disguised in higher power bills to customers rather than as a cost to
government). It should be noted that by 2030 the capital costs of much of Scotland’s renewable energy infrastructure will have been paid off so this form of electricity will be generated at virtually no cost for ten years after that, reducing electricity bills.
The wider question of keeping the lights on in the long term is not
one there is scope to discuss here, other than to say that at the moment Scotland is currently and comfortably a net exporter of electricity and
the rate at which non-renewable power is going to be decommissioned
(particularly Hunterston B’s life coming to an end) is currently slower than the rate at which renewable energy supply is increasing. There is therefore every reason to believe that Scotland can be confident about energy security for the medium term and, given the infrastructure and capacity discussed in this chapter, will be in a strong position to develop a strategy for the development of local smart grids with substantial energy storage capacity and a disaggregated generation model once Scotland is independent.
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Where Scotland meets the world
So far this book has focussed mainly on infrastructure and policies that have to be put in place to enable Scotland to function internally as an autonomous nation state – but there are no entirely autonomous nation states. All are involved in all kinds of relationships with other states, such as the defence collaborations discussed earlier, or the likelihood of some kind of cross-border sharing in a number of areas which have been raised at various
points. But perhaps the biggest relationships between nations are trade and the movement of people.
International trade is, very simply, the exchange of capital, goods
and services across international borders or territories. The movement of people can be for leisure (such as tourism), for business purposes, for work (where people take up a job in a country other than their country of birth), as migration (where people for whatever reason decide to seek to make a home in another country) or in the form of refugees or asylum-seekers. These
relationships are regulated via customs and immigration policy. Customs
will include the monitoring of regulatory compliance (that goods entering the territory meet the regulatory standards of that territory), monitoring of quotas (where there are set quotas for the volume of goods being imported) and the imposition of duties, tariffs and taxes. Customs is usually considered as a separate function than immigration (which is the regulation of the flow of people entering a territory).
An ‘autonomous customs territory’ is a territory with legal personality
(the right to enter into contract and agreement with other international bodies) which is capable of operating a customs policy of its own choosing.
If Scotland becomes independent it would automatically become an
autonomous customs territory in that it would now have power over all its customs policies. However, that does not mean that Scotland has to become a distinct customs territory operating its own policies. It may chose to do that, but it may also chose to enter into a multinational customs union. That is an agreement between a number of territories to harmonise regulation, tariffs, quotas and all other aspects of customs policy. The borders between 133
territories (generally nation states) in a customs union are not customs borders and the flow of goods across these borders is not regulated. All the nations in a customs union share a customs border between them and all
other legal territories. The European Union Customs Union (EUCU) is the
customs union that the UK has been part of. It includes all EU members but also includes a number of non-EU territories. This creates a customs border around the entire EU (and the other EUCU territories) which acts as a single border to the rest of the world.
However, there are a number of complications which make a proper
understanding of the relationship between customs and single market
somewhat confusing for many people. For example, EFTA members are not
in the ‘single market’, but EEA members are, though EEA members are
not in the EUCU. The EU internal single market is the regulation of trade within the EU – that is, trade between states which are members of the
single market. Being a member of the single market means that there will be regulatory, legal and tariff alignment such that there is no barrier to the movement of goods, services or people between these borders. However,
that need not bind members to then treat non-single market states in a
consistent way – you can be in the single market but choose to levy higher tariffs on imports from other countries than do other members of the single market. Only those who are also members of the EUCU have agreed to align fully their customs treatment of non-single market territories.
There is a final complication in all of this which is that the EU heavily subsidises agriculture and fishing and it does so in a very specific way for very specific strategic reasons. As the single market more or less excludes the potential for any other kinds of subsidy, the internal market does not treat EU agricultural and fishing trade in quite the same way as other
internal trade. Effectively, because of these subsidies the internal trade in these goods is regulated by the Customs Union and not the single market.
Thus Norway is in the internal single market but not the EUCU which means that all goods, services and labour are allowed to move freely between the rest of the EEA and Norway – with the exception of agriculture and fishing goods to which Norway can (and does) impose an additional tariff. Norway is then free to negotiate its own customs laws if it wishes to, though these are also agreed through EFTA collectively for EFTA members.
