Pages tagged with "Economics"

One wonders if Alex Massie, a Scot, enjoys talking down his country. But then again, as a Spectator and Times journo, he’s paid to do so. It’s his confusion that’s more concerning. He writes “the present economic case for independence is non-existent” but in the next sentence says “Scotland is certainly not too poor to be independent.”

According to Alex, the reason there’s no economic case for us managing our own affairs – after all Westminster is doing such a smash-up job – is because we have such an enormous deficit. He then follows this with yet more confusion, saying Scotland is a wealthy part of Britain. Which is it, Alex?

Perhaps the IFS’ David Phillips, whom Alex selectively quotes, can assist. Phillips said that an independent Scotland’s economic growth “could more than offset the loss of fiscal transfers from the rest of the UK.” This is from a man whose research is funded by the UK Department for International Development. Phillips confirms that “despite devolution, the majority of Scotland’s tax revenues and a hefty part of its public spending is pooled with the rest of the UK,” adding that “there is no overall Scottish budget deficit or surplus, or accumulated debt.”

And that brings us to GERS, designed by Tories to show what an economic basket case Scotland is and how it couldn’t possibly survive outside the protective womb of the Union. David Simpson, founder of the Fraser of Allander Institute, not exactly a pro-independence think tank, has implored the Scottish Government to cease its publication. We understand David Simpson's reasoning but we think a better idea would be to publish the current UK-GERS report alongside a new report called i-GERs. This would be a projection of what Scotland's finances would look like as an independent nation, with a wellbeing economic approach. Then everyone could clearly see that all the economic arguments against Scotland's independence are just the UK Government's false accounting. 

Simpson points out that since by law Scotland's Government must annually balance its budget, it can’t have a deficit. The deficit Massie is so worried about is fake, assigned to Scotland through UK Government accounting practices, and concocted from what Westminster says it spends “for our benefit.” Among these “benefits” are nukes on the Clyde, helping Saudi Arabia lay waste to Yemen, unemployment payments because Westminster is rubbish at managing the economy, Truss’s private plane to Oz (costing £500,000) to negotiate treaties that hurt Scottish farmers, and paying London £4.5 billion pa to service a UK debt we didn’t create and certainly don’t benefit from.

On top of that, because 85% of social spending is reserved to Westminster, the Scottish Government has frantically tried to mitigate policies like the bedroom tax, miserly Universal Credit and state pension payments and chronic NHS underfunding.

GERS is what Scotland pays to remain in a Union that has failed us. It’s why the Tory and Labour parties are terrified we’ll leave. It’s why they will never concede that Scotland would prosper if we kept our own money, controlled our own resources and could make decisions in Scotland’s, not London’s, interests. And it’s why we must restore our independence.

In 2018, the UN Poverty Rapporteur Philip Alston issued a damning report on the UK. Then, a fifth of the population was living in poverty and 1.5 million were unable to afford basic essentials. Since then, the combined impacts of Brexit and Covid have significantly worsened the picture. Rocketing energy bills, soaring food prices and regressive tax increases have forced millions more into poverty. Alston warned that the impacts of Brexit, which Scotland soundly rejected, would hit the most vulnerable and disadvantaged the hardest, and he’s been proven right.

Alston identified the root cause of the misery as a deliberate shift, since 2010, in the underlying values shaping UK government policy. “Compassion for those who are suffering, has been replaced by a punitive, mean-spirited, and often callous approach apparently designed to instill discipline where it is least useful, to impose a rigid order on the lives of those least capable of coping with today’s world, and elevating the goal of enforcing blind compliance over a genuine concern to improve the well-being of those at the lowest levels of British society.”

A recent example of this approach was provided by food writer and anti-poverty campaigner Jack Monroe. She demolished the UK government’s claim of a 5% cost of living increase, showing that for those who have long relied on the cheapest supermarket staples to survive such as pasta, rice, baked beans, canned spaghetti and bread, prices have risen by 141%, 344%, 45%, 169% and 29%, respectively. In addition, she points out that many products are smaller but priced the same, a practice known as ‘shrinkflation.’ Yet a particular upmarket supermarket price for a ready-meal hasn’t changed since 2011, and if subject to the same inflation rate as rice, would cost £26 instead of the current £7.50. We are not, as David Cameron claimed, ‘all in this together.’

