Who was right in the Andrew Neil Scottish Budget Row?

moneytalk2On the BBC1 Sunday Politics Show of 18th October, Andrew Neil asked Angus Robertson, SNP leader in the House of Commons, by how much had the Scottish Government budget been cut in the past five or six years. With Angus Robertson being unable to reply, Andrew Neil went on to say that in real terms, that is, taking out inflation, the overall Scottish Government budget was £35 billion in 2008/09 and this year/ next year was just over £35 billion. Thus, there had been no real cuts in the Scottish budget.

Following on from this programme, Wings over Scotland ran an article “Fiddling the Figures”, on 21st October 2015, and quoted Scottish Government figures to show that the Scottish Budget had fallen in real terms between 2010/11 and 2015/16 by 10%. There has followed a very heated exchange on Twitter between Andrew Neil and Wings over Scotland.

What we will do in this note is to make some sense of these apparently contradictory claims. This is a complex tale: but at the end of it all, our conclusion will be that truth, (or a reasonable judgement of what the truth might be), lies somewhere between these two positions.

But there are important general lessons to be learned as well. One is that different measures are appropriate for different purposes: so commentators like the BBC should be very clear about what they are measuring, and why, before rushing into heated argument. Secondly, this kind of debate represents a really sterile distraction. There should be no room for arguing about what the size of the Scottish Government’s budget actually is. And this type of argument about the figures just distracts attention from other really important issues – like, how well is the Scottish Government spending the money it controls within its budget: and is the other money being spent on Scotland’s behalf by Whitehall departments, (on reserved services), being spent effectively?

The figures Andrew Neil was referencing were a measure known as Total Managed Expenditure (TME). So to start getting to grips with what is going on, we have to look at how TME is defined, and what its different components are.

According to the definition given in the Glossary to the Scottish Government’s Draft Budget 2015/16, TME is the sum of the Departmental Expenditure Limit (DEL), plus Annually Managed Expenditure (AME). Again, according to the same source, the DEL, (which, at over £30 billion in 2015/16, represents over 80% of TME), is that provision which the Scottish Government can plan and control over the Spending Review period. As its name implies, Westminster sets annual spending limits on each government department’s DEL. For Scotland, the Scottish Government’s DEL is currently determined by the Barnett formula: though the Scottish DEL will in future reflect the flexibility the Scottish Government will have to determine part of its own resources under the Calman and Smith changes.

AME is that expenditure which is less predictable than the DEL, and which is therefore not subject to DEL-type limits. It is set each year, and stands at over £7 billion in 2015/16. A major element of the Scottish Government’s AME relates to NHS and teacher pensions, which account for about 55% of the total AME. The pension figure in the Scottish Government’s AME has, however, some special properties, and these are very relevant to the current debate. In calculating the figure, government actuaries work out the present value of future pension payments, by applying a discount rate specified by the Treasury to the estimated stream of future pension payments: an interest charge is then worked out on the present value of future liabilities. If the discount rate specified by the Treasury changes, the present value of future liabilities changes: it will move upwards, if the discount rate has gone down, which means that the figure for pensions appearing in the Scottish Government’s AME will increase. No doubt the government accountants have very good reasons for adopting this approach to estimating the current annual cost of future pension liabilities. But the effect is that the figure which appears in the AME is a non-cash figure, completely out of the Scottish Government’s control, and which is subject to large, largely arbitrary, fluctuations as the Treasury’s discount rate changes, or as the actuaries re-estimate future pension payments. Moreover, because of the reduction in interest rates due to Quantitative Easing, the Treasury has been reducing its specified discount rate: as economic circumstances normalise, and interest rates go up, the Treasury discount rate will follow them, and the effect will be in due course to reduce the pension element of AME.

The other major item in Scotland’s AME is non-domestic rates receipts, which account for almost 40% of AME. As we will see, the inclusion of non-domestic rates in AME is also of significance in relation to the current debate.

