require to be introduced by the Scottish Government and passed by the Scottish Parliament.

This will authorise the expenditure which is necessary to set up

the Commission. This will enable the National Commission to begin the

process of recruiting its core team and start implementing the work plan.

The Scottish Government would then introduce legislation which would

delegate to the National Commission the power to set its own operating

budgets for the three-year transition period. These budgets will be carefully scrutinised by the governing body of the Commission, its Council, to ensure that they are sufficient to deliver the work that needs to be done but which achieves the best possible value for money. The Commission’s Council

would be answerable directly to the Scottish Parliament and would carry the responsibility for monitoring and reporting regularly on all issues of financial accountability.

The National Commission would be constituted by an act of the

Scottish Parliament and would be constituted such that it is able to raise 28

finance by issuing bonds. That would then enable the Commission to issue a series of five and ten year bonds which would be used to fund all of its work. This would require that the transition committee (the joint committee of Westminster and Holyrood coordinating the transition period) agreed

with the UK Government that there would be an extension to the Scottish

Government’s existing borrowing powers. That would then enable the

Scottish Government to act as a guarantor to the National Commission’s

bond issues. This in turn would give investors much more certainty and

security over these bonds which in turn would lower the bond rate (the

amount of interest paid to investors who buy these bonds) and reduce the cost of borrowing to the National Commission.

At this stage the Scottish Government would clearly not have in place the range of financial institutions which would usually be expected to be in place to ensure there were robust systems of fiscal and monetary management. It is also the case that the Scottish Government would have only a very limited track record of borrowing and so would not have established a substantial credit rating with international lenders. And of course, other less standard options such as quantitative easing will not be available to Scotland until after independence. This means that bond issues will be more expensive

during the transition period than they would be once Scotland becomes

independent. It is therefore estimated that the National Commission (backed by guarantees from the Scottish Government) would be borrowing at a rate approximately half a percentage point higher than the current UK borrowing rate.

These arrangements will ensure that the National Commission has

sufficient resources over the three years of its existence to complete the work it has to complete. During the same period the Scottish Government

will have operated from within the budget allocated to it by Westminster and so, other than its very limited borrowing powers, will not have increased Scotland’s debt. At the end of the three year period and after independence day, the total liabilities accrued by the National Commission would be

taken over by the government of an independent Scotland and be added to

the national debt at that point. This means that the costs of setting up an independent Scotland will not have any impact on the amount of money that Scotland has to spend on public services during the transition process. Once independent the costs of set-up will be transferred in a one-off move to add them to the national debt. In terms of the overall national debt this will be a proportionately very small rise (depending of course on the outcomes of secession negotiations with rUK) and so again will have no effect on the first government of an independent Scotland’s ability to pay for public services.

29

Risky business...

There is no doubt that the project being discussed here – the establishment of a new nation – is a detailed and complex one. There are three factors in particular which make it unusual. The first is the scope of it – this is not a replacement of a tax system, or the adaptation of an energy system or the redesign of a social security system. It is all off them simultaneously. This creates unique opportunities to do all of this really well and in an integrated and consistent way. But it does mean managing a series of very substantial project strands at the same time.

The second complicating factor is the importance of each of the individual projects. These are not new lines of washing up liquid being prepared for supermarket shelves. If there are delays or failures in the delivery of any of these project strands then contingencies must be put in place to ensure that there is some continuity of service from the old systems – or taxes wouldn’t be collected and benefits would be unpaid. These are projects which simply can’t be allowed to fail or to be excessively delayed. The third complicating factor is that many of these project strands – each complicated enough in itself – interact substantially with other project strands.

For example, creating a digital payment system for a new currency is

necessary to pay wages and bills and carry out procurement in almost every other part of the public sector (and indeed beyond). For the NHS or the Fire Service or the local government sector to develop or revise IT systems which enable them to pay the salaries of their employees, they need a Scottish currency payment system (this would be a replacement for the BACS system which pays in Sterling) to be in place first. If the payment system is delayed then the IT and HR systems of these other agencies will be delayed. If the IT and HR systems are delayed then this might have a knock-on effect on

recruitment or procurement, or at least slow down the speed at which the transition can be made.

