GERS Time Again

IT’S GERS time again.  I’m not sure whether the annual bun fight regarding Scotland’s notional budget deficit is proving enlightening.  Nevertheless, let’s see if we can winnow some facts from the arguments and counter arguments.

1 Do the GERS numbers represent anything real?

GERS means Government Expenditure review Scotland. We’ve had one annually since the days of John Major. It attempts to construct a picture of the public monies raised and spent in Scotland. The only trouble is that these numbers are not synonymous with what the Scottish Government taxes and spends north of the Border. GERS attempts to quantify or allocate taxes revenues and income raised at a UK level but attributed to the benefit of Scottish citizens. Equally it attempts to quantify and allocate other UK-wide and global spending notionally attributed to Scottish welfare. So we get our share of the nuclear deterrent.

I don’t doubt the civil service statisticians attempting this feat of hypotheticals do they very best they can. But the only starting point they have is current Westminster budgets and taxation. These, of course, are set by the Conservative Government its daft priorities. Even the most voracious critic of Scottish independence has to accept that the fiscal priorities of a social democratic, independent SNP administration are likely to be radically different from those of David Cameron, Theresa May and Boris Johnson. Therefore, no matter how reasonable the assumptions made in the 2019 GERS report, they cannot by definition tell us about the SNP budget post-independence or gauge any notional budget deficit.

Now a mea culpa. Prior to the collapse in oil prices in 2014, the annual GERS calculations regularly showed a significant (notional) budget surplus for Scotland. As a result, pro-indy economists such as myself gave little regard to GERS other than to note it gave ammunition to our contention Scotland was a normal, rich European industrial economy that could stand on its own two feet. Unionists, meanwhile, simply fumed away impotently. But with the fall in oil revenues, GERS started producing notional budget deficits – and quite large ones. The 2019 GERS figures claim a notional deficit of circa 7 per cent of GDP, which is largish by international standards, though in Trump’s America it is headed over 4 per cent this year. Now the Unionist sceptics are claiming GERS as their own.

Of course, with or without big oil and gas revenues, GERS is flawed because it is based on a hypothetic extrapolation of Tory budgeting priorities, not genuine Scottish ones. You have to assume that Scotland is a uniquely poor or incompetent economy to believe that post-independence will yield a budget deficit of 7 per cent in today’s world. Scotland’s GDP, at circa £200bn, makes us as big and prosperous as, say, Finland.

Are the Finns poor? Can they afford a welfare state? You bet your ass.

2 Is there anything to welcome in the latest GERS?

Flawed data can sometimes yield nuggets of information. For instance, if you compare year-on-year you can sometimes determine real trends, regardless of the overall flawed assumptions used to generate the data. In the case of the 2019 GERS, we see a fall in the deficit projection. The deficit (between what GERS thinks we spend and what it thinks we raise in taxation and other income) has dropped from £13.8bn to 12.6bn. GERS reports have been showing this decline for some years. Reasonable conclusion: whatever the deficit might be, it is contracting.

Also, we should note the (notional) GERS deficit is composed of two bits. There is the deficit on revenue spending (public sector wages and consumables) and a separate deficit on capital spending (infrastructure investment). The deficit on revenue spending is 5 per cent of GDP and falling. That is perfectly sustainable. There is a deficit of circa 2 per cent of GDP arising from capital investment. But capital spending earns a return in economic productivity which then boosts tax revenues down the line. UK government borrowing costs a tiny half a percentage point in interest costs. Result: the deficit on the capital budget actually pays for itself and more. So the bit we need to worry about is the revenue deficit, which is containable and falling.

In fact, there is a big argument in favour of the deficit. With interest rates so low in historical terms, now is the best time for governments to borrow and spend. Your household mortgage is your personal budget deficit. You’ve probably borrowed several times your annual income. But it’s an investment and puts a roof over your head.

Of course, there are issues. The EU requires that member states keep their annual budget deficit below 3 per cent. If GERS were an accurate reflection of Scotland’s post-independence fiscal stance, we would need to cut the (notional) deficit. However, the EU is desperate to have Scotland back and we would simply negotiate a transitional regime giving us time to grow the economy and our tax revenues. But just listen to the Unionists claim they speak on behalf of the European Commission!

In conclusion, the actual shape of Scotland’s post-independence budget deficit depends totally on the independence negotiations – and in particular on the divvying up of common assets and the common UK national debt. Once again, we all know that the UK Treasury, as the successor state, would be legally liable for the whole UK national debt. Theoretically, Scotland could walk away and start independent life with zero debt whatsoever. Of course, that would be wrong morally and pragmatically. But trading our share of the common assets for debt remission would leave indy Scotland relatively debt free and so reduce annual debt payments.

That and reducing defence costs will go a long way to keeping Scotland’s annual deficit way below the nonsense projected in the 2019 GERS figures.

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  1. Dougie Blackwood says:

    UK Deficit £23Bn, of that £12 Bn is attributed to Scotland. These are interesting numbers to conjure with; you would think we should be rolling in spare cash with lots of spending on projects paid by UK taxpayers.