In relatively simplistic terms, DEL is often regarded as that part of its resources over which the Scottish Government can exercise direct policy influence – as the Draft Budget says, the Scottish Government can “plan and control it over the Spending Review period”: whereas AME is often regarded as being demand-led elements over which the Scottish Government can exercise no immediate control. However, this categorisation is over-simplistic. For one thing, within the DEL, there are some elements which do not represent cash which the Scottish Government could spend: in particular, there is a large non-cash item which represents depreciation of the capital stock of public infrastructure. So to reflect more accurately the element of the DEL over which Departments could actually exercise spending control, the UK Government now identifies a sub-set of the overall DEL, which it calls “fiscal-DEL”. In the Scottish context, this is defined as total DEL, less the large non-cash element of DEL, (mainly depreciation), and also less two small items called financial transactions and capital borrowing.

According to Table 1.01 of the Draft Scottish Budget of 2015/16, the Scottish Government’s fiscal DEL, (expressed in constant 2014/15 prices), fell by 10% between 2010/11 and 2015/16. This was the figure quoted in Wings for Scotland, in opposition to Andrew Neil’s statement about TME.

We can now see the basis of the respective claims made by Andrew Neil and Wings. Both are quoting figures produced by the Scottish Government, (or by the Scottish Parliament, based on Scottish Government figures). But Neil is quoting TME, and Wings is quoting fiscal DEL – and both are quite open about this. Just to summarise, and putting figures from both sources on a comparable time basis, then the respective figures are as follows (expressed in real 2014/15 prices):

£ Million2010/112015/16% change
TME36,66036,858+0.54
Fiscal DEL31,13128,003-10.05

Sources:TME: Scottish Parliament Track-the-Budget online tool. Fiscal DEL: Scottish Government Draft Budget 2015/16 Table 1.01

The real questions then are: which of these two measures is the better or more informative to use? Or is there some other indicator that is even more appropriate than the two indicators quoted in the Table?

The answer on the first of these questions depends, of course, on what you are trying to do. But it seems to us that an indicator which is telling you about the scale of the resources which the Scottish Government can actually plan and control, and which leaves out non-cash elements which are not directly related to the funding of public services on the ground, is by far the more relevant indicator to consider. In that sense, it is much more important to be looking at fiscal DEL, (the Wings choice), rather than TME (the Andrew Neil option).

A clear victory for Wings, therefore? Well, not quite. As we have seen, an important element of the Scottish Government’s AME is non-domestic rates: and while non-domestic rates revenues may not be exactly forecastable from year to year, they nevertheless directly affect public spending, and are controlled by the Scottish Government. So we would argue that a better measure of the scale of the resources within TME which are controlled and planned by the Scottish Government would be the sum of fiscal DEL plus non-domestic rates: (and we would also add in the small financial transaction and borrowing elements). If we call this “resources controlled by the Scottish Government, then the relevant figures are, expressed at 2014/15 prices:

£ million2010/112015/16% change
Resources controlled by Scottish Government33,36231,434-5.8

Source: derived from Scottish Government Draft Budgets. Note that in this measure, we have restricted attention to resources within TME: we have not brought in Council Tax, which is not counted within TME.

So on this measure, the cut suffered by the Scottish Government has still been very severe, but not as large as the 10% real cut in fiscal DEL.

Finally, it is worth commenting on one other source of needless confusion. While both Andrew Neil and Wings made it clear that they were, respectively, talking about TME and fiscal DEL, they both at other times referred to their figures as being the Scottish Government budget. This ambiguity reflects widespread confusion elsewhere about what the word “budget” means. For example, when George Osborne announced a cut in the Ministry of Defence budget, he was talking about a cut in DEL. When the Accounts Commission referred to the Scottish Government’s budget they were talking about the DEL (Scotland’s Public Finances, June 2014). But in Table G of the Draft Budget for 2015/16, the Scottish Government refers to TME as its “budget”. Unless Government itself can stick to a standard usage of the term, this merely fuels the kind of debate we have seen between Andrew Neil and Wings.

So finally, some concluding comments.

  1. It seems much more relevant to be considering a measure which relates to the resources the Scottish Government can plan and control: rather than one which includes non-cash elements which the Scottish Government cannot control, and which are subject to relatively large and arbitrary fluctuations. On this basis, and after adjusting for non-domestic rates, it seems to us that a reasonable estimate would be that the resources within TME controlled by the Scottish Government have dropped by 5.8% in real terms between 2010/11 and 2015/16.