It is not only reasonable to be open and honest about some of these

complexities and risks – it is actively helpful. If we can be clear about the risks, then we can pursue a proper risk management approach as part of a 30

proper project management approach. This will handle both the complexities or each individual project strand and the complexities which are created through the interaction of work progress on different project strands. In a previous chapter it was suggested that the process of developing a Scottish state should be thought of as in large part a major recruitment project. Once that recruitment is complete, the transition to Scottish independence might best be thought of as a very major project management process. Carefully monitoring, measuring and managing of progress on each project strand

and the project overall will be crucial.

This is not the place for a detailed discussion of project management

approaches, but it is worth giving a brief outline of what that would mean.

First, the maxim ‘you cannot control what you cannot measure’ is important here. There are two parameters for measure-ability – the capacity to do

the measuring and a clear definition of what is being measured. (The thing being measured must be defined in a way that makes it meaningful. ‘Create a new currency’ is a task too big to be measured, but ‘create a new currency payment system’ is a measurable task.) To enable this to happen, a Work

Breakdown Structure would be created. This would breakdown the overall

task into manageable component actions and create ways to measure

progress with each of them.

Following the creation of a Work Breakdown Structure (WBS) there

would be an Organisational Breakdown Structure (OBS). The purpose of this is to define responsibility for each individual task, assigning a Responsible Manager to each of the elements in the Work Breakdown Structure. Once

this is done, the organisational structure has been mapped against the task structure to be completed – the WBS defines ‘what sort of work’ and the OBS

defines ‘whose work’. This gives an overall work flow structure to the project and assigns responsibilities and creates methods of measuring progress in achieving each of the elements on the way to completion.

However, these structures assume that everything will go well – but not

everything will go well. No project, even a simple project, progresses smoothly from conception to completion without a hitch – and most certainly not a complex project. It is therefore necessary to consider, in depth, the range of risks which are associated with the progress of the overall project. This creates a Risk Register, which is an initial model of the range of problems which may beset the project and the likely impact of each of those problems on the overall project.

To take the example used above, a risk register would model what

happens if the scheduled delivery of the currency payment system is delayed by a month, by six months, by a year... This would assess the knock-on

effect on other parts of the WBS and would potentially create a risk factor in each of them. A Risk Register of this nature provides many methods for managing the project. For example, it can flag up at an early stage any parts 31

How to Start a New Country

of the project which are particularly crucial to its overall implementation.

If, for example, modelling the risks involved in the project to deliver the payment system show that this has potentially catastrophic effects across the overall project, it means that contingencies can be put in place and, perhaps more importantly, it focusses the minds of all those working on the critical elements of the overall project.

This has been little more than the briefest of overviews of how a

project management approach should be taken to the work of the National

Commission. It is here mainly to ensure that anyone who is genuinely

interested in the establishment of an independent Scottish state is taking proper account of the scale and importance of the project management

aspect of Scottish independence. We simply cannot afford to get this wrong and so it should be given due prominence throughout our thinking. However, Scotland is well endowed with excellent project managers in almost all

industry sectors and identifying high quality people capable of overseeing the implementation of this work is perfectly possible. Project management may not have the romance associated with a campaign for national self

determination, but it would be a big mistake not to understand just how

important it will be to the successful completion of that campaign.

32

Foundations for the future

At this stage we would have reached the point where we would have in place a sufficient work plan, a properly resourced agency to deliver it with the governance oversight to make sure it is done well, the finance necessary to fund development, the means of recruiting the right people to carry out the project and a project management approach to deal with the complexity

and the risk involved. It is therefore time to turn our minds to the main tasks that would need to be delivered.

The foundation for any successful modern nation will be its constitution.

A constitution is a written and enacted fundamental law, at the apex of the legal and political systems, which is superior to ordinary Acts of Parliament.

Constitutions define the institutions of the state, regulate the relationships between them, proclaim the basic principles and values on which the state and society are based, and protect the rights of citizens. Constitutions can be changed only by a special procedure, and to do so requires broad political and public support.

The word ‘constitution’ is sometimes used rather loosely in British

English to describe the overall working practices of a system of government

– the general patterns, rules and expectations according to which the state is normally operated. In this loose sense, every country, including the UK, possesses a ‘constitution’. However, in most other countries outside the UK

– including all other European countries – the word ‘constitution’ refers to something specific which is written down and in one place. This is often described as a ‘written constitution’ while the British version (a patchwork of statutes and conventions not coherently written down in one place) is described as an ‘unwritten constitution’.