    One asks about where the taxation raised on Whisky and Gin sales and Exports is attributed (Oil is made to look unprofitable so we cannot count that) . Then you think about the profits made by our larger companies, working in Scotland, like BAE, Rolls Royce, Tesco, Morrisons, Asda and Sainsburys report their earnings and where they pay their taxes. I see that HS2 may be cancelled but over £7Bn has already been spent (mostly in North London) on this “National” infrastructure project although it will never reach Scotland. We could rhyme off numerous other “National Infrastructure” projects like London’s “Crossrail” that has hit the buffers and is still not open, London’s water ring main that was recently completed and many more. Lined up for the future are Crossrail2 that is on the stocks and waiting to start with people working on a new, bigger and better Thames Barrage to save London from rising sea levels. All of these costs are “shared” and attributed on a per head basis to Scotland. They are an integral part of the data added into the figures that go to “Make Up” GERS.

    No wonder it’s the annual Unionist propaganda festival.

    1. Gordon Highlander says:

      Well, you are wrong on a least one point. The London water ring/sewer project is not funded by government spending, but by private money. As a Thames Water customer in the south I have to pay more and more in charges for the benefit of London, but no-one in Scotland pays a penny. I understand HS2 has a nominal financial contribution of 2% from Scotland to represent the potential economic benefit, though with a bit of luck it will be cancelled anyway. Tax on the sale of spirits is based on where they are sold (there is no reason why tax raised through selling Scotch in pubs in Cornwall should be attributed to Scotland, unless you think England should benefit in tax from London-distilled gin sold in bars north of the border).

      What you are doing is displaying the traditional Scottish chip on the shoulder (‘It’s the English whose to blame’) and assuming without any hard evidence that England is ‘stealing’ all your tax money. Try some proper research instead of moaning like this. This level of understanding simply discredits any sensible arguments for Scottish independence.

      1. Me Bungo Pony says:

        I don’t disagree with much of your post (bar the obvious “chip on shoulder” dismissal of genuine concerns) but when it comes to tax on spirits I think you misunderstand. Yes, as things stand, the tax goes to Westminster because England is where the spirit was bought. With an independent Scotland, however, the Scottish Govt would get revenue from the “export” of the spirits to England and around the World it currently sees nothing of. Diageo, for instance, is one of the biggest producers of Whisky but is registered in London. It is unclear that any of the revenue they generate for the country is attributed to Scotland. I may be wrong of course.

        1. Gordon Highlander says:

          @ Me Bungo Pony
          “Yes, as things stand, the tax goes to Westminster because England is where the spirit was bought. With an independent Scotland, however, the Scottish Govt would get revenue from the “export” of the spirits to England and around the World it currently sees nothing of. Diageo, for instance, is one of the biggest producers of Whisky but is registered in London. It is unclear that any of the revenue they generate for the country is attributed to Scotland. I may be wrong of course.”

          I don’t see how this would work. Are you suggesting that Scotch producers will have to pay a new export tax to the Edinburgh government after independence? No such tax is payable curently on Scotch exports to any country. Placing a tax (or duty) of say 5% on exports would simply lead producers to bump up the wholesale price and in turn this would have the effect of leading foreign retail outlets (in England or anywhere else) to raise the price. This would make Scotch less attractive to buy and market share would be lost to Irish, Japanese and US companies and (dare I mention it) to the growing number of English and Welsh whisky producers. The short term tax gain for Edinburgh would be more than offset by the longer term drop in exports. Scotland does not have some kind of special right to benefit from tax on all retail sales of Scotch that have been exported, or logically we would have the German government demanding that non-German customers pay them a sales tax on all Mercedes, BMWs and VWs sold abroad (I am sure they would have done this if it was remotely practical). Once Scotch has left the borders of Scotland the issue of how it is priced, sold, controlled or taxed is of absolutely no concern to the Edinburgh government. To suggest that Edinburgh is being derived of revenue is just wrong.

          Current owners of Scottish distilleries based in Scotland will have their tax revenues assigned to Scotland under GERS. Those owners located in London or abroad will pay local taxes as appropriate in Scotland (including on sales of Scotch to local consumers), but corporation taxes on overall profits will be paid where the companies are registered/domiciled and will continue to do so after independence, unless Edinburgh is planning to make it illegal for non-Scottish companies to own a distillery (ie. protectionism). They could do so, but this flies in the face of WTO rules, EU tax rules (which is why Amazon is based in Luxembourg and Apple in Ireland – both low tax economies for big companies) and goes against the trend of globalisation. The SNP is committed to EU single market membership, which would make what you appear to favour (all retail and company tax on Scotch to be paid in Scotland) quite impossible. Ironically, post-Brexit, it might be possible for the UK to take a much harder line on companies that currently base themselves in small EU countries like Ireland to minimise their tax take and it could conceivably benefit an independent Scotland to remain outside the EU, although there would be costs to doing so as well.

          Your implication that Scotland is somehow being deprived of legitimate tax revenues under the present financial arrangement is, I am afraid, mistaken. Independence is unlikely to make the slightest difference.

          1. Me Bungo Pony says:

            “I don’t see how this would work. Are you suggesting that Scotch producers will have to pay a new export tax to the Edinburgh government after independence? ”

            No, I’m suggesting the tax levied on the revenue received by the producers who have exported to rUK will go to the Scottish govt instead of the rUK govt. At the moment, it is unclear whether GERS takes account of where the spirits are produced (Scotland) and, instead, makes the calculations based on where the parent companies are currently registered (London).

  2. Ian McCubbin says:

    A pity Ruth Davidson had nt read this before her expletive on twitter.
    Honestly that woman causes more trouble in a single day than Boris does in a week.
    I cant get over how she can lie so easily and have the brass neck to go out and talk to folk.