Alston acknowledged the Scottish Government’s frantic efforts to mitigate the worst aspects of UK austerity policy. However, as helpful as they are, the Scottish Child Payment, free school meals and Best Start Foods cards can only scratch the surface of what’s needed to build a more equal and fair society.

Creating a nation that cares for the wellbeing of all its citizens will only happen once we reclaim our independence.

Brian Wilson is right that gas and electricity are natural monopolies and at least some of that belongs in state, not private, hands. There are great examples across Europe of publicly owned and partially publicly owned energy companies, often working in parallel with public sector providers.

However, when serving as UK energy minister in Blair’s Labour government, he had his chance to bring British Gas and Britoil back into public ownership but didn’t.

On top of this, the Labour Government chose not to renationalise the National Grid, privatised by the Tories in 1990, but approved Ofgem’s 2003 grid transmission charges that penalised Scottish renewable providers and landed Scots with the highest transmission charges not only in the UK but in Europe. In the north of Scotland, charges are £7.36 per MWh but only £.49 in England and Wales.

This is especially galling since Scotland possesses a quarter of Europe’s wind resources and 60% of the UK’s offshore wind capacity.

And Mr. Wilson has nothing to say about Starmer’s reneging on Labour’s pledge to renationalise the Big Six energy companies, despite last autumn’s overwhelming party conference vote to take energy back into public ownership and Sir Keir’s own leadership campaign promises to do the same.

It’s clear that Labour would rather pacify private energy companies and their shareholders rather than ease the misery of millions facing ruinous energy bills.

So long as Scotland remains a UK region, its vast renewable resources won’t be harnessed for Scotland’s benefit but, like our oil and gas, will be sold off to private companies with the proceeds squandered on tax cuts for the wealthy and UK debt servicing.

For Scotland to have a state-owned energy company, as Brian Wilson says he wants, it must first become a state. The investment needed over several years isn’t possible with the limited borrowing and capital investment powers of a devolved region of the UK. Wilson should know that, which exposes the incoherence and or dishonesty of Labour's opposition to Scottish independence.

Restoring Scottish sovereignty is the only way out of this quagmire.

For the last few weeks the media has been transfixed by a series of sensational easy headline stories - 'partygate', Douglas Ross being outed as a lightweight, Prince Andrew losing his titles and court battle - and it's hard to blame them.  However they have, for the most part, taken their eye off the ball when it comes to the Nuclear Energy Financing bill, which had its final Westminster reading last Monday. If passed, which is likely, it will shift billions of pounds of additional costs onto consumers and force millions more into fuel poverty.

Sixteen years ago the Scottish Labour administration in Holyrood spurned the oportunity to construct any new nuclear power stations not only because they take years to construct and cost the earth, but also because they are dangerous. There is no safe way to dispose of toxic nuclear waste. Sellafield is officially the "most hazardous industrial building in western Europe". As a result, Scotland's Government, then and now, put its efforts into renewables, which currently supply nearly all our electricity.

Labour has since changed its tune. Brian Wilson, former UK Energy Minister and chair of the Scottish Energy Transition Commission, is Scottish Labour’s nuclear cheerleader. He’s also non-executive director of AMEC Nuclear Holdings Ltd, the UK’s largest nuclear services business.

Nuclear construction costs far exceed those of renewables and electricity generation is twice as expensive. The price for nuclear energy is £106/MWh, double the wholesale market price, whereas offshore wind power is £36.95/MWh. The Westminster bill will force consumers to finance this risky, costly and dangerous industry by buying more expensive nuclear electricity, just as household energy bills are soaring and casting more families into fuel poverty.