But an ‘unwritten constitution’, or a constitution that can be

amended by ordinary law or which is not superior to ordinary law, is

a contradiction in terms. Every right, every check and balance, every

aspect of the system of government, is vulnerable to being overturned

by ordinary parliamentary majorities. There would be no counter-

majoritarian protections for minorities and for individual rights, and no 33

How to Start a New Country

legitimate or enforceable basic principles to keep both the state and its citizens democratically grounded.

The prospect of Scottish independence in itself tells us nothing about

power, accountability, transparency, meritocracy and good governance; it requires a constitution to do that. A democratic constitution is a commitment to an ideal that can go on illuminating Scottish political life; acting as a standard by which to critique concentrations of power, erosions of rights and instances of nepotism. Well-studied experience tells us that one of the greatest blessings that a country can have, for the flourishing of its economic life, society and culture, and for the well-being and happiness of its citizens, is good government. Good government is infinitely more vital to the wellbeing of a people than, say, endowment with natural resources. Under a

good government, resources are multiplied and put to use for the benefit of society; under a bad government, they are either left untapped or exploited only for the benefit of a few.

Above all, an independent Scotland must be a Scotland for all its

citizens. An independent Scotland cannot belong to one political party, one government, one political movement – or indeed to any one section of the population. It must be a common inheritance for all of us, directed by and for the whole ‘community of the realm’. This is why the foundation of a

healthy democracy is a good constitution, a necessary (but not a sufficient) condition for success. A good constitution establishes a Scottish state on a solid democratic legal-institutional basis, ensuring that power operates impersonally, legally and institutionally rather than flowing from a particular person or party. In so doing, it lays a firm foundation for future social and economic progress, which is rooted in a stable, inclusive and accountable government, and in the rule of law and the protection of human rights.

We should not be complacent about this. The Economist’s Democracy

Index of 2012 (not a flawless measure, but not an unreasonable one)

identified that only about 11 per cent of the world’s population live in a full democracy (almost two in five people live in ‘flawed democracies’ where

there is voting but beset by human rights abuses, the exclusion of minorities, the weakness of the rule of law, endemic corruption, political violence or other failings). While it is very unlikely Scotland would join this group, the way to prevent it is first through getting the constitution right. So the primary task of a constitution is to provide clarity, protection and reassurance: clarity on how the state will function and on what its legal-institutional basis will be, protection for democratic processes and human rights, and reassurance that the Scottish state will belong to all of its citizens, in an inclusive, non-discriminatory and non-partisan way.

Supporters of independence, especially on the left, often think of

the constitution as a transformative, aspirational document. And it can be that – but primarily the constitution must be defensive and preservative, 34

a practical guide for Scotland

preventing governments from abusing power by undermining rights or

by rigging the rules of democracy. The constitution must ensure that the Scottish Government, backed by an ordinary working parliamentary

majority, could not (for example) change the electoral system for its own advantage, or dismiss all the existing judges and replacing them with its own appointees. A three hundred year old state might be able to muddle through without adopting a written constitution, but for a newly independent state it would be internationally unacceptable. Having a written Constitution

is the norm throughout all of Europe and most of rest of the world (New

Zealand and Israel and to a slightly lesser degree Canada, being the only democratic exceptions). Simply for reasons of international acceptability and for meeting the norms of the modern world, an independent Scotland’s constitution must be a written one.

There is a framework of internationally recognised constitutional

standards to which states must adhere if they are to claim democratic

legitimately in the eyes of the world. These include the International Covenant on Civil and Political Rights, the International Covenant on Economic, Social and Cultural Rights and the Convention on the Elimination of all forms of Discrimination against Women – as well as regional instruments such as the European Convention of Human Rights and the European Convention on

Local Self Government.

Although these international agreements leave wide latitude to states

in how they choose to constitute themselves, they nevertheless provide clear minimum baselines with which states must comply in order to be legitimate democracies. A written Constitution for Scotland is a way of showing, to an international audience, that Scotland is serious about a commitment

to democracy, human rights, the rule of law and, in consequence, that the country is not a ‘pariah state.’ This is especially important in the eyes of institutional gatekeepers such as the Venice Commission, the Commonwealth and the European Union, whose good estimation of Scotland would be vital to making a success of the independence project.

So how should the production of a constitution be done? Constitution-

making is a co-operative exercise, involving ‘elites’, ‘experts’ and ‘everyone’.