  3. Douglas says:

    I note that, according to GERS, Scotland spends 3.3 billion US$ on defence, 5.27 of our GDP. The UK as a whole spends 1.8% of its GDP. How does this work? Are we paying the whole bill for Trident because it is based in Scotland?

    1. Me Bungo Pony says:

      $3.3bn is not 5.27% of Scotland’s GDP. If £12.6bn is 7% then approx £3bn is only about 1.7%. I haven’t seen the figures you are quoting from so maybe GERS is awry here. If we were spending 5.27% on defence it would be around £9.5bn (approx).

  4. Alan Weir says:

    Good to see the emphasis from George that GERS is registering a ‘notional deficit’, i.e. Scotland doesn’t actually have a fiscal deficit (or surplus) because it is not fiscally autonomous. But I think the Scottish Government should be emphasising this much more strongly because I think lots of people really do think Scotland has an actual deficit and something like an overdraft with UK Treasury rising annually, by £12 billion this year.

    I don’t think there is much point quibbling this or that bit of the GERS accounting, (not that George is but others do), other than noting that the statisticians themselves acknowledge that the estimation of Scottish shares of UK estimated data is more of a ‘guesstimate’ than a normal statistical estimate and could be done in different ways.

    Much more important is the assumed fiscal arrangements behind GERS, arrangements which no sane Scottish government would accept as a basis for fiscal autonomy. A different fiscal arrangement would produce a different counterfactual deficit or even surplus. For example, if the ‘Union Dividend’ we were promised for voting no was built in, then in Year One of Fiscal Autonomy our deficit, as a proportion of our GDP, would be exactly the UK one, with a transfer from UK to Scotland to ensure it: that’s what the ‘Union Dividend’ means.

    Another transfer payment built into GERS, but with no legal or moral basis, is for a share of UK national debt, a share which we have payed many times over since we were repeatedly lied to in the late 70s. I’m surprised George says that (on independence, not fiscal autonomy)

    ‘Theoretically, Scotland could walk away and start independent life with zero debt whatsoever. Of course, that would be wrong morally and pragmatically.’

    (But that’s what the non-Russian states did on the collapse of the ‘Commonwealth of Independent States’, I might add.) On the contrary, the UK has a very definite moral obligation to compensate the Scottish people for the huge loss we experienced in the first half of the eighties when about a third of our GDP headed annually to London, not as an act of deliberate generosity and informed consent, but on the basis of repeated UK Government lies telling the Scots the opposite of what their own economic adviser was saying. PPI misinvestment scandals have nothing on this. Conservative estimates, e.g. by Dr Jim Cuthbert and others of where we would be (given the same expenditure) by 2014 had we a Scottish Oil Fund are of a surplus in the hundreds of billions.

    Of course, pragmatically, the UK will resist paying a penny of the compensation we are morally owed and in particular will not be at all keen on a Soviet style zero debt arrangement. All will depend on the Trident card: whether an independent govt would allow England to keep Faslane until they have a new base ready and how much they are prepared to pay for that. But of course if we go into the independence negotiations flying a white flag with ‘Heid zips up back’ written all over it, we will be duly shafted. All the more reason to prepare the ground in advance. For example by requiring GERS to produce a number of estimates based on different fiscal arrangements, for example: the current, Ian Lang/John Major ‘Scots are Subsidy Junkies’ one; a union dividend one; and an oil compensation one. In that way the Scottish people could be as appropriately fired up as they would be if they had individually been victims of a private misinvestment scandal and a head of steam can be built up for a suitable strong stance at independence. (As you might expect, I think it imperative that Andrew Wilson and all who think like him ought to be kept completely away from any independence negotiations, I fear that, however well meaning, these people have caught the ‘City of London syndrome’ variant of Stockholm syndrome.)

    1. Gordon Highlander says:

      @ Alan Weir
      “I think lots of people really do think Scotland has an actual deficit and something like an overdraft with UK Treasury rising annually, by £12 billion this year.”
      Actually the ‘overdraft’ (fiscal transfer) is gradually decreasing, but regardless, the issue is that Scotland spends more than generates in revenue (by almost 20%) and in the event of independence we will inevitably face a combination of austerity, tax rises and expensive borrowing on the international money markets if the intention is to reduce the annual deficit to 3% to reach EU entry criteria. I have seen no evidence that the EU will bend these rules just for us. A future Scots finance minister has to be realistic and if GERS is just 80% accurate there will be major hurdles to be overcome. These cannot just be wished away or blamed on London. The idea that simply cutting £2 billion of Scots defence spending will solve the problem is day dreaming.