Investment in renewables also creates more jobs. The UCL Institute for Sustainable Resources found that “renewable electricity can stimulate six times higher long-term employment impact than an equally sized increase in nuclear electricity.”

Scotland’s future lies in developing its vast renewable energy potential, not following Labour and the Tories down the nuclear rabbit hole. Energy policy is reserved to Westminster - another compelling reason to restore our independence.

Yesterday’s Scottish Budget included a raft of Wellbeing initiatives among its plans for economic recovery and support for business as Scotland looks ahead to a wider emergence from the pandemic .

Believe in Scotland has argued that Wellbeing should be at the core of rebuilding our economy in the wake of the pandemic. Indeed 'Independence Through Wellbeing' was a major strand of the recent newspaper produced by Believe in Scotland in partnership with the SNP and the National and delivered to a million homes throughout Scotland.

And Scotland is a member of the Wellbeing Economy Governments Partnership along with Iceland, New Zealand and Wales.

The big steps we need to take can only be fully achieved with the powers of independence

The Scottish Budget unveiled by finance secretary Kate Forbes yesterday contained several important initiatives designed to promote Wellbeing, although the big steps we need to take can only be fully achieved with the powers of independence.

The Budget included record funding of £18billion for health and social care  to both provide support through the next phase of the pandemic and help recovery of “vital services”.

But the package also provides £1.2billion for mental health and confirms a £50million Whole Family Wellbeing Fund to provide holistic support for children and their families.

The Budget provides for £200m to be spent on tackling the poverty-related attainment gap; £4bn to be spread across social security and welfare, £544m for free funded early learning and childcare and £831m for affordable housing.

The Budget’s key anti-poverty measure was the heavily trailed doubling of the Scottish Child Payment to £20 a week, from April 2022. The contrast between Holyrood and Westminster, which recently cut £20 a week from universal credit, could hardly have been starker.

More than £4billion will be paid out across social security and welfare payments in Scotland, providing support for low income families, carers and disabled people – including £1.95billion to start delivery of the Adult Disability Payment in 2022-23.

And a total of £41million will be given to the Scottish Welfare Fund, helping people in times of crisis.

A further £110 million to let young people travel free on Scotland’s buses from January will also have the knock-on benefit of encouraging great use of public transport.

The Wellbeing agenda also prioritises measures to tackle climate change and Kate Forbes’ budget – partly the result of discussions with the Scottish Greens, now in a power sharing agreement with the SNP in the Scottish government – sets out almost £2bn of low-carbon capital investment in infrastructure to decarbonise homes, buildings, transport and industry.

This includes the first £20m of the 10-year Just Transition Fund, to help the north east and Moray transition from carbon based industries.

Putting wellbeing at the heart of everything we do ... is not just morally the right thing to do but it also unlocks the creativity and the confidence that we need

A total of £1.4bn will be spent to "maintain, improve and decarbonise" Scotland's rail network and  £336m has been allocated for energy efficiency and renewable heating. Other initiatives include:

• Walking, wheeling and cycling will be promoted with £150m investment
• Large-scale decarbonisation projects have been allocated £60m and there will be £43m spent on promoting a circular economy
• Woodland creation gets £69.5m, increasing the target by 15,000 hectares, while £53m will be spent restoring the natural environment.

In a speech to the National Economic Forum in June the Scottish finance secretary spoke of the importance of the Wellbeing agenda.

She said: ‘Putting Wellbeing at the heart of everything we do, the wellbeing of the economy, the wellbeing of the environment and the wellbeing of people is not just morally the right thing to do but it also unlocks the creativity and the confidence that we need, which in turn will help businesses to innovate, to grow and to make them more globally competitive.’

To fully embrace that agenda Scotland needs the powers only independence can bring. Unveiling the Budget yesterday Kate Forbes pointed out that the so-called ‘block grant’ from Westminster – which is not a grant at all but simply Westminster giving some of our own money back to us – is lower than it has been for the past two years.