‘Elites’ are required because they are the ones who are likely to have to make the constitution work. One of the lessons from Iceland’s failure to adopt a new constitution after the financial crisis is that even the most democratic constitutional process must include and to some extent compromise with

the existing political and institutional elites. In many cases, major design decisions arise out of compromise between those elites, and to exclude them runs the risk of stalling the whole enterprise. ‘Experts’ are needed to ensure that the constitution is technically sound; an otherwise good constitution can be weakened by poor drafting, insufficient detail or careless arrangement.

There is a broad range of comparative experience on which to draw,

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How to Start a New Country

which might prevent ‘schoolboy errors’ from creeping into the text.

Experts can also act as advisors to the political elites in the negotiation of the constitution, helping them to think more clearly about the likely consequences of their decisions. ‘Everyone’ is needed to give the constitution democratic legitimacy. The Constitution is the supreme law. It derives its legitimacy from the fact that it represents the ‘settled will’ of the people, above and beyond the particular mandate of any party in government. If the Constitution is to have this legitimacy, it must be acceptable to the people.

That calls for effective public engagement in its development, but even if the general public only has a limited influence on the text itself (which in most cases will, necessarily, be technical and so much of the heavy lifting being done by elites and experts), the people’s ultimate approval of the text is vital.

Scotland is a ‘late adopter’ of constitutional technology and has the

advantage of being able to avoid the mistakes of others. There are now

many other written Constitutions in the world which are derived from the Westminster model, with appropriate national adaptations. From these we

can derive the raw materials of a Scottish constitution without having to break too much new ground. Examples include the constitutions of Ireland, Malta, the Commonwealth Caribbean and India. Basing the constitution on

this tried and tested framework also adds to the constitution’s strength and its capacity to provide reassurance; there is a globe-spanning community of political and legal practice that is familiar with operating such constitutions.

That is not to say that we must be bound by these models, but they do

provide a good starting point. Other sources of constitutional norms include the European Convention on Human Rights and the Commonwealth Charter.

This gives us a framework for how a Scottish constitution is technically grounded. But Scotland needs a Constitution in place on Independence

Day – to do otherwise would be to risk creating a dangerous legal ‘black hole’ at the very beginning of a new state which would fail to provide the necessary reassurance. Consistent with democratic principles, that means the constitution has to be approved by the people before independence

begins. This also means that citizens should have some basic constitutional reassurances not only before Scotland becomes independent but also

before the point at which they are asked to vote in principle for Scottish independence.

There must be a provisional constitution available for voters at the time they are asked to vote in a referendum on Scottish independence. It will not be possible to create a fully inclusive constitution by this point (the ‘everyone’

part of it) because those who do not support independence are unlikely to participate properly in a process until it becomes a reality – and to produce it without them would be utterly against every principle of a democratic, inclusive Scotland. This means that inevitably constitution-writing will have to take place in a two-stage process.

36

a practical guide for Scotland

The first stage should be all but completed before a vote on

independence. This should involve the convening of a ‘Constitutional

Conference’, a grouping of the ‘elites and experts’ who would devise the technical foundations of a constitution. As the purpose of the Provisional Constitution is to protect and guarantee democratic institutions and basic human rights, it should avoid controversy at all costs. It should not contain divisive ideological content. It should not attempt to be a wish list of policies, especially when those are likely to provoke a conservative backlash against the new Scottish state. Issues such as church-state separation (including the status of publicly funded denominational schools, abortion rights etc) should be handled in a way that does not threaten the status quo. Socio-economic rights, if included, should be framed in a way that respects the role of Parliament in determining the extent of their operation. If there are small innovations, they should centre around strengthening the processes of democratic representation and accountability rather than seeking to impose partisan policy prescriptions.

Since the provisional constitution would remain fairly close to a

cleared-up, tidied-up status quo, that provisional constitution should retain the monarchy. A constitution should be agreed by a super-majority of the Scottish Parliament (meaning a threshold higher than the fifty-per-cent-plus-one model used for normal votes, so with a threshold of perhaps 60 or 70

per cent of votes cast). Again, this Parliamentary support may be difficult to secure prior to a successful vote for independence since anti-independence parties may be unlikely to be willing to engage with the vote. However, it is to be hoped that, in private, they can play at least some part in the production of the provisional constitution or at least review it such that it is quickly possible to ratify this constitution after a vote in favour of independence.