  2. It is quite wrong that a BBC programme, funded by the licence payer, should be advancing the position that TME is the appropriate measure to take for Scotland’s budgetary resources, without explaining that there are large non-cash elements within TME which are outwith the Scottish Government’s control: and that some of these non-cash elements are subject to significant fluctuations due to the effect of changes in the Treasury discount rate, which are liable to reverse as discount rates rise.

  3. Until Government adopts a uniform definition of what it means when it talks about “budget”, the BBC will still be able to exploit the confusion for political ends.
    We should not be in the situation where the argument is about the definition of different sets of figures. That is just a sterile waste of time.

  4. But above all, this debate which Andrew Neil has forced upon us represents precisely the wrong sort of argument. Churchill set up the Central Statistical Office during World War II so that there would be no arguments about what the relevant figures were: and so that debate and consideration could then focus on the underlying issues, and the policy decisions which had to be made. It is ridiculous to be arguing about whether the Scottish budget has gone down or not: in the sense that matters, it clearly has gone down. What we should be focusing on are arguments like:

• Should it have gone down: that is, are the cuts the correct response, (primarily by the UK Government), to the current economic environment.
• But also – how well is the Scottish Government managing the resources it has control over.
• And more broadly, about 40% of the public expenditure attributed to Scotland is spent by Whitehall departments on reserved services. Are we getting adequate value for this expenditure – there are plenty of indications that we are not.

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  1. Andy Wightman says:

    Thank you. Very interesting and informative.

    It is worth noting that the Scottish Parliament could, at any time since 1999, have increased the tax base of non-domestic rates (NDR) to include subjects that have either been granted exemptions (agricultural land, shootings etc.), been granted generous reliefs (empty industrial buildings, charitable property including private schools), or lie outwit the current definition of a rateable subject such as the 10,874 hectares of vacant and derelict land.

    It could also have chosen not to freeze the council tax – a measure that has removed £2.5 billion from the total public finances of Scotland since 2008.

    Given that the Scottish Parliament can introduce any (legal) tax it likes so long as it is for local government, the means are available to eliminate this real terms cut in the Scottish “budget”.

    1. Mike says:

      Except that any increase in taxation in Scotland results in a proportional reduction in the block grant effectively giving a 0% increase in income.

      And without the council tax freeze many people would have lost their homes and had them repossessed had their council taxes continued to increase at the rate they did while Labour was in charge.

      Its the little things.

    2. MBC says:

      If the SG had not frozen council tax many more people would be suffering austerity than at present. I will be eternally grateful for that mercy over the last few years.

      1. Chapped Neeps says:

        Increasing Council Tax is nae a solution in itself but there are Bands and to imply that the folk in the top bands would be facing austerity if these were increased is hardly the case.If ye live in Aberdeen where the council under various regimes have cut services tae the bone,a small proportion of theses could have been saved with a top band increase

    3. tartanfever says:

      Andy Wightman in favour of raising council tax then, how interesting.

      Remind me what his book was titled again ? Something about ‘The Poor’ ?

  2. Pantone300 says:

    @ Andy Wightman : I’m so glad I haven’t had pay an increase in Council tax, life’s a struggle enough as it is. £2.5bn is also a lot to remove from consumer’s pockets, how would that hit the local economy?

  3. PRJ says:

    Does non-domestic rates contribute to the overal public spending in Scotland or does it support our local athorities? If it is the latter then public spending in Scotland has gone down by 10% just has Wings said. Can anyone confirm this.

  4. PRJ says:

    Does non-domestic rates contribute to the overal public spending in Scotland or does it support our local athorities along with council tax? If it is the latter then public spending in Scotland has gone down by 10% just has Wings said. Can anyone confirm this.

  5. yesindyref2 says:

    It’s an interesting article and thanks for the clarification of AME. BUT.

    “our conclusion will be that truth, (or a reasonable judgement of what the truth might be), lies somewhere between these two positions.”

    No, that’s incorrect. In the context of Andrew Neil’s question: “How much has the Scottish Government budget been cut in the last 5 or 6 years?”.

    That’s BEEN cut, not how much has it cut itself, passive not active. The Scottish Government has no control over Fiscal DEL, but it does over non-domestic rates. As well as the economics, the language used by Neil is important.