For Scotland to truly tackle the challenges of building back after the pandemic it needs to have complete control over its own finances and the ability to properly decided its own priorities.

Socialism and Capitalism are dead, they are last centuries outdated ideas. Each has failed because of growing political tribalism, left and right grew so far apart in the 80s that the political elites realised they could rule from the centre-ground. Empty slogans took over, New Labour, Caring Capitalism - they failed because populism is an empty promise. Populism couldn't deliver results because all they were selling in elections was what the people wanted to hear and not what they needed to hear. All their solutions were soundbite sticking plasters and the problems became insurmountable.

It started in the 90s and ended with the financial crash, it's just that people haven't realised it yet but our political system is broken, it's salesmen becoming more and more desperate caricatures of leaders, our economic approach is not just fit for the challenges of this century, it's creating the challenges of this century. We need to press the reset button, to build environmental sustainability into our political model, to make our economy and our society more resilient in the face of financial, health and environmental crises.

Such a task cannot be attempted with the pitiful and reducing powers of devolution. Independence gives us the opportunity to rethink Scotland, to redesign our politics and our socioeconomic approach. If we do that then we create a compelling independence vision that all generations and political allegiances can rally to. How do we begin that task? By identifying the values we share, the problems we face and solutions rooted in our values rather than in political short term-ism, a path to a greener, fairer, wealthier, healthier and happier thriving independent Scotland begins to appear.

We don't yet have all the answers this is just the first step.

"We have the chance to press reset, to choose a fresh, better and more ambitious approach to how we manage Scotland’s economy and society"

BELIEVE in Scotland studied several nations around the world that are adopting a wellbeing socioeconomic approach: Norway, Finland, Sweden, Iceland, Denmark, New Zealand and even Wales.

None has yet fully developed its thinking into a holistic approach but all had ideas worthy of adopting and adapting to Scotland’s needs. From those international examples we created a wellbeing policy framework, polled 1000 voters living in Scotland and found there was majority support – mostly more than 75 per cent – for each of the value positions of a wellbeing approach. You can download the full report on the poll here Public Attitudes Toward Wellbeing Economics in Scotland.

You might expect Labour, Green and SNP voters to agree with the values of wellbeing. However, there was majority support with Lib-Dem and Conservative voters, albeit to a lesser degree. Surprisingly, Conservative voters even came out top on one of the key values.

Are socialism and capitalism last century’s ideas?

Is a wellbeing economic approach the only way to build a resilient, fairer and more successful society and save the planet? A significant majority of Scots want to live in a country with a social/economic/environmental policy framework based on these shared values and ambitions of the Scottish people.

Equality, quality of life, fairness, happiness and health are all economic outcomes that should be given equal weight to economic growth.

The focus of the economy should be to serve the needs of the people and society more than the needs of big business and finance.

To be able to live with dignity while experiencing wellbeing and security should be a basic human right and not something that comes only with wealth.

>You cannot have a thriving economy without a thriving society and you cannot have a thriving society without a thriving economy.

Austerity has failed, slowed economic growth, harmed people and society, and made the country more susceptible to economic and health crises.

Post coronavirus, our economic policies need to be re-engineered to generate higher levels of equality in health, wealth, wellbeing and access to opportunity.

If we build society and our economy more successfully after coronavirus, we can create a new economic approach that will allow both our economy and our society to thrive and be more resilient in economic crises.

The nature of work is changing and we need to invest more heavily in innovation, encouraging better business practices and preparing for the future of work.

Education is an investment in our children and young people and should be free and open to everyone.

Small businesses are the backbone of our economy.
Greater government investment in creativity and innovation is needed to help them grow and create better quality jobs.

Government expenditure on welfare and health is higher due to the inequalities in the current economic system and a wellbeing approach would reduce those costs.

Economic success being among society would result in better growth.

Greater access to personal development opportunities for all will increase social mobility and benefit the economy.

Ending poverty, inequality and unfairness, while increasing minimum wage and job security, will boost the economy.

