Beyond GERS

scotland-can-bannerThe Scottish independence debate has been ill served by the annual (or, in the case of 2016, twice annual) focus on GERS (the Government Expenditure and Revenue Scotland report) alone as an indication and predictor of the finances of an independent Scotland.

To make things clear, if Scotland is viewed as a region of the UK holding partially devolved powers over some aspects of tax and spending then GERS provides a decent, though still significantly limited, snapshot of our finances within that structure. However, as a predicator of how those finances will look if and when Scotland becomes an independent country this view becomes much less valid. Independence offers far too many changes and opportunities for it to be otherwise and even the absolute bare minimum necessary changes will bring with them significant financial impact even before much in the way of policy change occurs.

For this reason, and as part of our White Paper Project, Common Weal has embarked on an ambitious study aimed at moving Beyond GERS and to try to look at what that “first year” of independence might look like.

The most important point to realise is that a substantial portion of the expenditure assigned to Scotland does not occur within Scotland. Whether it is civil servants working on reserved issues within Scotland (such as work done by the Scotland Office) or on UK wide projects from which Scotland “benefits” this represents governance being performed outside of but “for” Scotland. Post-independence, these offices and departments will have to be replicated or replaced effectively creating jobs in Scotland. The economic impact of repatriating this public spending will act to grow Scotland’s GDP by several billion pounds and result in additional tax revenue in the region of at least several hundred million pounds per year.

A second major point to consider is the inevitable realignment of Scotland’s defence priorities. Much will depend, of course, on Scotland’s policy on the matter but in the case of Scotland adopting the principle of a non-nuclear Scottish defence force funded at around the average amount spent by EU member states (around 1.24% of GDP) we could expect a modest increase in the amount of money spent on defence in Scotland compared to what is spent here at the moment. Moving, as some have suggested, to an Irish style principle of neutrality would represent significant cuts to the defence forces, even compared to their pared down state in which Scotland currently exists within the Union, but would potentially free up over £2 billion per year which could be redeployed into areas of the economy and to support with new jobs those who have been affected by continuing Westminster cuts to the sector. Even in the case of Scotland retaining NATO membership and committing to the 2% of GDP target set by that alliance this commitment would imply a substantial increase in defence spending which will result in increased economic activity and increased tax revenue from that. Essentially, all of the reasonable options ahead of Scotland on the subject of defence will be to Scotland’s financial benefit compared to our current status. It should be noted that whilst the point made here only looks at the prospective funding levels of a Scottish Defence Force rather than its actual make up, the Common Weal will soon be publishing a paper on this subject which will explore these options in greater detail.

The third major opportunity for Scottish independence will be to dispense entirely with the UK’s Byzantine and inefficient tax code. Tax experts like Richard Murphy of Tax Research UK have estimated that the UK loses £119 billion every year through tax avoidance, evasion and the use of “legal” loopholes deliberately written into the system as political “bungs”. Should Scotland take the opportunity of independence to re-write our tax code in such a way as to recover even a third of our “share” of that loss it would represent additional revenue of some £3.5 billion per year. Again, Common Weal will present some proposals as to how an independent Scotland could structure its tax code in a future paper.

The fourth and final major point covered in Beyond GERS relates to the separation of debt and assets between Scotland and the remainder of the UK (rUK). This was not an area covered particularly well by the 2014 campaign with the debate never really extending much more deeply than the base positions of the Scottish Government and UK Government with the former laying a claim to a reasonable share of UK assets and debts whilst the latter denied any possibility of that claim. If the UK Government’s position is upheld – as would be consistent with their position of rUK becoming the “continuing state” to the former UK and retaining the UK’s permanent seat on the UN Security Council amongst other rights – then this carries the consequence of freeing Scotland from any obligation to the UK’s debts, saving up to £2 billion per year in debt interest repayments even in the event of Scotland paying a ‘premium’ on any new bond issues.

Furthermore this position requires the UK to keep their promise of guaranteeing their state pension obligations to all UK citizens who have met the requirements such as paying National Insurance up till the date of independence regardless of whether or not they live within rUK after retiring (as is already the case with UK emigrants). Whilst the obligation of the Scottish Government to pay out on Scottish pensions will gradually re-accumulate over time and may be subject to an agreement between the two governments to partially or fully share responsibilities, but the consequences in the immediate case of independence will be to reduce Scottish expenditure by something on the order of several billion pounds per year.

Taken in aggregate, all of these savings and revenue increases result in a substantial slashing of Scotland’s prospective deficit by over £9 billion per year and would bring an independent Scotland to “deficit parity” with the present UK. Obviously, this understanding places an independent Scotland’s financial situation on a far more sustainable basis than one can reach by looking at GERS alone. If we want to talk about an independent Scotland we really must now think about Scotland as being independent. We must move Beyond GERS.


Read the Beyond GERS paper here.


Comments (11)

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  1. c rober says:

    I hope the full piece tackles the state bank issue , not a private central bank , and of course NSandI also being part of that.

    State bank , State Energy , State housing regulation , removing tax loopholes and offshore land and non dom house ownership – anything else means indy just moves the wealth creation for the few a little more northwards , and leaves us either over a barrel or in their pockets at the political level.

    Everyone knows that GERS is a deliberate lie for Westminster , with creative accountancy being the enabler. IT is up to the 50 or so SNP in Westminster to hammer them on those lies every chance they get , not just us , but at the qualified professional level.