    The correct answer is the Fiscal DEL amount, i.e. 10.05%.

  6. yesindyref2 says:

    By the way, while I’m “here”, what exactly is the “block grant”? Is that worth another article?

    1. Mike says:

      The block grant is the expenditure allowance Scotland gets via the Barnett formula. At present its worth about 24 billion but there is a lot of pressure in Westminster to further reduce it by at least 4 billion. Some want to scrap it altogether but have not come up with a replacement system of proportional expenditure to run with instead.

      Its the funding for DEL. The other 29 billion or so Scotland raises in revenues is kept by the UK treasury in fund the AME.

      This is our so called pooling and sharing. We give 53 billion or so to the treasury they give us 24 billion back and use the rest to “pool and share” our reserved obligations.

      I’m not sure where the above author gets the figures from probably the same source as me the UK Government so they should all be taken with a large dose of salt my figures as well as the above figures.

      The UK Government spews out these numbers based on manipulations and the political climate at the time so accuracy in not their concern. In fact keeping them inaccurate seems to be their actual goal.

      1. yesindyref2 says:

        Yes, but the problem is there’s not a one to one relationship with the DEL or fiscal DEL, but there’s nowhere that has the realtionship I can find, in pounds and pence. Even the draft budget just talks about it reducing, without saying from what to what.

        So does it include Barnett consequentials from the year before that were incurred in that year? Does it include an allowance of any sort for windfall taxes, or where the UK has taken more in revenues than expected – or less?

        Otherwise you can get the same situation as Andrew Neil (TME) v Angus Robertson or the Rev (DEL), with say DEL v Block Grant.

        1. Mike says:

          For it not to reduce it would have to be increased in line with inflation. Has anybody claimed the Scottish budget has been increased in line with inflation recently?

  7. Mike says:

    Lets not forget that its not the BBC nor Andrew Neils job to take a particular position in the debate and promote it as the factual and only viable position which in effect takes a side in a 2 or more sided debate.

    Andrew Neil in a capacity as a BBC commentator has taken a position of political partiality and is running with it all over the internet as well as the television. The BBC should have reined him in long before now and probably would have if they themselves were not too busy taking the politically partial view themselves.

    Andrew Neil deliberately promoted a one sided controversial and inaccurate version of facts partially and politically using the BBC as his own personal delivery of the message.

    He has highlighted once again the BBCs State sponsored partiality in broadcasting and its willingness to be the propaganda arm of the UK state.

    1. elaine fraser says:

      Sorry if this has been discussed before but did anyone see BBC Daily Politics last week with Yanis Varoufakis? I happened on it accidentally as my stomach churns when I see Andrew Neil in action.

      I found it very interesting – Varoufakis disagreeing with Neil on the use of the term ‘dumping’ re: cheap steel from China ; the term ‘austerity’ ; his thoughts on EU, advising Jeremy Corbyn and so on.

      Neil was not his usual hectoring self . Maybe he felt some of Varoufakis ‘cool’ image would rub off on him . Dream on .
      I have complained to the BBC many times about his disgraceful bias and hectoring tone etc especially towards female guests. Neil and guests inc. Rees Mogg considered whether the Tories should create 100 plus new peers with Neil suggesting that they couldn’t find that number as he was busy on TV and Rees Mogg was already an MP . Varoufakis just smiled , my stomach churned , time to switch off.

    2. Will says:

      Andrew Neil Tory Propaganda spokesman for the BBC

      The BBC is the Organ of Tory Unionist Propaganda.

  8. Chitterinlicht says:

    Good article.

    Couple of points.

    Depreciation costs can be controlled over medium to longer term by managing assets used in delivering services effectively.

    I am pleased Ctax has been frozen.

    The Accounts Commission only deal with local government. Should be the Auditor General for Scotland.

  9. ScottieDog says:

    elaine
    I didn’t watch Neil with Varoufakis but I would assume Neil realised that his neo-liberal arguments would be blown away by someone much more astute than himself.

    1. elaine fraser says:

      ScottieDog – Varoufakis said he was ‘left’ in his views and he realised Neil was more ‘right’ to which Neil replied something along the lines of ‘not necessarily’ or ‘ appearances can be deceptive’ or some such . he was definitely smoozing him and trying to come over as Mr Reasonable / I hear what you say Yanis /You and I are not really that far apart kinda way – it was quite incredible to listen to.