People need to feel more secure in their livelihoods.
A universal basic income for every adult citizen may provide that security and end in-work and pensioner poverty.

Decision-making should be less centralised to give people a greater democratic voice in local issues.

We need to reduce our economy’s carbon outputs and waste, make transport more sustainable and make recycling and repairing far more prominent.

"Is a wellbeing economic approach the only way to build a more resilient, fairer and more successful society and save the planet?"

Independence is a normal and the many benefits of independence are within Scotland’s grasp and they would work to make life better for all who live within our borders and to forge closer links with friends and allies elsewhere in the world. Scotland’s civic nationalism defines us as a people. It’s inclusive, internationally focused and welcoming.

We simply want the chance to create a nation that reflects our political, economic, environmental and social values and thus enhances our nation’s wellbeing in ways that cannot be achieved if we remain governed by an uncaring and unfit Westminster parliament.

Wellbeing offers an inspirational vision of a future Scotland and if you decide to support independence you become one of the people helping to shape the ideas which guide it.

Let’s take advantage of this incredible opportunity, the chance to shape an emerging independent nation for the benefit of generations to come. All you have to do to change our future is believe in Scotland.

First Minister Nicola Sturgeon yesterday listed the Westminster tricks which will be used in the run up to indyref2 to hoodwink Scotland into believing that independence would not work.

In her speech at the final day of the SNP conference she urged activist to resists the Westminster tricks ‘with all we’ve got’. Here are the Unionist arguments she listed … and how to demolish them:

 Brexit has been a disaster and independence would only make matters worse

This argument is the ultimate irony. It is true that Brexit has been a disaster and that its effects are continuing to cause chaos. It has devastated Scotland’s trade with Europe and is now causing food shortages in shops and restaurants all over the country and goods shortages in stores which are only expected to get worse in the lead up to Christmas.

All these problems are the direct result of Westminster incompetence. In the run-up to Brexit the Scottish government continually argued for a better form of Brexit, one which would keep Scotland within the single market and protect our trade with Europe.

Westminster dismissed these suggestions out of hand. It refused to even discuss the matter with the Scottish government and kept it completely out of EU negotiations.

Instead its intransigence made meaningful discussions with the EU impossible and it only cobbled together the worst possible trade deal when the deadline was almost up and Boris Johnson realised that crashing out of Europe without any deal at all would not be acceptable in Britain.

In effect Boris Johnson has severely wounded the British and Scottish economies and then warned us that ditching his disastrous government would somehow make matters worse

Most of the problems inflicted on Britain after Brexit have been the direct result of the incompetence of that deal, despite warnings that the deal would make all these problems impossible to avoid. In effect Boris Johnson has severely wounded the British and Scottish economies and then warned us that ditching his disastrous government would somehow make matters worse.

Far from signalling a repeat of those Brexit disasters, independence offers an escape from them. We could negotiate our own membership of the EU and restore the trade which has been so disastrously reduced because of the anti-Europe philosophy and the extreme British nationalism of Boris Johnson’s government,

Scotland is too poor to afford independence

Scotland is not a poor country. In fact it is one of the richest countries in the world and it is rich in the resources we need to prosper  in the modern world.

Here are some facts: Scotland possesses ...

 26% of the UK’s renewable energy generation; 90% of UK’s renewable hydropower capacity; 10% of Europe’s wave power potential.

Before Brexit, Scotland also exported £17,456 of goods per head, more than twice the UK figure. And we produce double our population share of the UK’s food – about 16.1% – including about 70% of the UK’s fish landings which are now threatened by the mess Westminster has made of Brexit.

No wonder Westminster doesn’t want to lose Scotland. At a time when the world has woken up to the desperate need to focus on renewables to tackle the climate crisis Scotland has the resources which are vital to save the world.

Because our trade with Europe has been cut we are now too dependent on the rest of the UK

There is nothing to stop an independent Scotland continuing to trade with the rest of the UK. That‘s not just a benefit for Scotland, it’s also essential for the rest of the UK. It would be an act of unforgiveable folly for Westminster to block it. However, only independence can allow Scotland to restore the European trade Brexit has lost.