It is this provisional constitution that would be put to citizens in a vote on independence. This would provide them with concrete reassurances on

democratic and human rights issues and on the rule of law. However, this should by no means be the end of the process. Once there is a vote for

independence it will become possible to pursue the ‘everyone’ part of the equation. At this point at least some people will want to move beyond a

fairly minimalist and technical constitution. The sorts of things which might be added are statements of values, further codification of rights, changes in the status of the head of state and so on.

There are many questions that campaigners and individual citizens may

ask. Should a constitution include a more fulsome set of rights, including not only more extensive socio-economic rights, but also cultural rights, gender rights, environmental rights, children’s rights etc.? Should there be an enhanced role for direct and participatory democracy, using referendums in day-to-day governance or including a commitment to use newer and more

innovative forms of involving individual citizens in decision-making? Should 37

How to Start a New Country

the electoral system be reformed – for example, to include gender quotas, ensure the balanced representation of minorities, or provide a recall system?

Should there be a stronger system of regional government within Scotland, devolving substantial powers (for example) to the Highlands and Islands? And one question which is absolutely guaranteed to come is whether Scotland

should become a republic, and if so whether the Head of State should be

elected by Parliament or by the people. These are only examples – there

may be many more that people wish to raise. So there must be an effective process for widening out this constitutional discussion, bringing together a wide range of views and ideas, and then allowing people to look at all the ideas that have been generated and to decide which ones deserve a place in the constitution and which ones do not.

This will be a big and time-consuming task. It should not only involve

subsets of the population but find ways to involve everyone who wishes

to participate. This will mean all sorts of approaches, including really well-designed online tools, public participation events all over the country, engaging with community and voluntary organisations, reaching workplaces and places of learning and more. There is now a lot of very good practice available on participatory practices and the task of gathering the public input to the constitution should be one of the tasks given to the National Commission. The Commission shall have to recruit people with experience

of this kind of participative process and begin the project quickly. The final constitution will need to be approved by the public in a referendum and this must take place before independence day. The timescales therefore suggest that there would be little more than six months to design and set up the process, two years to reach as many citizens as possible with the outcomes being analysed on an ongoing basis, and then six months to finalise the

text and put it to the public in a referendum. Once again, this is a tight but achievable timescale.

There would then be a referendum close to the end of the three-year

transition period. This would primarily be used to approve the constitution, but it is possible that this referendum could also be used to resolve any unresolved controversial issues which could be put directly – for example, status of the monarchy and relationship with the European Union. It is

important to note that this referendum is not to reopen or ‘confirm’ the decision to become independent; this decision was made. This is purely to approve the specific constitution, as amended and enhanced through the

public engagement process.

It is impossible to know what this process will produce – it could be

anything from cautiously conservative to wildly radical. So it is difficult to know how likely or not it is to gain widespread support. However, one way or another a constitution must be in place for Independence Day and so the referendum will make clear that if this enhanced constitution is rejected then 38

a practical guide for Scotland

the provisional constitution as set out at the initial independence referendum will become the initial constitution of an independent Scotland. This is of course not the end of the matter. Once Scotland becomes independent it

is able to alter its constitution at any time – so long as changes achieve a super-majority in the Parliament and are approved by the public through

referendum.

A constitution is the foundation for a country’s future. In Britain we

are not used to the ubiquity of this, but it is important that an independent Scotland understands the importance of getting its constitution and its

constitutional arrangements right. This will underpin the success of the new nation.

39

Money, money, money

The next big transition issue to which we should turn our minds is the issue of currency and the elements of the monetary system. This is very clearly a priority for a number of reasons. First, it is important to get the economic foundations right and many of these are predicated on a sound currency

and finance system. Second, there are many other aspects of the transition which will be held up if progress on developing a Scottish currency is delayed, so to achieve smooth progress of the overall transition it is important that currency plans progress quickly. Third, there is an important symbolic

aspect to putting a new currency in place. If the public and international observers can feel confident that this is progressing well and quickly, it will increase their overall confidence in the process of Scotland becoming a

nation state. But perhaps most prosaically though most importantly, this is one of the most complex and time-consuming tasks that will be involved in the transition to independence and so it is imperative that it begins quickly and proceeds with real intent.