  2. Crubag says:

    The EU organs are arguing the UK should still be liable for debts accrued during membership, such as generous pensions for eurocats, so I can’t see Scotland sliding out from under the debt.

    The article also makes no mention of the £174 million debacle when we tried to set up a computer system to pay a few farmers. In principle, closer government with more scrutiny ought to lead to better decisions but not here and no-one held to account. I could see us having to rent access to rUK systems for a decade or more.

    But more practically, I think the SNP have lost their appetite for independence, a mix of fear of the unknown and a currently unenthused voter base.

    When the national survey results are published we will have a clearer idea.

    1. Alan Stewart says:

      You might want to research the state of agricultural subsidy payments in England and Wales.

      1. Crubag says:

        That’s what makes it so bad, they had their disaster back in 2006, and for the same reasons: the EU required that farmer subsidies moved from historical payments (what you had been doing back in 2002) to land based payments (how much farmland you owned).

        We should have been able to learn from the English experience at least, and more sensibly just have bought a version of their system, rather than going to the private, bespoke route.

    2. c rober says:

      One thing we have to do is ensure we have farming up there as a protected industry , not essentially a subsidised one. Of course we could just consider the status qou of subs for grouse estates for the wealthy – much like the protection of the Scottish arts being subsidised for the wealthy.

      Over the last 100 years employment in the countryside has all but disappeared , instead agriculture has been industrialised so beholding to the banks and reliant on imports like machinery and seeds. Milk prices have plummeted and supermarkets have adopted the American model of playing the farmers off against each other until there is not many left – then in steps the likes of a multinational to buy them up on the cheap. Land reform has failed many farmers , Land reform II may go a little to address that – but that takes a little more radical action and thought.

      So could the change be made to offering loans instead of subs , where the lender of choice is the Govt itself , thus protecting it and where if there is default therefore the state owning it? Food production is set to increase significantly over the next 30 years , as the global population adds another billion people , so while we protect our own food we also have the abilty to export – not the need.

      But as the farming industry in Scotland is geared towards Tories in ownership , we need to offer another way than subs , another way for those land owning farmers to want indy , and of course where those other farmers are tenants to protect them…. and before the land owners use the land as executive commuter housing increasing the value 50x of the land , thus removing the asset from food creation.

      My biggest gripe about the EU , the simultaneous insistence on non state ownership for all for an open market , yet a google of state owned companies shows its a lie – and in the case of France where is part state ownership a weighted seat on the board.

      Buy a man a fish and he eats for a day , nationalise the fishing and farming industry by the back door and we all eat cheaper than a foreign owned monopoly controlled by the banks.

      1. Crubag says:

        Farming subsidies go by land quality, so assuming you have livestock grazing on your heather moor, you’ll get 10 euros, if you have high quality agricultural land you’ll get a lot more.

        But it’s true that farming, like forestry, fishing (both wild and farmed), quarrying, mining etc. have all been transformed by machinery, more productive, more efficient, less people. That needs capital, so larger units, fewer employees, and more contracting – so labour increasingly moves round the country rather than being rooted in one place.

        Land reform – assuming it actually addressed ownership, which it mostly won’t – will still not be able to address the underlying economics of land-based businesses.

        Good point about the loss of good agricultural land, but the Scottish Government has made housing the priority for planning, and that means volume development in the lowlands, in greenbelts etc.

        1. By the way Crubag 9 months ago you scoffed at my citing Meygen (tidal) as past of Scotland’s energy mix saying that it was all hype and would never come to pass:

          Do you want to take that back now?

          1. Crubag says:

            You have a mind like a steel trap!

            Searching that out it seems to be a thread mostly about the limits of Scotland’s hydro potential. Meygen comment was that they would get power to the grid by 2016 – your link doesn’t say that they have, but from elsewhere they seem to have got to first power, a different thing…

            But good that they’ve got a device in the water and it’s working. That’s really the first step in moving from the drawing board. Wave/tidal will certainly have their share of technical challenges, but at this stage it is going to depend on political willingness to subsidise them to the point they become competitive, as has happened with onshore wind.

          2. A simple apology would have sufficed

  3. Ronnimor says:

    Reverting to the article, if you leave a nice, secure and well paid job to go out into the real world to start your own business (as I did many years ago) then you can expect to be a bit nervous and expect a lot of belt tightening while you find out if you’re venture will pay off. That’s the state of mind of most voters when they say yes to independence.
    You can work out the sums but at the end of the day its all about being confident you can do a better job than the competition. Scotland should not even try to compete with the UK following their financial rules – they are dishonest, fraudulent and designed to enrich the one per cent.
    If we are going to run our own show then we do it on our own battlefield and we make our own rules. If you are right then we win big in the long run – but if you cannot muster the self-confidence to do things differently then independence is not for you.

  4. Andrew V says:

    Way back in time I used to do economic analysis of government expenditure for the Scottish Executive (which shows how long ago it was!)

    Anyway, there’s a pretty important economic concept known as backward and forward linkages. Let me give an example of building a road.

    The forward linkage is the economic benefit of people using the road. The backward linkage is the economic benefit of lots of jobs being created to build the the road.

    The GERS numbers ignore backward linkages completely. So in other words, if the Scottish government pays £10m for something then according to GERS it is irrelevant whether that is provided in Scotland or in England.

    Obviously an independent Scotland would result in a huge transfer of jobs, contracts, property rent, etc from England to Scotland. It would be interesting to try to calculate what these backward linkages would be.

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