      Im not convinced given the technical nature of the debate between Wings and Neil that he is the author of his own questions or assertions . I dont think he is that clever and so begs the question about the team of BBC researchers has he got at his disposal .

  10. Clive Scott says:

    It is troubling that senior members of the Scottish Government are unable to take on unionist propagandists such as the Westminster toady Andrew Neil. Those who appear on his show really should be much better prepared and trained in the art of holding their ground and play the man with undisguised contempt. He has such an incredible conceit of himself it really should be quite easy to get under his skin as Wings has already shown.

  11. Brian Powell says:

    If Neil says there wasn’t a cut and Wings says there was a 10% cut and the Cuthberts say the truth is somewhere between, then there was a cut in real terms.

    1. Mike says:

      Yep the above article reckons its just over 5% but like everybody else they have to rely on Government derived stats and figures so in all reality it could be anything from 1 to 100% but Wings made a very important point when they ask Andrew Neil if he believed ONLY Scotland avoided UK Government targeted austerity.
      To believe Andrew Neil you would have to believe that this EVEL pushing UK Government would direct its targeted austerity program everywhere in the UK APART from Scotland.

      Try and work out how gullible somebody would have to be to believe that.

  12. John B Dick says:

    Many thanks for that enlightenment.

    You have shown up broadcast and print journalists and most political spokesmen for the superficial and lightweight propagandists that they are.

    I hope I can remember all the acronyms.

    1. James Coleman says:

      Thanks to the Cuthbert’s for vindicating Wings. But of course Neil will still not agree.

      My default position vis a vis BBC commentators and MSM hacks is to believe Wings. Because having read his stuff for 3 years or so I know he researches it in far greater detail than the others and is not afraid to publish the truth wherever it leads. Wings is a journalist.

      Many of the others are merely stenographers re-printing Government propaganda, or worse, not printing stories which would show the populace the real world and contradict that idealised by the Establishment.

  13. Steven says:

    How is inflation taken into account with these figures? With the “resources controlled by Scottish government” figure you can see a cash terms cut, how should inflation be taken into account?

  14. Longshanker says:

    It is quite wrong that a BBC programme, funded by the licence payer, should be advancing the position that TME is the appropriate measure to take for Scotland’s budgetary resources

    That’s a subjective interpretation. Especially when put into the context of budgeting.

    The HM Treasury report https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/416330/47881_Budget_2015_Web_Accessible.pdf on p.11 leads with TME – which the ScotGov and some associated documents have also done in the past.

    Andrew Neil when grilling Angus Robertson referred to “overall budget”. As the interviewer, he doesn’t have to explain anything. Robertson should have corrected him if he was wrong, but didn’t.

    So it’s a poor show from Robertson and a self satisfied performance from Neil. Politicians are subjected to scrutiny for a reason.

    Neil was accurate in his assertion. He even referenced the figures he provided as Scottish Government sourced.

    So what’s wrong about that? Neil clearly did his job. Robertson on the other hand.

    Regards

    1. Mike says:

      Robertson was poor and uninformed but don’t go trying to spin and bare face lie on the fact that Andrew Neil did anything but lie his own arse off on the subject.

      He categorically stated not only on TV but on his Twitter blog that Scotland did not suffer a budget cut when all the evidence is pointing to a budget cut of at least 6% and anything up to 10% depending on what UK Government derived figures and stats you’re willing to believe.

      1. Longshanker says:

        Sorry Mike

        Where did Neil lie? Or me, for that matter?

        Apologies for having to repeat this, but Neil referred to “overall budget” – a flat, neutral, ScotGov sourced matter of fact. I’ve looked at the graph on the ScotGov website. It’s there for anyone to see.

        In his Twitter timeline Neil refers to “overall spending” as being flat. Nothing he said was inaccurate, incorrect or bias.

        And it most certainly wasn’t a “bare faced lie”. If you’re going to claim this as evidence of BBC bias against Scotland or some sort of conspiracy you need to look at your own bias first.

        Claiming that Neil lied and I lied says more about the accuser than the accused.

        Regards

        1. Mike says:

          The overall budget shows a decrease in funding as well. About 6% according to this article. Or did you fail to read it?