      “Another transfer payment built into GERS, but with no legal or moral basis, is for a share of UK national debt, a share which we have payed (sic) many times over since we were repeatedly lied to in the late 70s.”
      Despite what you seem to believe, Scotland is still legally part of the UK and therefore legally shares in the UK national debt. I now live in Berkshire and I do not recall the citizens of this county being asked if they agreed to partcipate in UK borrowing or financial transfers to Scotland either, come to that. You cannot just opt out of your share to suit your prejudices. Yes, Scotland has paid its share of the national debt since 1979, but what about the share generated before then (the two world wars, for example? Were they just ‘English’ wars?). Moreover, we have now reached the point where Scottish tax revenues have declined (relatively) so that Scotland is beginning to be a net recipient of the ‘benefits’ of the national debt. A failure to pay the share of the national debt will have at least three consequences:

      a. A very soured relationship with the rUK, whose people and politicians will feel they are being stung for a debt that is in fact partially Scots. That should help Scots exports south of the border (wait until they place 100% import tariffs on Scotch and wool).

      b. The retention by the Crown/UK government of the ownership of state assets in Scotland (Edinburgh Castle, TV transmitters, military bases, railway lines?). Forced nationalisation will end up in the international courts. If you do not pay the debt then you do not own the assets.

      c. A great wariness on the part of international banks and financial institutions about the trustworthiness and probity of the Scottish state, leading to high interest rates or an unwillingness to lend to Scotland at a time of probable austerity.

      “Conservative estimates, e.g. by Dr Jim Cuthbert and others of where we would be (given the same expenditure) by 2014 had we a Scottish Oil Fund are of a surplus in the hundreds of billions.” Counterfactual history. Scotland did not vote for independence in 1979, but to stay as part of the UK, so you cannot complain about what might have been. We would all like to rewrite history, but life isn’t like that.

      “Of course, pragmatically, the UK will resist paying a penny of the compensation we are morally owed and in particular will not be at all keen on a Soviet style zero debt arrangement. All will depend on the Trident card: whether an independent govt would allow England to keep Faslane until they have a new base ready and how much they are prepared to pay for that. ”

      A moral obligation is not worth the paper it is written on. I suspect the rUK would either declare Faslane and the area around it a Sovereign Base Area (just like Cyprus) or would redeploy Trident to King’s Bay, Georgia in the interim, while constructing a new base south of the border. The Royal Navy originally wanted to deploy Polaris from Falmouth, Cornwall and it was the lobbying of Scottish MPs that led to a decision to move it to Scotland, for economic and employment reasons. Falmouth could still be used, as could Pembroke/Milford Haven. Given the economic decrepitude of Falmouth today I suspect they would jump at getting the new Trident base and the jobs that go with it. The existing Faslane facilities are unlikely to meet the needs of the Scottish Navy, so I could see them being demolished.

      The point is that these issues are interlocked and much more complex than it first appears and the idea of just walking away and stuffing it to the English cannot be appealing, unless you want a permanent semi-hostile and uncooperative neighbour. It would be more sensible to generate a close and cooperative attitude and accept that Scotland has benefitted in many ways from the Union. Division should not lead to rancour, but I am afraid one increasingly detects an underlying air of Anglophobism, disguised as civic nationalism. It is time that nationalists started being realistic, not emotional, about these matters.

      1. Alan Weir says:

        @Gordon Highlander:
        Thanks for proving my point so clearly. Some people really do believe GERS shows that Scotland has a fiscal deficit, that “fiscal transfers”, as you put it, are decreasing but that, as you claim above, we still spend more than 20% of revenues. You in particular are one of these people!

        These supposed transfers are complete fiction, ‘counterfactual fiction’ to echo your ‘counterfactual history’, for Scotland is not fiscally autonomous and the transfers in GERS do not occur in the actual world but are guesstimates (not statistical estimates) of what would occur in a different possible world. My other main point was that the GERS counterfactual fiction is only one of many which could be based equally well on actual economic facts, but it, and the grossly unjust arrangements built into it, were chosen by Major and Lang as part of a centuries-old (very successful) narrative designed to convince Scots that they aren’t quite up to the mark and can only succeed if bailed out by the English. If the SNP holding the balance of power in Westminster, for example, were to negotiate fiscal autonomy and the fiscal arrangements required the UK govt to abide by the “Union Dividend” promise made in 2014 then the transfer arrangements would ensure that deficit/GDP ratio would, at least in year one, equal the overall UK one. That counterfactual fiction is every bit as rooted in economic reality as the GERS one and I would argue much better rooted in political reality, it has much more chance of actually being realised.

        As can be seen from my post, I’d still view such an arrangement as bad, even if perhaps the least worst alternative in the imagined circumstances, because not properly compensating for past injustice. Gordon Highlander seems to have a curiously divided attitude towards political morality: dismissive, if it involves making claims on behalf of Scotland ‘A moral obligation is not worth the paper it is written on’ but morally outraged, ‘Disgusted, Abingdon’, as it were (or whatever the Berkshire equivalent of Tunbridge Wells is) when it comes to making claims against England (or rUK if you want):

        ‘You cannot just opt out of your share to suit your prejudices. Yes, Scotland has paid its share of the national debt since 1979, but what about the share generated before then (the two world wars, for example? Were they just ‘English’ wars?).

        The ‘cannot’ there is clearly a moral cannot, since we clearly could avoid paying debts we have no legal obligation in international, English or Scots law to pay (as the UK government made clear in 2014). By the way, the calculations (taken from UK stats) as to what the Scottish surplus would have been had we voted for fiscal autonomy or independence in 1979 assume the Scottish government paying off a population share of the UK debts as they stood then. As to the ‘English wars’ which my uncles- WWII- and grandparents- WWI fought in, I have all through my life heard WWII described by English people, including highly intelligent English people, indeed including one ex-Prime Minister (MacMillan) as ‘England standing alone against Germany’, my uncles must have been lying; the PM when the United Kingdom of Great Britain and Ireland fought for the independence in 1914 of a small European nation (guess what, not Scotland, nor Ireland), namely H.H. ‘Squiffy’ Asquith has ‘Prime Minister of England, 1908-1916’ written on his gravestone.