If you find all of this complicated, don’t worry – you’re not alone. Trade issues will be discussed further in the next chapter but it is important to understand these basics to understand the customs issues Scotland would
face after independence. Basically, a customs border is necessary when
goods or services seek to cross that border which either do not harmonise with the regulatory framework of the country they are entering or are
subject to tariffs and taxes because they are not in a customs union which has harmonised these. Thus if (at the time of writing) you fly to the UK, 134
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at the airport you will discover two customs borders – one if your journey originated from within the EEA (in which case any goods you have brought back with you are already regulatorily compliant and have already been
subject to any customs tariffs due) and another if your journey originated outside the EEA in which case any goods and services you bring back may
be subject to inspection to make sure that they are regulatorily compliant (you will not be permitted to bring them into the country if they are not) and you may be charged any customs duties, tariffs or taxes which are due.
This means that at the moment there is a customs border around the
UK but there is no customs border inside the UK. Immigration is very similar
– but without the equivalent of the EUCU to create a harmonised EU-wide
approach to immigration. Thus a citizen of the EU can travel across any
EU borders without the need for immigration checks but a non-EU citizen
arriving at any EU border will be subject to the immigration policies not of the EU as a whole but of the specific nation state whose border is being crossed.
At this point it is necessary to address the question of ‘hard’ and ‘soft’
borders. The first thing to be clear about is that these are not technical terms but purely political ones. There is no definition of a ‘hard’ border, just like there is no definition of a ‘soft’ border. In fact, all borders have elements of ‘softness’ and ‘hardness’ – the border around even the most
fully integrated EU state will feel pretty ‘hard’ to you if you are not a citizen of the EU. So the terms are really political ones which are used to describe the degree of ‘friction’ felt at a border – how hard it is to cross, how many regulations must be checked at the border and so on. In fact, the vast bulk of the political drive in Britain has been to make borders harder – certainly to non-EU citizens but to EU citizens as well. The controversial factor in the case of Scottish independence is both the fact that there would be a new border and the fact that there would be degrees of how hard or soft that border would be. It would be very nice if, prior to a referendum on Scottish independence, this issue could be comprehensively resolved. Unfortunately, supporters of independence must understand that it can’t, or at least that it probably can’t.
The reason for this is that the hardness or otherwise of the border
will really be decided not so much by Scotland as by the rUK. There are
three things that would trigger the need for a ‘harder’ border – variance in regulatory frameworks, variance in customs and duties policies and
variance in immigration policy. The greater the degree of variance there is in these policies between Scotland and rUK, the ‘harder’ the border. But almost any variation in these policies will require some kind of monitoring of cross-border traffic, not least because if Scotland maintains any form of relationship with the EU it would be required by EU law to regulate cross-border traffic (assuming rUK does not maintain that relationship post-Brexit).
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If Scotland is in any form of regulatory compliance with Europe – such as EEA membership or full membership of the EU – then it is obliged to act
as a border to that internal single market. If the EU decides that it is going to ban certain pesticides on all its crops but the rUK outside the EEA does not follow suit, none of those crops or any of the products made with those crops would be allowed to cross the Scottish border because they would
not be legal inside the EEA. Therefore the greater the UK diverges from the regulatory framework of the EEA, the more stringent border checks with
Scotland would need to be.
At the time of writing it is still in theory possible that the UK will remain inside the EEA or be regulatorily compliant with the EEA for at least an extended transition period. This is currently being presented as the solution to the ‘Irish border question’ (which is almost identical in nature to the issues Scotland would face). If that became a long-term solution, the Scotland-England border would be very soft indeed. However, it is difficult to see how this would be compatible with the current political mood in the UK since it would mean maintaining current positions on accepting EU trade laws and
immigration policy – which is what is behind much of the drive to Brexit in the first place.
On the other hand, there is now pressure towards a ‘big business’
Brexit which would wish to minimise trade problems caused by regulatory
drift and since the UK appears to have accepted the free movement of data it seems the UK will be at least partly subject to European Court of Justice rulings. At the moment it is impossible to say anything certain about this issue, but the best guess position has to be that the rUK will quite quickly not be absolutely harmonised with the EEA in terms of regulations (although it is more likely that it will be closer on duties and tariffs) and is likely to move away from harmonisation on immigration and freedom of movement
issues.