The suggestion that Scotland is uniquely unable to manage its own affairs does not stand up to scrutiny. Many countries the same size as Scotland but without its natural resources survive perfectly well as  independent countries. There is nothing which seriously suggests Scotland would not thrive.

Our population is ageing too fast to allow us to stand on our own feet

In common with many countries in the world, Scotland has an ageing population. One way to counteract the drop in the number of people living here would be to encourage immigrants to move here to build new lives and to contribute to our economy.

Independence would allow our economy to benefit from increased tax income and our society to benefit from the cultural advantages of a more diverse population

We can’t currently do that because of the UK’s restrictive immigration rules, which take no account of the very different needs of Scotland. Independence would allow our economy to benefit from increased tax income and our society to benefit from the cultural advantages of a more diverse population.

If we remain part of the UK those benefits will forever be denied us.

We need to equip ourselves with the facts about our economy and how being part of the UK holds us back from achieving our true potential. These and other pro-Union myths are challenged and countered in the Scotland the Brief book produce by Business for Scotland. You can buy the book by clicking on the link below.

For over a year now, countries across the world have faced the greatest health crisis in living memory. As a result, governments worldwide have introduced a number of extraordinary measures, including business closures, social distancing, and travel bans. However, alongside these public health interventions, has come increased social support. Therefore, this article sets out to analyse the type of support that is in already in place to help individuals during this type of health crisis, as well as the new policy changes. We will consider exactly how effective these measures are in the UK and across various countries worldwide.

Sick pay

Firstly, let’s look at statutory sick pay. This has become a controversial matter in recent times, with many people across the world having to take time off work to recover or isolate during the coronavirus pandemic. A recent report from The Compensation Experts, that looks at European countries specifically, has demonstrated that there is very little consistency across countries in Europe in terms of sick pay. Indeed, it is evident that certain countries provide a better scheme than others. So, how does the UK perform in this area? Well, according to this new research, the situation in the UK is rather gloomy. In fact, the UK offers the third worst sick pay scheme in Europe.

In the UK, employees that are off from work due to ill-health are eligible for just £96.35 per week, for up to 28 weeks. Furthermore, the UK Government’s involvement with supplying this sick pay ceases after just the fourth day of the employee being absent from work. After this period, the employer is required to step in and continue the payments.

On the other end of the spectrum, Iceland is ranked highest for offering the most effective and comprehensive sick pay scheme in Europe. In fact, many of the small, independent countries in Europe offer a very effective sick pay scheme, as demonstrated in the table below.

Unemployment Benefit

In the last quarter of 2020, the unemployment rate (of those aged 16 and over) was 5.2%. While measures such as the furlough scheme have helped to protect jobs during this health crisis, many have still been made redundant and companies have closed. Moreover, the number of people out of work is expected to grow further. Therefore, it is important to consider the type of support that is offered to unemployed people in the UK and how this compares to other countries across the world.

To offer a comparison of unemployment benefits across different countries worldwide, we will refer to the OECD database of benefits in unemployment. In particular, we will look at the share of the individual’s previous income after 2 months and then after 6 months. Of the 40 OECD countries included in this database, the UK offers the worst unemployment benefit after 2 months and the 4^th worst after 6 months.

So, let’s take a look at how some of the small independent countries compare.

This data is very interesting, as it shows that small independent countries are able to support their unemployed to a much greater extent and for a longer period. The UK offering the worst unemployment benefits in the short-term (after 2 months) is very significant and perhaps, shows why many people in this country have faced such hardship during this health crisis.

Coronavirus spending packages

While the UK stimulus package, that allowed for the furlough scheme and various grant programmes to be put in place, has protected jobs across the country, it is worthwhile comparing the UK economic package that was put in place at the start of the pandemic to others across the world. Research from Professor Ceyhun Elgin has tracked the responses of 166 countries worldwide. So, how does the UK compare.