        But to get back to the economic issues, it’s important to keep the moral and the pragmatic issues distinct. Unlike you, it would seem, I think the moral issues vitally important and that Scotland and the rest of the UK should be treated equally in such matters. For example, if Berkshire County Council, as was up until 1998, was told by its independent and at the time respected financial advisers that some of its assets were almost worthless and the advisers would be doing them a favour by taking them off their hands and swapping them for some others (perhaps owned by the owner of financial management company), and a whistleblower later revealed, after the ‘worthless assets’ turned out to be worth a fortune, that the advisers had a report in the drawer stating that all along, what would your response be? So what morality is bullshit? Well done the financial advisers, you fair made a monkey of Berkshire County Council. I don’t think that would be the response of the ratepayers of Berkshire. But maybe you would disparage them as grievance-obsessed whiners, living in the past, crying over spilt milk. I wouldn’t I think they would be quite right to demand compensation from those who mis-sold them estimated on where, given reasonable, prudence, they would have been otherwise (counterfactual history” again, something you seem to reject although if you do out would go most of the civil law to do with responsibility and compensation for negligence). The Scots, in my view, are not worth less morally than the ratepayers of Berkshire.

        Of course in the imagined case, Berkshire would have recourse through financial tribunals perhaps the law. In Scotland’s case- told repeatedly in the late 70s by the likes of Denis Healey and Willie Ross that the SNP were fantasists when their adviser McCrone was telling them the SNP were probably understating the case, there is no legal case (I don’t think at least pre-79 we were a legal entity in the same sense as County Councils, but I’m not a lawyer so don’t know for sure). But there is a much more compelling, because of the scale of the deception and loss, moral case for Scotland. And these lies are the reason that Scotland didn’t, as you point out, vote for an autonomous govt, rather than the Mickey Mouse parliament we voted for but were denied, and the reason we didn’t vote for independence. Healey is quite clear about this: the Labour govt lied not because they were pathological liars like Trump but because they didn’t want the oil in Scottish waters to go to Scotland in the way the Norwegian oil went to Norway (and not Sweden: those greedy little Norwegian nationalists, eh, they should have given it all to their bigger former ruler).

        I think this moral point is more important than the practical one, in particular because in the interim Scotland has not been thanked for giving one third of its GDP to rUK for the first half of the 80s, equivalent to the UK giving about £700 billion a year to Ireland or to India in recompense for (vast) past wrongs (in which, to be sure, the Scottish, Unionist, ruling class were heavily over-represented). Rather we have been castigated continually as subsidy junkies, and not just in Daily Mail England, it’s the entire basis of the BritNat Scottish parties economic case against independence. It’s as if the Germans in 1948 castigated the Americans as subsidy junkies because of the Marshall plan except the latter was a grant, not a loan, and a much smaller proportion of American GDP. And this ‘Scots can’t survive on their own’, theme is not a 1970s thing, it’s been going on almost throughout our history and when the Empire set in became deeply embedded in all of us. That’s why we are still ruled by England (or ‘Ukania’, if you want to be legalistic), we aren’t imprisoned at the point of redcoat guns. And that’s why the SNP should challenge GERS, as its a most successful manifestation of this.

        Though I think this is the most objectionable part of the GERS fiction, the way it is used to reinforce the idea that we are feckless incompetents who only have West European standards of living courtesy of English generosity, I also completely disagree with you about the pragmatic aspects, about how international bankers would react to a zero debt settlement (‘Poor old England, I’m so upset for them I’m not going to lend to that country with zero debt’, saith the notoriously sentimental international banking community), about Trident, about counterfactual history pre-1979 and more. But I think I may be just about running out of steam about now!

        1. Alan Weir says:

          Correction: “it’s a most successful manifestation’, not ‘its a most successful manifestation’. Writing too quickly. Whilst I’m totally opposed to the apologetic apostrophe which Scots writers from the 18th Century up to MacDiarmid put in- “the auld grey wa’s” etc- as if Scots was defective English, you should definitely put them in for abbreviated ‘it is’ and out for the possessive pronoun!

        2. Gordon Highlander says:

          @ Alan Weir
          The bottom line is not that Scotland cannot afford to be independent, but that to do so will (on the basis of GERS) almost certainly lead to serious economic short-medium term problems unless national spending is curtailed. Unless oil prices rise dramaticaly and stay high it is difficult to see how an independent Scotland will finance itself with present levels of spending, let alone future proposed social expenditure. The need to change the national currency will make this even more intractable. I am not suggesting that Scotland is a subsidy junkie and it certainly wasn’t when I was living there in the 1980s, but even without contributing to the UK national debt it appears unlikely that the present spending patterns could continue for very long after independence. The solutions proposed by the Scottish Growth Commission are unconvincing and rely on economic growth rates normally seen in newly industrialising countries.