The working position should therefore be that there will be a customs and immigration border between Scotland and rUK – made inevitable because
of the UK’s decision to separate itself from the European mainstream. The goal is therefore to make the border as ‘frictionless’ as possible. But this is not all a case of ‘harm reduction’; there are some substantial benefits that could come to Scotland as a result.
To understand why, it is worth restating what Customs means. It is
the arm of government that is responsible for the control of flow of goods, and for collecting tariffs on those goods. The importance of this work to the revenues of any nation-state is highly significant, as Customs relates directly to all indirect taxes – those which are levied on goods or services rather than income or profits. Most recent figures from the National Audit Office show 39 per cent of all government revenue comes from indirect taxes, the most important being VAT and Excise Duty. In ensuring that movement of
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goods are conducted legally and are of no danger to the public, Customs
officers have to deal with illegal trade such as smuggling and cyber-crime as well as issues like environmental waste from pollutants and disease control from animals. Customs polices issues which should be of great concern to everyone – issues like modern human slavery and people-trafficking, bio-security, illegal trade in endangered species, counterfeit goods, breaches of intellectual property rights, the proceeds of crime, preventing the looting or destruction of wrecks, pollution control, fisheries control, disease control, many kinds of fraud including VAT and Excise fraud and many others. It
is also work that impinges on other areas of government which require
good intelligence relationships such as the intelligence services, defence, police, environment, agriculture, fisheries and trade and industry. To present customs as some kind of ‘bad thing’ which we want to minimise under all
circumstances is a very ill-conceived way to think of customs and makes
no more sense than saying ‘crossing the border would be so much easier if there were no police officers to check if I’m driving a dangerous car at 100
miles an hour’.
So is Scotland getting a good customs service from being inside the
UK? It is hard to argue that it is. As has been mentioned above, when you land at a UK airport you will have to pass through one of two customs
borders according to whether or not your journey originated inside the
EU. But have you ever seen any staff at these borders? It is pretty unlikely that you have since 2005 when HM Customs and Excise was amalgamated
with Inland Revenue. Since that time, the UK has effectively stopped doing Customs work, and the consequences of that are substantial but not widely understood.
At the time of the amalgamation with HMRC, the United Kingdom
Borders Agency (UKBA) was given the ‘borders’ role in 2005 – but this
became largely an immigration service. In 2013 the UKBA was then deemed
‘unfit for purpose’ and was re-born as the United Kingdom Borders Force
(UKBF), which has a 90 per cent focus on immigration. Both of these
agencies relegated the traditional Customs role to minor agency tasking. A very small number of UKBF officers are now classified as anti-smugglers but can be directed to immigration work at little notice.
The 2005 merger led many former HM Customs and Excise staff to
resign and become Customs consultants worldwide. Their expertise was,
and continues to be, highly sought after in nascent self-governing countries seeking to raise, protect and build their own revenues. That same expertise has been lost to Scotland through UK mis-management. These changes
may have taken place in the name of ‘light-touch regulation’ but were
really about cost-cutting. The outcome is that a unified system has been fragmented. The overall impact might best be measured in terms of the
‘tax gap’ – the difference between what should be collected in tax if every 137
person and organisation paid what they owe, and what is actually collected.
HMRC’s estimate of a £36 billion tax gap has been heavily criticised as a gross under-estimation by the UK Government Public Accounts Committee
and tax experts, with others putting the figure at £120 billion. Of this about 40 per cent relates to revenues which are derived from customs and excise including VAT. The problem with VAT is unrecorded sales, an amount in the order of £100 billion a year representing revenue loss in the tens of billions of pounds. This is largely a result of the ‘shadow economy’ where estimates are that a sixth of cigarettes are smuggled and a seventh of all alcohol.
It is only logical that the UK’s approach to Customs would lead to a loss in revenues: if cargo is moved into the UK and there are never (or rarely ever) any checks on where the goods have come from, whether there is a tariff on those goods and so on, it is likely that at least some of those who make their wealth out of this trade will see an opportunity in not registering the goods.
Non- compliance is actively facilitated if the possibility of enforcement is low.
But who is dealing with, for example, smuggling in the current UK system?
UKBF, the Home Office immigration department, where skills in revenue
collection are limited. This is not just a problem of catching criminals in the act; law enforcement was only a minor part of what Customs officers would do.