As this table shows, the UK’s initial stimulus package was actually provided a much smaller percentage of its GDP than many other countries. So, how did this situation look a year down the line?

Again, the UK has still spent a much smaller percentage of its GDP on challenging, supporting and recovering from this health crisis than many other nations across Europe and the rest of the world.

Furthermore, while the furlough scheme has benefitted businesses across the UK so far, the UK Government has refused to extend the scheme beyond September 2021. Citizens Advice Scotland have said that this will force one in seven Scots into an income crisis. In contrast, Germany’s short-time working scheme will continue to provide the more generous support that has been available since the start of the coronavirus crisis until the end of 2021. France’s equivalent scheme will continue even longer, with eligible employers being able to claim support until 2023.

Conclusions

Throughout this health crisis, the UK Government has continuously suggested that this country offers the most generous support and “world beating” schemes. However, when you consider the international data, a very different picture emerges. Indeed, with regards to both the direct COVID financial support, as well as the schemes that were already in place, such as unemployment benefit and sick pay, the UK is clearly underperforming. Furthermore, much of this data has shown that small independent countries are more equipped and willing to support the vulnerable citizens of their populations both in normal times and during such health crises.

New analysis shows that UK state pensions are the least generous in North West Europe in comparison to the average wage. The analysis from the House of Commons library shows pensions in the UK are the lowest of our European neighbours as a proportion of pre-retirement wages.

UK pensioners receive around a quarter of the average working wage. In comparison pensioners in Luxembourg and Austria receive 90%.

A recent Believe in Scotland billboard campaign highlighted the fact that UK pensions are the lowest in the developed world as a percentage of final earnings.

Pensions, of course, have been one of the main areas of concern for those still considering whether to vote for independence. So how would an independent Scotland handle its pensions system and how successful is that system likely to be?  One way to understand how pensions might be affected is to consider the way in which they have been handled and developed within newly independent countries.

This article will examine a number of newly independent country case studies, including the countries that formed after the collapse of the Soviet Union and Yugoslavia.

USSR

Many of the independent countries that have formed since 1990 were previously part of the Soviet Union. It is important to understand how the pension scheme operated before the Soviet Union collapsed. Four main stages contributed to the development of the pension security system in the USSR:

With reference to the third stage, a new law concerning state pensions was passed in 1956. This reform extended the coverage of the pension system, increased the benefit amount and reduced the gap between the minimum and maximum pension. On average, old-age pensions rose 100%, invalidity pensions 50% and survivors’ pensions 64%. The largest increases were felt among low-paid workers.

Old-age pensions in the USSR were based on past earnings (recent earnings, rather than lifetime earnings). The basic pension rate depended on the category of work and the level of earnings in the Soviet Union. For example, in 1973 the percentage of current average wage paid in old-age pension - based on current average earnings and 35 years of employment in ordinary conditions - was 55% for a single pensioner and 61% for a pensioner with one dependent.

AFTER INDEPENDENCE

Russian Federation

After the dissolution of the USSR and throughout the early 1990s, the Russian Federation state pension system was similar to the Soviet Union’s system and its general qualifying conditions. However, the law on state pensions in the Russian Federation in 1990 was the first step in changing Russia’s system and instigated the formation of a new type of pension system, fully independent from the state budget of the USSR.

Article 1 of the law stated that labour and its results were the main criterion for differentiated terms and norms in the pension system. As a result only two forms of pensions - labour and social - were created to replace the former multifaceted and multilevel pension system.

The modernisation of the social security system and improved living standards of the most disadvantaged citizens became the fundamental objective of social reforms held by the Russian Federation government

Under this law a new financial institution, the Pension Fund of the Russian Federation (PFR), was also founded to finance pension benefits through insurance contributions, as well as allocations from the state budget. The system is financed from contributions paid by insured persons and employers. The insured individuals pay 1% of their earnings and the employer pays 28% of the payroll. The PFR managed to stabilise the pension system, despite difficult circumstances. Moreover, the number of Russian pensioners grew, as creative workers, clerics, sole proprietors and other working groups who had previously not been included in the national pension system now met the qualifying conditions.