          There is no doubt that if independence had been won in 1979 that the economic benefits would have been substantial (though not perhaps as great as Norway’s). However, voters decided against that (I can remember the campaign all too well) and preferred to stay with the UK which in effect meant they committed themselves politically and economically to a joint enterprise in which finances were shared. At this time the stream of North Sea oil revenue was needed to counter the effects of the 1970s recession (e.g. repaying IMF loans). I assume you are not suggesting that all the North Sea revenues should have remained in Scotland for the sole benefit of the Scots? Or are you? How would Scotland have reacted if all the oil had been in the southern part of the North Sea and then been spent only in England? My point remains that you cannot change the decisions of the time, no matter how much you may regret the course they took. Too much of the nationalist case rests on the shoulders of oil revenue and those seeking independence must surely be able to make a valid economic and political case in which the oil figures simply as an occasional windfall. The 2014 referendum manifesto certainly failed spectacularly on that score.

          Your second paragraph seems to argue that GERS is a fiction to convince the Scots they are too poor to become independent. I would certainly agree that it says nothing about the posssible future spending patterns of an independent Scotland, but is does give a rough indication of the starting point and it is hard to see how government finance would be helped by the sudden termination of the Barnett formula (and yes, I am aware that there are all kinds of issues surrounding that and how it is calculated). Presumably you feel that Scotland’s finances will be unaffected by the cessation of the block grant to public spending and the removal of various civil sevice jobs, the probable departure of the major banks and the relocation of the defence industries and bases. If that is the case there is clearly no reason for HM Treasury to pass national funding to Edinburgh, which will make both the Scots and the rest of the UK pleased.

          Coming back to GERS itself, I am aware that it can be always criticised for estimations, since data is never 100% complete, but having worked on very expensive national projects I am also aware that this is sometimes the best you can do and that given a sensible estimation process you can still make accurate planning decisions, as long as you have a sensible reserve factor. To suggest that GERS is purely guesswork and therefore not statistically valid is actually pretty insulting to the Scottish government statisticians. It is the best we all have and unless you can produce hard evidence that it is fundamentally invalid or the underlying data fatally corrupted observers will think your disparagement is just politically or emotionally driven. I have not heard the current SNP government announce that they do not accept it, so exactly how do you know better?

          “As to the ‘English wars’ which my uncles- WWII- and grandparents- WWI fought in, I have all through my life heard WWII described by English people, including highly intelligent English people, indeed including one ex-Prime Minister (MacMillan) as ‘England standing alone against Germany’, my uncles must have been lying; the PM when the United Kingdom of Great Britain and Ireland fought for the independence in 1914 of a small European nation (guess what, not Scotland, nor Ireland), namely H.H. ‘Squiffy’ Asquith has ‘Prime Minister of England, 1908-1916’ written on his gravestone.” Strangely enough we are actually in agreement on this one. It is very irritating when the English do this, although I have noticed this happens a lot less than in the past, especially as people (down here) now tend to refer to ‘the UK’, not England. Conversely there also has been a gradual rise in English nationalism to mirror the rise of Scottish nationalism. The English I know do not mind the Scots and often rather like them – the country has a generally positive image south of the border. I certainly do not mind seeing the occasional flag of St George on churches and buildings, although I am glad they do not go over the top as some Scots appear to do. The surfeit of saltires in Scotland (on trains for example) suggests a country lacking in self-confidence and trying to convince itself it can be a ‘proper’ nation. You normally only see this in politically under-developed and fragile countries such as former Soviet states.

          “I think this moral point is more important than the practical one, in particular because in the interim Scotland has not been thanked for giving one third of its GDP to rUK for the first half of the 80s, equivalent to the UK giving about £700 billion a year to Ireland or to India in recompense for (vast) past wrongs (in which, to be sure, the Scottish, Unionist, ruling class were heavily over-represented). Rather we have been castigated continually as subsidy junkies, and not just in Daily Mail England, it’s the entire basis of the BritNat Scottish parties economic case against independence. It’s as if the Germans in 1948 castigated the Americans as subsidy junkies because of the Marshall plan except the latter was a grant, not a loan, and a much smaller proportion of American GDP. And this ‘Scots can’t survive on their own’, theme is not a 1970s thing, it’s been going on almost throughout our history and when the Empire set in became deeply embedded in all of us. That’s why we are still ruled by England (or ‘Ukania’, if you want to be legalistic), we aren’t imprisoned at the point of redcoat guns. And that’s why the SNP should challenge GERS, as its a most successful manifestation of this.”

          Leaving aside your moral outrage (plus the fact you admit stooping to reading the Daily Mail) and the question of why Scotland should not be paying reparations to Ireland, India (and China) for the damage caused by the many exploitative Scottish traders and settlers, I note that when it comes to money you feel the UK is always to blame (- is there a pattern emerging?) Do you really think that the English have just ruthlessly and ceaselessly plundered Scotland for the past three centuries, despite the number of Scottish prime ministers? Do you really, honestly believe that Westminster always asset strips Scotland and nothing ever goes back in return? The reason that the SNP do not challenge GERS is that they actually know it is on the right lines and has been properly analysed. Your refusal to acknowledge that appears to be an attempt to deflect a disliked reality with smoke and mirrors and to fool yourself that there is some conspiracy not to tell the truth about economic realities. If that were the case I am sure Ms Sturgeon would be shouting it from the rooftops. Her silence on this issue speaks volumes – or do you suspect she is also part of a secret pro-Union conspiracy to hide the truth from the ordinary people?

          Your post makes some valid points, but I fear resorts to repeated whinging about the dastardly English/rUK, who appear never ever to have done anything good for Scotland and to spend their lives scheming to do it down. Your attempt to disparage GERS is interesting, but lacking in basic substance. I am glad my neighbours in the south are a tad more tolerant and forgiving.