Before we look at the many steps needed to create a Scottish currency

it is worth briefly touching on the question of the options. This book is not the place to rehearse the arguments around the currency options, but it is worth explaining why the option of a Scottish Pound has been chosen. The White Paper Project has been trying to identify what are the factors which will allow Scotland to become the most robust country it can in the shortest possible period of time. All of the options around a shared currency have one of two problems; either they are outside our control and so cannot be implemented quickly (as is the case with a formal Sterling Union or full membership of the Eurozone) or they are very clearly temporary solutions which will soon have to be replaced (Sterlingisation).

Let us take the example of public sector IT infrastructure which will

have to be adapted for Scotland to become independent. If the temporary

currency route is taken, this means that the currency which is ‘built in’ to the IT systems will (possibly fairly quickly) have to be ‘built back out’ again and replaced with the permanent currency option. But almost the same outcome 40

occurs if we have to wait for a negotiated sharing currency deal – knowing that if the negotiations don’t go well we may have to start all over again developing a Scottish currency from scratch but having wasted a number of years in the interim. There are a complex range of economic and political considerations which can also be argued – and there seems to be a growing strong consensus that Scotland needs its own currency. But from a purely project implementation and management process, biting the bullet at the

outset and getting the work done is the most persuasive position to take.

So what has to be done? The introduction of the Euro gives a degree

of precedent as it was also introduced with a three-year transition period.

If Scotland votes for independence, the first step is to set up the project team inside the National Commission which will manage the introduction

of the new currency. This will be made up of experts from the finance sector and others with direct relevant experience, overseen by the Council of the National Commission. Once the group is up and running its first act will be to create a digital version of the currency. All internationally traded currencies exist as digital currencies; obviously international money-traders do not do so using sacks of notes and coins. It is this digital currency which sets and defines the value of the currency, both digital and hard cash. As soon as it is set up, people can see the currency and its value.

This would be the first step to making a Scottish Pound an internationally recognised currency. At this stage, as the currency is not being traded or used in a domestic economy, the set-up process can give the currency any value (which is to say any exchange rate) it wishes. Once a currency becomes

widely used in its own economy or widely traded on international markets, the value of that currency will be affected by a number of different factors, including economic performance, domestic demand and international

investor confidence. At that stage (once fully launched) maintaining or

managing the value of a currency becomes a more complicated matter

and requires a central bank with a substantial foreign currency reserve. But during the transition period, pegging the value of a Scottish Pound (meaning maintaining a fixed ratio of value with another currency) is straightforward.

And for all sorts of reasons, prime among them stability and consistency during the transition period, the value of the Scottish Pound should be

pegged 1:1 with Pound Sterling – so a Scottish pound would always be worth the same as a Pound Sterling.

This creates a digital ‘presence’ for the new currency. It also allows the banking industry to begin to adapt – and dealing with bank account issues is likely to be the next key task. Bank accounts are designated in a single currency – if you were to deposit 100 US Dollars into your bank account, it would be exchanged into Sterling and would be added to the Sterling

amount already in your account. You do not get a bank statement which

says “X amount in Sterling, Y amount in US dollars, Z amount in Euros”.

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How to Start a New Country

So Scottish bank accounts will either have to be re-denominated in

Scottish Pounds or new bank accounts in Scottish Pounds will need to be

created. The first problem with this is identifying what is a ‘Scottish’ bank account. Many people in Scotland will have accounts with non-Scottish

banks. If they bank at a local branch and have a sort code which identifies them as being in Scotland, this makes it reasonably easy to identify which is a Scottish account. But there are an increasing number of bank accounts which are ‘non-geographic’ – postal or internet based and not rooted in

a local branch. For example, everyone who has a bank account with the

Cooperative Bank is registered as having an account based in a “Central

Customer Services” centre which is based in England. It might be possible to identify accounts by postcode, but this requires some work. A similar problem may occur in the other direction – someone who was a student in

Scotland (for example) might have set up an account with a bank branch in Scotland and, despite having long since returned to their home in England, never got round to moving their registered branch. This person would

presumably not want their account re-denominated in Scottish Pounds.

Another complicating factor is that, after re-denomination, Sterling will still exist. In the case of the introduction of the Euro, all the currencies that the Euro replaced ceased to exist, which is not the case with Sterling. And there may be very good reasons why someone may wish to maintain a bank

account in Sterling as well as having one in Scottish Pounds – for example, if they live near the Scottish Border but work in England and regularly make payments in both currencies. The same will apply to small businesses which trade extensively across the border. Holding dual bank accounts is common practice, for example in Northern Ireland where people trade across the Irish border and so hold accounts in both Sterling and Euros.