One key element in terms of revenue collection was to ensure that all
players involved in the movement of goods were aware of the law, knew
their obligations and how to exercise them. Revenue collection is about
relationships as much as law enforcement. There is an imbalance here in
terms of commitment of resources. One example is the National Crime
Agency (NCA), which lists 14 threats the UK faces from organised crime.
Of these only three (cyber crime, fraud and organised crime groups) are
revenue fraud related - but 20 per cent of UK organised crime is revenue frauds totalling approximately £5 billion. Revenue-based crimes may not
make as many headlines, but there is a good justification to say that, if looked at in the round, they have one of the biggest impacts on the public good.
A useful way of illustrating this is to look at Scotland’s long coastline which has historically had a number of key smuggling routes, especially
between Scotland and Northern Ireland during the Troubles. Currently,
there are no Customs cutters (boats for intercepting smugglers) in Scottish waters nor has there been any stationed in Scotland for at least thirty years.
Recent drugs and weapons finds in Scotland, and Scottish waters, confirm such ongoing threats to communities whilst providing profits for terrorists and organised crime. HMRC, UKBF and the MoD should have an integrated
coastal strategy, recognising the interconnectedness of defence, immigration and revenue issues, but they don’t. There are very clear weaknesses. When a ship or aircraft arrives from anywhere other than the EU it should have 138
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a full manifest accurately estimating the value and nature of the cargo and this should be inspected by Customs officers. This very rarely happens
in Britain. There used to be an excise officer stationed at large distilleries and breweries to ensure full compliance; the traders are now expected to self-report and audits of this are very rare. Another example is the arms trade. British businesses need a license to export arms but without customs officers at ports and airports there is little opportunity to audit exports to make sure they comply. Of 14,000 export licenses in 2015, there was only one prosecution for breach of the license. It seems likely that a proper compliance regime would identify more than this. In all these cases the
public interest is not being served by the UK’s almost non-existent Customs enforcement regime.
This can be resolved in Scotland if there is independence by setting up
a fit-for-purpose Scottish Customs and Excise agency. This should be based on something like the pre-2005 HM Customs and Excise model in the UK
which is broadly the same model used by countries like Denmark, Ireland, Iceland, Germany and France.
To get there, Scotland will need a modern, well-resourced Customs
Division as part of a beefed up Revenue Scotland, premised on a simple,
efficient tax code that eliminates loopholes (as discussed above). It is then worth looking at how the basic functions of a Scottish Customs and Excise Division would operate in a modern context. It is generally accepted that physical borders are not so much diminishing as changing towards ‘smart
borders’, while the border function is both trans-nationalised and internally dispersed. Increasingly the ‘border’ is considered not as a fixed line on a map but as the place where government performs border functions.
It therefore means that border controls do not need to take place at
the ‘border’. Uncollected revenues, contraband (such as tobacco, spirits, weapons and drugs) and those which are deemed illegal should be assessed and relevant legal enforcement action taken wherever they are identified, subject to a statute of limitation. For example, France collects 90 per cent of its Customs and taxation through post-clearance Inland controls. It is modern, efficient and way ahead of the UK. To facilitate this, an independent Scotland could re-establish the former HM C&E ‘Large Trader Control Units’
(LTCUs) where professional expertise could focus and prioritise resources to maximise tax yield. LTCUs are an excellent example of ‘post-clearance’
controls – Customs controls carried out inland. Similarly, Inland Clearance Depots (ICDs) are an effective method of facilitating international cargo trade – but they exist not at the border but inland. Customs controls can be co-located at road system, airport and rail hubs as part of a co-ordinated modern inter-modal transport system. Trade is facilitated by reducing or eliminating border checks by allowing cargo traffic to move quickly (and so at reduced cost) to ICDs near to their final destination.
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It is important to remember that since the closure of Customs offices
around Scotland coupled with the closure of Coastguard stations, fishery protection offices, local tax offices, local police stations and military cutbacks, the network of trained officers in the field and the lack of local contacts in the community has been broken. The regular contacts, especially in remote areas, is vital for Scotland’s intelligence needs, local trends, smuggled items and general awareness of potential terrorist and criminal exploitation. The necessity of communication and building of trust and networks must be
established in order to protect the country, its revenue and its citizens. There is no shortcut to enhancing cyber-intelligence with intelligence gained through direct human contact. An email or Facebook post regarding, for example,
drug smuggling is only verified and corroborated by human intelligence on the ground. A picture of the individuals, the vessel and vehicles, coupled with local source information on factors like lifestyle and home movements all complete the picture. They are all vital to obtaining a successful prevention, arrest, or prosecution.