          1. Scotland didn’t have the option of independence in 1979, it had a rigged vote for a limited Assembly.

          2. Alan Weir says:

            @Gordon Highlander,

            Well, the Berkshire air certainly seems to help inculcate indefatigability! I’ll try to keep up but as concisely as I can (which is to say, not very).

            Let’s look at the economic stuff rather than England/Britain/GB/UK though, despite that being partly a terminological matter, I think it is also important. (I’d go as far as to say that the English didn’t really have the same concept of ‘Britain’ as the Scots until the rise of the SNP; for most, going back perhaps to Athelstan, it was a near synonym for ‘England’, and that’s important in how the debate has developed.)

            But on the economics, you have focused mostly on the short-term post-independence, but we should also look to medium to long-term. And as a non-economist I listen, contra Gove, to the experts on the rare occasions there is a very widespread consensus among the economists. For example, nearly all agree Brexit will be damaging in the long-term, hard Brexit very damaging. In 2014, whenever I heard serious economists who know about the Scottish economy (e.g. the Scottish academics working at the Centre on Constitutional Change in existence then), asked about medium to long-term prospects, the response was along the lines: nobody can know for sure, there probably would not be a great deal of difference, positively or negatively, compared to being in the UK. Since I think Scotland is a nation, not a region of Ukania/England like Merseyside, that’s enough for me.

            True, I tend to think we’ll be better off out, a hunch based on the very striking fact that nearly all small West European nations are economically stronger, in terms of per capita GDP and more importantly GNI, than larger ones such as the UK, France or Germany. It might just be a coincidence, but there might well be, as economists such as John Kay have suggested, that there are economic benefits to being a small nation inside the single market. Be that as it may, I don’t entertain any serious doubts about Scotland’s long-term prospects as an independent nation, ideally in the single market whether or not in the EU. In particular, I never believed Better Together’s claims that our GDP will drop by at least half (I don’t think even the German economy fared as bad as that during the allied bombing campaign, until the end anyway) if our parliament acquires equal status with the other small European nations.

            But then I reject Britishness and all its works and pomps,; most Scots, including a lot of independence supporters do not. And for many of them ‘we might be a bit better off or a bit worse’ will make them nervous about making the leap. That’s why I think the surest route to independence is via fiscal autonomy, rolling out over a five year term perhaps, and thus becoming in effect economically independent first. It’s not even clear to me that an autonomous Scottish govt in the UK could not create its own virtual currency (as the Euro was for the first three years), so that we could run with joint currencies initially. But of course you can’t always choose time and place of battle: it looks more and more that when the opportunity for a second referendum next arises, it will be in the context of a disastrous hard Brexit (nearly all economists agree) with Scotland out the EU.

            So that takes us to your argument that the short-term costs of independence are likely to be very high, mean years of austerity etc. I’d make a number of points there:

            How bumpy take off back to independence is will depend on a number of factors neither you, I nor anyone else can predict. For this reason I reject your confident claims about ‘almost certain’ serious short-term problems. Nor am I almost certain there won’t be, so of course we should look closely at plausible worse case scenarios. The Slovakia/Czech currency debacle is one. Slovakia experienced I think it was around a 4% drop in GDP in the first year of independence, almost as much as the UK experienced after the 2008 crisis facilitated, to put it mildly, by the ramped-up Thatcher/Reagan neo-liberal deregulation of Bush Jr., Paulson, Brown and Darling. But then Slovakia bounced back quite quickly, and the point has to be made: lots of small nations have regained their independence successfully in much more difficult situations than we would have in 2014. Are we so much more hopeless a nation than them? Hard Brexit is a different case, of course.

            But this in itself raises lots of problems for your confidence that in the short-term near future Scotland would fare much worse outside the UK than in it. I don’t share the high confidence most independence supporters have that this will lead to a boost in Yes support comparable to 2014, it might well actually lead to the opposite even if there are food shortages, people dying from lack of medicine. But, again, you can’t always choose your battles, you have to take risks to achieve anything and the calamity of Hard Brexit and the advance of far-right English ultra-nationalism is something we have to fight.

            So one short-term scenario is a referendum after the Hard Brexit which looks increasingly inevitable, Scotland becoming independent and being admitted back into the single market whilst awaiting application to EEA or EU, in the ad hoc sort of N. Ireland would have been if the DUP hadn’t blocked May’s first deal and instituted the Backstop. Now that would entail an economic cost on the Scottish/English border, despite Johnson’s nonsense that you can police a border entirely using electronic documentation without ever having to stop lorries and vans to check if what’s inside corresponds; there would have to be some sort of hard border, even given the free trade deal that everyone, including Brexiteers want. But there would also be very obvious economic pluses for Scotland remaining in the world’s largest single market with probably the most effective negotiators of custom deals, with decades of experience; not to mention that there might be a lot of financial jobs move from London. It would be interesting to hear what economists think the overall balance would be.

            Leaving that issue aside, how smooth the transition would be would depend crucially on the negotiations, division of assets, level of debt, if any, and so on. GERS tells us nothing at all about that. Scotland will be much better served if we have the kind of negotiators England will undoubtedly have, fighting as best they can for Scotland’s interest. Of course they should be polite and calm (so not somebody like me), and I agree a very rancorous settlement will be bad for both countries but particularly the smaller one. But they should start from the position that they want the injustice of the oil recompensated and try to get as close to that as possible, the closer, the less bumpy the initial ride.

