Ben Thomson: Creating a new Scottish Exchequer would add up

The Scottish Government does not currently have a treasury. This is not surprising as with no significant powers either to set and collect taxes or to raise borrowing, the Scottish Parliament simply has had no need for one under its existing devolved powers.

The remit of the current Scottish Government finance department is simply to set the allocation of budget received through the block grant from Westminster and to collect and analyse financial data.

Under the limited transfer of powers proposed in the new Scotland Bill, there will be a need for some additional treasury functions, but the overall level of powers being transferred hardly merit the expense of a new department. However if, following a referendum in this term of parliament, we move to Devolution Plus with significant devolved tax powers or to independence, then Scotland will need its own treasury or to give it its traditional title, a Scottish Exchequer.

In creating a new Scottish Exchequer, Scotland has a number of advantages. First, it starts with a blank sheet, so it is not locked into the history of development that leads to idiosyncratic practices.

Second, there are plenty of examples to copy from around the world of where treasury functions have been made to work efficiently, as well as learn from the mistakes of those that have not worked.

Third, the Scots have a tradition of being bold and innovative thinkers, we need to look no further than the father of economics, Adam Smith.

Lastly, Scotland’s size, with five million people, should make it much more manageable to implement new systems.

The fundamental objective of the Scottish Exchequer is to create a balanced budget, matching expenditure with funding within borrowing limits. Its functions should cover revenue collection, borrowing, budget allocation, welfare payments, government accounting and audit at a Scottish Government level. Its principles should be to provide an integrated, efficient, simple and transparent system to provide a good public service to taxpayers and those in receipt of benefits.

We can learn from the problems of others and my chapter in the book Scotland’s Economic Future recommends removal of both long-term policy and regulatory functions from the role of the Scottish Exchequer.

Regulation would be passed to an expanded justice department and policy would be formulated in a new Scottish Policy Unit that integrated policy across government departments, the First Minister’s Office and the Scottish Exchequer.

The UK Treasury, particularly after the Gordon Brown years, has grown an internal policy unit that directly competes and often conflicts with other government departments and so can prevent reforms from developing quickly.

A new Scottish Exchequer should have responsibility for both funding and expenditure directly and not through agencies. A review of all government tax, law and registration services should be undertaken as a first step. If work such as the collection or administration of a particular tax is transferred, it should be on an arm’s-length basis whether to another government, third, or private-sector organisation with a service contract for delivery. In addition, the Scottish Exchequer should be responsible for the delivery of any welfare payments that are transferred to Holyrood.

One of the aims of the Scottish Exchequer would be to simplify tax collection and benefits whilst improving the quality and availability of guidance. Local tax help centres should be established in each local authority area. Each individual and corporation should have a unique tax and benefits code.

The Scottish Exchequer should report financially under corporate-style accounting standards providing an annual report each year with a full report of the finances for the previous two years including a balance sheet, profit-and-loss account and cash flow statement.

If we are to move ahead with greater fiscal powers then we need not just to have thought through how the structures would work, but also think how we can make them better to improve the public service we provide in Scotland. If we have a Scottish Exchequer then let’s aim to make it the model other countries in the world will want to emulate.

• Ben Thomson, an investment banker for 25 years, founded the think tank Reform Scotland, of which he is chairman.