The ability of officers on the ground to deter, discourage and prevent
evasion of controls as well as informing and educating the public and
businesses on risks, dangers, undermining of trade, security and the effects of revenue and security loss are all of vital importance. The fact that drugs, arms, people and other prohibited goods have and are being smuggled into and out of the country by utilising the vast coastline and islands is evidenced by past seizure and detections by HM C&E – until it was dismantled. It is highly unlikely that smuggling has stopped since. Indeed, organised criminal activity is adept and quick to change and adapt.
This kind of intelligence-gathering requires a substantial physical
presence across Scotland. It is proposed that there would be 13 customs
and excise offices in Aberdeen, Edinburgh, Glasgow, Shetland and Orkney, Inverness, Oban, Elgin, Ayr, Dumfries, Dundee, Perth, Stornaway and
Stranraer. Each would have its own list of specialisms which it would pursue (for example, some specialising in oil and gas, some in whisky, some in port customs and so on). There would be an additional five nationwide divisions such as a Maritime Branch, an Intelligence Branch and an Investigation
Branch, as well as an overall HQ.
This would be a substantial expansion of the Customs and Excise
capacity in Scotland and would take the total number of officers up to around 820, all of whom would be highly-qualified professionals. And since they each generate increased income they would pay for themselves and in the
first instance would be prioritised over other UK civil service priorities when jobs were repatriated to Scotland. The average income is currently about
£1676 for every one pound spent on a customs officer. The cost of new
equipment and vessels would come out of Proceeds of Crime, a revenue
stream which would also greatly increase. Overall it would be conservatively 140
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estimated that this would generate an additional number of billions of
pounds of revenue for Scotland. Calculating the capital costs of setting up a Customs service is quite a detailed business and involves identifying specific infrastructure needs in specific places - and in turn an audit of what HMRC
and other civil service office space which is available in Scotland. Decisions would also need to be made about amount of asset purchase such as how
many cutters were required (the cost of each of which would come in at
about £5 million). As an estimate, the capital set-up costs might fall in a range from £50 million to £100 million.
This would resolve all of Scotland’s borders (which are coastal into
maritime waters) other than its one land border with rUK. It is simply not possible to give a definitive answer to the nature of that border because it can only be agreed through negotiation with the UK (or, more specifically, Scotland can do whatever it wants on its side of the border but this would not compel rUK to copy those arrangements). The number of unknowns
relevant to this decisions are enormous – each country’s relationship to the EEA and EUCU, the relationship to collaborative policing services such as OLAF/FRONTEX and Interpol, to Customs information exchange, to the
current EU ‘smart borders’ initiative and much more.
Every one of these may play some part in shaping the nature of this
border. But the main factor returns to the start of this chapter – if Scotland was in the EEA and England was not, a formal border becomes an unavoidable
fact. But it would be a simply remarkable and unprecedented display of
economic self-harm for the rUK if it chose to impose a Hungarian-style razor wire border. (It should be noted though that even in the Hungarian case they still operate Inland Clearance for trade.) It is perhaps worth stating that the rUK could choose to do this (entirely at their cost) if they wished but it is difficult to conceive of this as a reality.
Norway is an interesting example here. It is in the same single market
as two of its neighbours (Sweden and Finland) but not the third (Russia) and is in a different custom territory than all of them. There are customs posts (but not mandatory stops) at every road crossing and free movement of
people between those in which it is in a free travel area (Norway, Sweden and Finland are all in Schengen, the European free travel agreement). While there were passport checks at the Russian border there was no fence until recently when some fencing was put in place to combat the problem of
mass migration through Russian territory into the EU. This would clearly not apply to a border between Scotland and England. It is to be assumed that rUK will be willing to maintain the UK Common Travel area which consists of Ireland, Northern Ireland, Scotland, England and Wales, Isle of Man,
Jersey, Guernsey and Alderney (a number of which are not