          You could also argue the fact that unless the budget is increased by the rate of inflation even a flat lined budget is less than the year before.

          So yes he did lie deliberately and here you are trying to spin squirm and make ludicrous claims because reality doesn’t fit in with what you want people to believe.

          Any way you try to measure it even dishonestly means that Scotlands budget decreases every year and the BBC lie about the fact because they are partial and willing participants in State sponsored propaganda.

          1. Longshanker says:

            Mike

            So yes he did lie deliberately…

            You’re implying that ScotGov also lied? Wow. Just wow.

            Unless Government itself can stick to a standard usage of the term, this merely fuels the kind of debate we have seen between Andrew Neil and Wings.

            Check this: https://archive.is/B65az Table 1 and the text above table 1. ScotGov website. A bona fide example of TME being presented as the Scottish Government’s “Spending Plans”.

            Neil’s being a good journalist. Playing devils advocate is a standard mechanism adopted by the best journalists/interviewers. If you scream bias every time a BBC journalist plays devils advocate then it’s no surprise that the ‘BBC bias’ mantra has gained such traction in certain circles.

            Campbell, on the other hand, is an unbalanced – in more ways than one – partisan propagandist and unashamed apologist for the SNP. He occasionally scores a victory, but given the quality of his opposition that’s no great accolade.

            And the rub with Campbell Mike is, that according to him, you and the likes of Andy Wightman, Robin McAlpine and Peat Worrier, for example, are all “scabs” for appearing on the BBC.

            The onus was on Robertson to make the SNP case. He failed and was exposed as mostly useless – in terms of the debate.

            In those terms he’s no different from any other politician regularly chewed up, spat out, and discarded by Neil.

            Neil did his job. Competently and entertainingly. It’s time the SNP upped their game if Robertson and Hosie are the best they can present to spar with Neil.

            Scotland deserves better.

            Regards

        2. Mike says:

          Look at the moniker you’re posting under. A deliberate attempt to provoke and troll.

          Pathetic.

          1. Longshanker says:

            I thought you were a serious commentator Mike.

            That type of comment should be beneath you.

            Regards.

    2. 1314 says:

      ‘It is quite wrong that a BBC programme, funded by the licence payer, should be advancing the position that TME is the appropriate measure to take for Scotland’s budgetary resources,

      without explaining that there are large non-cash elements within TME which are outwith the Scottish Government’s control’

      The whole quote has an entirely different meaning – but then that’s probably why you chose to miss out the second half.

  15. florian albert says:

    ‘any increase in taxation in Scotland results in a proportional decrease in the block grant’

    That being the case, there must have been cuts in the block grant in the years prior to the council tax freeze which came into effect about 8 years ago. (These were years of significant council tax increases which made the freeze so welcome.)

    How much were these cuts ?

    1. Mike says:

      Posted with all the ignorance you can only get when you don’t know what the Barnett Block grant is and how it works.

      The Block grant is not based on revenue but on expenditure. It is a population proportional budget based on the expenditure allocated to England.
      It is however funded by Scottish revenue. Our 56 billion to be exact. We get back about 24 billion via Barnett calculated as I said on a population proportional expenditure basis per head with England. The rest of our revenue is “Pooled and shared” throughout the UK as part of our “Reserved” obligations to the UK.
      So by clawing back more of our own revenues we reduce the amount we give to the treasury to fund our own budget via Barnett.

      You can see all the advantages this has for Scotland and the union benefit from it no doubt.

  16. Ian MacDonald says:

    Thanks for posting this – It’s good for those of us without an in-depth understanding of economics to get a clear explanation.

    One thing that I’m still not sure about though is the large change in the SPPA budget in 2015-2016 that WOS attributed to inclusion of police and fire service pensions. Is this correct, and if not where did this large change come from (is this related to the discount rate you talked about in the article?). Is it fair to include this apparently large change in budget in comparison to previous years?

  17. Mike Fenwick says:

    Tbh I don’t know if I am happy or unhappy that Andrew Neil kicked all of this off with his comments. Had he not done so there is a lot of this where I would have remained in ignorance of the factors involved.