The modernisation of the social security system and improved living standards of the most disadvantaged citizens became the fundamental objective of social reforms held by the government with the direct participation of the Pension Fund of Russia.

Latvia

After its independence from the USSR Latvia started to reform its pension system. This involved an initial reform in 1990. The reformed system retained much of the Soviet pension system qualifying conditions for years after independence.

Latvia currently operates a three-pillar pension system. The first pillar is a Pay as You Go (PAYG), notional defined contribution (NDC) system, the second is a funded mandatory pillar and the third pillar consists of private voluntary occupational and individual pension arrangements.

In this article we will focus on public pensions - the first pillar. Reform of the first pillar took place in 1996 due to low retirement ages, widespread early retirement, the evasion of social security contribution and demographic change. The new system created a strong link between contributions and benefits. Indeed, NDC pension systems offer participants a hypothetical account in which all the contributions that are made throughout their working life are held. At the time of retirement, benefits are calculated by dividing the amount accumulated in the account by the cohort life expectancy.

The new Latvian system has been considered radical and hugely successful. It offers something for all key stakeholders: it exposes what is normally hidden in a traditional pension system, revealing the cost of providing guarantees and benefits. It is flexible and adjusts to demographic and economic changes. This highlights that while the transition of the pensions system may be gradual after independence, it can also be hugely successful.

YUGOSLAVIA

The pensions system in Yugoslavia was based on the PAYG model, in which investment, level of earnings and the duration of insurance determines the benefits of the pension. Since the collapse of Yugoslavia, the countries that constituted this region adopted similar systems.

Croatia

Here the PAYG system was in place until 1998. However, it was clear that it was unable to deal with shocks due to low retirement age, a weak link between contributions and benefits, and the overly generous benefits. As a result, major pension reforms were initiated in a gradual, step-by-step manner. The Croatian government implemented reforms of the PAYG system in 1999 and introduced mandatory and voluntary pension funds in 2002.

The 1999 reform was the first step towards introducing a three-pillar system. That year Croatia reformed public pensions and set out to achieve financial sustainability and cost containment. By 2009 retirement age had gradually been increased, reaching 65 for men and 60 for women. The minimum early retirement age was also raised and the benefit deductions for early retirement were increased.

While the pension system may not suddenly change when a country becomes independent ... changes are possible and have brought great successes for many newly independent countries

Slovenia

Slovenia also inherited the legislation of its pension system from the former Yugoslavia and soon after independence initiated its transformation from worker self-management to a modern market economy.  Slovenia conducted relatively mild reforms and preserved the old pensions insurance system in which pensions are dependent on earnings and contributions. Indeed, the first pillar of Slovenia’s pension system is based on the PAYG model. Certain significant reforms were established after 2000, including raised age limits and maximum pension restrictions. Slovenia is now one of the richest Central and Eastern European countries and its pension system is very similar to Western European countries.

Across all of these examples, it has been clear that while the pension system may not suddenly change when a country becomes independent, and aspects of its former system may be retained, changes are possible and have brought great successes for many newly independent countries.

Net pension replacement rates

It is interesting to consider the net pension replacement rates in these newly independent countries to see exactly how successful the reforms and pension systems have been. To offer a comparison, we have included the net pension replacement rate of the UK.

This table clearly highlights a significant difference between the net pension replacement rate of these newly independent countries and the UK. This suggests that the various reforms and new pension systems have benefitted the citizens of these countries.

Conclusions

To conclude, these country case studies have demonstrated that change in pension systems is not always immediate after a country becomes independent and aspects of the former pension scheme may be continued. However, it has also been clear that positive changes and reforms are possible and have benefitted these newly independent countries and their aged population. Therefore, it appears likely that an independent Scotland would manage public pensions successfully and, similarly to other independent countries and would be able to raise the net pension replacement rate to one more aligned to thr rest of Europe.