All of these issues mean it isn’t entirely straightforward changing bank accounts; it certainly wouldn’t be appropriate for the Scottish Government to mandate all the banks automatically to re-denominate currency (the ‘no compulsion’ used in the introduction of the Euro). Therefore the solution is to allow Scottish residents to convert the currency of their account from Sterling to the new Scottish currency at any time from the point at which the digital currency is created. Assuming the banks want to keep their customers they would probably facilitate this by moving any customers with accounts designated as being in England to Scottish sort codes. Similarly if a Scottish customer is at a bank that chooses not to offer Scottish bank accounts the Current Account Switching Service could be used to facilitate a change of bank and thereby allow them to convert to an account in the new Scottish currency.

It can be assumed that, during the transition period, there will be a

rush of supporters of Scottish independence who will want to convert their bank accounts to the new Scottish currency at the earliest opportunity, while 42

a practical guide for Scotland

others will convert their bank account over time, as confidence in the new currency grows. Finally (probably based on a communication campaign

from the National Commission on the need to pay taxes or receive welfare payments in the new Scottish currency) there will be a rush to convert

remaining bank accounts to the new Scottish currency at either the time the country becomes independent or when the physical form of the currency is introduced (which could be on the same day).

At the end of the transition period there will no longer be any guaranteed equivalence between Sterling and the Scottish Pound. A decision to ‘float’

the currency rather than keep it pegged to Sterling would mean that simple account-switching arrangements would no longer apply. This means that,

thereafter, any movement of funds between a Sterling and a Scottish account could be subject to foreign exchange transaction costs. This is very unlikely if the currencies remain pegged, but a public information campaign explaining the merits of shifting accounts at an early stage would be helpful. The cost of currency switching is born by the banks themselves as a standard business cost (as is the case with the existing Current Account Switching Service).

This is a commercial investment which allows those banks to continue to

profit from Scottish consumers. Whilst there would be some additional

cost (administration costs associated with setting up a separate Scottish operation, marketing costs associated with the new Scottish bank accounts) these costs would also apply if an independent Scotland continued to use Sterling. For example after independence banks would need to be able to

segregate Scottish Bank Accounts from those held in the rest of the UK as Scottish law would apply to these bank accounts.

There should be no major IT project associated with this shift for

most large retail banks as their IT systems already support multi-currency banking and adding a new currency is an administrative task rather than

one involving a change of IT system. However, for some smaller financial institutions there may be additional costs if they do not have multi-currency IT systems. So if for example a credit union did not have a multi-currency IT

system then it would either need to convert all its accounts at the same time (which would probably need a vote at the AGM of its membership) or would need to invest in a new computer system. For this reason there may be a

need to offer government support to some of these smaller credit unions

along the lines of the existing Credit Union Expansion Program being rolled out by the UK government as part of its financial inclusion proposals. To give some scale of the total cost, the government budget for CUEP was £36

million. If we assume that about 10 per cent of this was directed to Scottish credit unions there would be a cost of £3-4 million. This support would

not be required by all credit unions as a number have modernised their IT

infrastructure over the last few years and could support holding accounts in Scottish and Sterling currencies.

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How to Start a New Country

During the transition period and for as long as the currency was pegged

after that, any electronic payment (payment from a debit card, transfer of funds, etc.) from a Scottish currency account paying to a Sterling account would be treated as a payment in an equivalent currency and the full amount credited to the Sterling account without any foreign currency transaction costs. This would allow accounts to be converted during the transition period without having to try and co-ordinate a switchover where the whole banking system would transition to the new currency on the same date. It would

allow banks to transition accounts to the new Scottish currency at different times within the transition period thereby minimising the disruption to the banking system.

After the transition period if the Scottish currency became a free

floating currency then a payment between a Scottish and a Sterling

currency account would be treated as a cross currency payment and so

could attract a foreign exchange transaction fee from the bank (though it could be a competitive advantage for a commercial bank not to do this and the increased competition being introduced as a result of the new Payment Services Regulations 2017 – the title of the UK act that is implementing the EU Revised Payment Services Directive in the UK – could well minimise

these transaction costs).

The biggest decision with regards to making payments would be what

infrastructure would be used to carry the payments after independence.

Currently in the UK there are a number of different payment systems