    But what is clear to me is that whether it’s Bella, Wings or others, Scotland is now provided with access to information, debate, facts and figures which are essential – and we should be immensely grateful that is the case, and to all of those who contribute.

    The excellent analysis above being just one case in point. Thank you, Jim and Margaret Cuthbert!

  18. Iain More says:

    So after picking my way through that article, it is clear to me that Scotland has suffered cuts in real terms. Andrew Neil and the BBC have been caught playing jiggery pokery with figures yet again.

  19. John S Warren says:

    Thank you for a clear and informative exposition of an issue that needed illumination. I think we can all be grateful. This is the kind of analysis that enhances understanding of important public issues. At the same time your article reveals the lack of clarity and consistency in the use of terms by the parties involved, which merely defeats or confuses public understanding of the issues. It is particularly regrettable when the media, and the BBC in particular fail to assist the public to understand the basic terms.

    You have made a good case for saying that “fiscal DEL plus non-domestic rates” is the real ‘controllable’ Budget; but of course this is not a figure discussed by any official or media source, or indeed is a source that is routinely discussed in political or media circles; we can tell it is not used, if for no other reason, because it does not possess an acronym (DEL/NDR?).

    On non-cash items in AME you refer to the complex use of a discount rate that is “specified by the Treasury to the estimated stream of future pension payments: an interest charge is then worked out on the present value of future liabilities”. I am not sure what is the point of this elaborate Treasury calculation, or its purpose in a Budget; especially as the discount rate is subject to change (and in rather odd ways). Future pension payments are notoriously difficult to estimate, and I am particularly puzzled why this should affect the current year annual Budget which, prima facie, presumably should reflect the current annual cost of pensions solely in the year being budgeted. The future must take care of itself; like (and only for example) future interest payments on the National Debt.

    Perhaps I am missing something, but again this does not speak well to Treasury efforts to aid public understanding; and without understanding how are the public supposed to draw the appropriate conclusions about the public finances?

    1. MBC says:

      I couldn’t figure out what was meant here either. I got the drift, pensions (forming 55% of AME) are hard to estimate for, and will vary from year to year, and the Treasury has elaborate means of calculating these figures, but not the precise detail.

      Why is a discount applied to the estimates? Why is there also an interest charge?

      1. Mike Fenwick says:

        @ John S Warren and MBC … Hi, I am not clever enough to explain these points, but like you they interested me, and I dug a bit further to see if I could find any answers, and this link in 1) one area helped, and in another 2) made the situation even more interesting:

        http://www.parliament.uk/business/committees/committees-a-z/commons-select/scottish-affairs-committee/news/audit-scotland-session/

        The link takes you to a Scottish Affairs Committee session in 2013 – and for 1) above there is a link to an Audit Scotland report (44 pages) in which you will find discussion on interest rates etc, and for 2) above you can view the proceedings of the session itself.

        Where for me (geek on this) this ties together with the independence debate is that I think it is generally accepted that amongst the reasons for voting NO was a fear over the future of pensions.

        The DEL/AME/TME etc involved above does not refer to the State pension, but to public sector pensions – local government, NHS, fire and police – and what came as a surprise to me was to find the enormous figures involved, and more worryingly perhaps that the fire and police arrangements are unfunded – ie. pay as you go, with no assets set aside to meet liabilities.

        I leave it to you (and any others) whether you want to dig deeper via that link, but maybe I could add these two “simplistic” examples (and am happy to be corrected if they are incorrect).

        Assume you are an employer with only one member of staff (age 25) andf you promise him/her a pension at 65 of half their salary at retirement, with both of you contributing to a pension fund. The range of possiblties over those 40 years is immense – did you contribute enough from the outset, where was the fund invested and how much was it earning, how much over time did the employee’s salary increase. All of those variations call for review as time passes – and that inherently is what is happening when you see interest artes etc mentioned – original assumptions are being reviewed and altered as evidence emerges – and one factor perhaps is crucial – what is the life expentancy change that may be involved.

        Now assume that another employee is engaged (we now have two – but this later employee is 60) and the employer is fed up with the way the earlier arrangement is turning out – and whilst he decides to make the same pension promise – this time he will operate on an unfunded basis – he now has to arrange for the payment of that pension in say 5 years time – and his only choice then is to find that money from his income and that of the first employee ( (which is exactly what is currently happening with the police and fire service pensions).

