UK finance ministry warns on Scottish independence costs

LONDON Sun May 25, 2014 7:01pm EDT

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LONDON May 26 (Reuters) - Britain's finance ministry stepped up its attack on the Scottish government's independence plans on Monday, saying it had not fully budgeted for setting up a new administration that could cost Scottish taxpayers over 1.5 billion pounds ($2.5 billion).

People in Scotland vote on Sept. 18 on whether to end a 307-year union with England and split from the rest of the United Kingdom. Britain's finance ministry has repeatedly argued that Scots would be financially worse off after independence.

On Monday, it said setting up the new public bodies such as a Scottish tax authority, financial regulator and benefits system would cost each Scottish household a minimum of 600 pounds, and potentially much more.

"The Scottish government is trying to leave the UK, but it won't tell anyone how much the set-up surcharge is for an independent Scotland," deputy finance minister Danny Alexander said.

He is due to present a more detailed breakdown of the Westminster government's estimates of the costs of Scottish independence and Scotland's budget deficit on Wednesday.

The Scottish government dismissed the report as "deeply flawed".

COSTLY MOVE

The British finance ministry said new institutions would cost Scotland at least 1 percent of its annual economic output - or 1.5 billion pounds - based on estimates made when the Canadian province of Quebec voted on independence.

The actual cost could be far higher.

New Zealand, which has a similarly sized population and economy to Scotland, was currently spending 750 million pounds on a new tax system alone, while a new Scottish benefits system would cost 400 million pounds, the finance ministry said.

A bill of 2.7 billion pounds was possible if the Scottish government pressed ahead with plans for 180 new public bodies, the finance ministry said, based on a cost of 15 million pounds for each new policy department.

But the Scottish government said in a statement many of the public bodies which would be needed by an independent Scotland already existed and would be able to take on new functions.

The Scottish government has said it would be able to generate stronger economic growth after independence, for example by better targeting spending on childcare, education and training, and cutting taxation on company profits and airfares.

It also expects to get large tax revenues from its share of Britain's North Sea oil and gas output.

($1 = 0.5931 British Pounds) (Reporting by David Milliken, Editing by Sophie Hares)

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