        We will always need fire and police services so there may be a continuum – but what if those still in employment decrease, whilst the number in retirement live longer than expected – who picks up the bill and what effect that does that have? If you watch the session, or read the report you will find that the unfunded schemes are in negative territory.

        Why might that latter example be important? Well, the State Pension arrangements are also unfunded, and we have an aging population who are living longer – and one of the possible solutions to that lies in the debate over immigration.

        But perhaps the major solution is to radically alter how we arrange for our old age – and perhaps the demise of final salary schemes, the changes that have occurred to retirement ages , the mis-selling scandals over pensions, and the collapse of Equitable Life and others – and most of all the completely rational fears over pensions in an independent Scotland – should be telling us that we need to think long and hard about an alternative.

        1. Mike Fenwick says:

          Apologies … if (and I did) give the impression that only the fire and police service pensions were unfunded – this was wrong!

          Extract from the report to correct:

          “… The other five schemes, which cover teachers, the NHS, the civil service in Scotland and police and firefighters’ are unfunded (also known as a ‘pay-as-you-go’ pension schemes – no fund is built up to help cover future pension payments). Employers and employees contribute as if the schemes were funded – the contributions are calculated using assumptions set by HM Treasury – and these contributions are used to pay current pensioners and dependants. “

        2. John S Warren says:

          Thank you for the link; it is appreciated and I shall use it. The whole British state pension scheme is unfunded, and always has been. It is the way we do things in the UK, and there was no fund when the system was established in 1948; at the time Britain was broke (after the war).

          1. MBC says:

            State pensions were hardly an issue when Ireland became independent in 1921 as the state pension was (I think…) then only payable at aged 70, and I think single women and widows might have been excluded. Anyway the pensions bill was a fraction of what it would be today.

            But legally, I cannot see how the UK government could dodge their responsibility to pensioners resident in Scotland if Scotland became independent. These people were born as British citizens and paid UK taxes all their lives. We are only five million people, and the last census revealed one million were aged 65 plus. And what about people soon to become pensioners, who were also born British and paid UK taxes? It is something that would maybe have to be negotiated. A complex issue. Especially if there is a choice of which passport and nationality residents in Scotland would choose to have at independence.

  20. MBC says:

    Another thing I didn’t understand is why it is stated that DEL is what the Scottish Government has available to spend, and has discretion to spend, yet at the same time it is stated that the Treasury specifies what it can get to spend in each department. That doesn’t sound like a lot of autonomy to me.

  21. Alan Crerar says:

    As an unrepentant dyscalculia sufferer, most of the numerical dissertation above passed me by, but I thought the original point was this: Neil asserted that the Scottish budget had not been cut, Wings said it had. The numbers above maintain that it has been. Wings correct, Neil wrong.

  22. Debra storr says:

    Would the author please explain the logic of excluding Council tax but including non domestic rates in a final analysis? They both raise revenue – and with the council tax freeze, councils spending is now dictated by the Scottish Government.

  23. Dave says:

    I like things to be simple in my finances. Not because I’m particularly dim, but rather my experience of life has told me that when financial figures are confusing, there’s a conjuring trick going on somewhere.

    Whenever there’s a debate about who subsidises who, or what Scotland’s budget is, there’s always more than one figure to call upon.

    This tells me that whoever created this system (and whoever now uses it) profits financially and/or politically from it. It’s that simple.

  24. Ross McCrimmon says:

    This discussion arises because a leading SNP politician was unable to point out how much money has been cut from the Scottish budget since the austerity cuts started under labour in 2007-8, carried on by the tories and liberals and accelerated by the tories.

    Shocking, Robertson should have been better briefed, I bet Sturgeon and Swinney were furious.

    On the positive note, I bet every SNP MSP, MP and Councillor have been briefed and have the figures to hand.

    As for the bbc, at it again today with Glasgow Caledonian University and the fact that the first minister had praised them for being a first in the US. The attacks by labour and the bbc on the University and by proxy are now the staple of the bbc, so we should hardly be surprised when Neil strays from the truth on a Scottish related matter.

    If independence had been achieved, I wonder how long Neil and his brit counterparts from Scotland working in London would have been in post?

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