            As to some of the things you said in an earlier post about Trident etc:

            ‘I suspect the rUK would either declare Faslane and the area around it a Sovereign Base Area (just like Cyprus)’

            That seems to me to be fantasy land. It’s not 1919 in Ireland. I didn’t know Falmouth was originally considered- do you have a reference for that? I thought a key advantage of the Clyde compared to the English channel was that the subs could disappear into deep water and safety more quickly after leaving port. (It’s a lot further from the Home Counties too, we cynics up here can’t help noticing). Before 2014 the MOD-linked Royal United Services Institute think tank came up with very gloomy prognostications about Trident, it would take 10 years to recreate Coulport, Georgia wouldn’t work (would the Americans really allow an independent country to launch nuclear war from its shore, if not the permanent Security Seat is on a shoogly peg, the UK even more clearly just a US poodle). Then when the vote got close they suddenly changed their tune, you could up and set up in Davenport in half an afternoon. And of course I become suspicious of that. But I don’t know how high the cost would be and how much the English establishment would be prepared to pay, again my point is the harder and more effectively we negotiate (zero debt should be a bottom line) the smoother the short-term would be.

            Oil: I evidently haven’t convinced you that the transfer of oil resources was not an act of informed consent and so there is an injustice to be compensated so I’ll give up. As the editor noted, we did not reject independence in 79 it wasn’t on the table. But there was no head of steam for it: it was precisely to avoid that that Healey, Ross and co lied about oil. They knew that if they said, as was their moral duty, ‘Yes our economic advice is that Scotland would probably be one of the richest countries in the world if independent, but that’s only money, the bonds of our precious Union are more important’, they’d get the support of Brian Wilson, Lord Forsyth of Forsooth, Lord Robertson of Port Ellen and a couple of auld jakeys unsure whether they were in England or Scotland. So that’s why they lied.

            Oil price: I think it would be better if Scotland became independent when the oil price was relatively low, because fiscal discipline is more likely to be installed right from the start. (By ‘fiscal discipline’ I do not mean Austerity economics, a flat earth doctrine rejected, on empirical and theoretical grounds, by the overwhelming majority of macroeconomists not employed by the 0.1% of super rich.)

            You ask:
            ‘I assume you are not suggesting that all the North Sea revenues should have remained in Scotland for the sole benefit of the Scots? Or are you?’

            No, I think that if Scotland had become independent then we ought to have devoted a much higher proportion than Norway provided in foreign aid particularly to those countries who suffered so badly under the crimes of British imperialism in which, indeed, the Scots ruling class were very over-represented (slavery was a key temptation for them of the Incorporation into England/GB that the English commissioners demanded in 1707.) I don’t think Scotland had an obligation to give a penny to Ireland, (though perhaps I should rethink that given the Famine) despite our historic links and the fact that very many Scots are of Irish descent often having, like my wife, close Irish relatives. And likewise I don’t think we should have given a penny to the very rich country of England, despite our historic links and the fact that many Scots, like me, have close English relatives.

            Grievance whinging against the English. Contrary to your suspicions I don’t blame the English for anything regarding us except our bad weather. Had England not been in the way about 400 odd million years ago when we crashed into it, we’d probably be down around Tenerife just now, saving a fortune on fake tan, and tanning studios. The people I blame are Scottish Unionists. Many of their leaders have been people irked at being part of a small nation which doesn’t have much weight to throw around and who are keen to become part, and bind their nation to, a larger, more aggressive, bullying nation- England, France, Germany, Russia etc. Step forward James VI, the fiercely anti-French Corsican nationalist Napoleone Buonoparte, the little Austrian corporal we apparently aren’t supposed to mention in web discussions, and of course the Georgian (much more terrible) devotee of Ivan the Terrible Ioseb dze Jughashvili, people who strove to become more English than the English, French than the French and so on. (In order not to cause offence I will state I am not meaning to compare e.g. Gordon Brown with Joseph Stalin. History records that Stalin ran the Politburo with a light hand, very rarely using a great Clunking Fist.)

            And actually I don’t have any problems with Unionists who think that Scotland isn’t a nation but a region like Merseyside or Northumbria. (As just about every English politician does until they cross the border to their Scottish conferences when, just as the Queen transmutes from a bishop-loving Anglican to a bishop-hating Presbyterian they suddenly abandon the one nation ‘our nation’, ‘our country’ rhetoric universally used in England (e.g. by Miliband right through 2014) and pretend to believe in the numerically preposterous idea that the UK is a genuine multi-national state. I just wish they would come out, and ideally advocate for a name change to ‘England’ from ‘UK’ (contrary to what you say I think ‘UK’ is still rarely used: look at the anti-Irish insult which is ‘Team GB’ in the Olympics or Tennis. ‘Britain’, formerly used as a rhetorical variant of ‘England’, is now being used more but lots of English ultranationalists resent this). For there is nothing wrong with being English, nor with being ruled by England if you are in England. If you think Scotland actually is in England, in the political not geographical sense, as pretty much everyone in England in 1707 did (as did Scottish unionists like Hume), if you think as the UK constitutional lawyers, Thompson and Boyle was it?, stated in 2014 that England, despite the superficial change of name, no more went out of existence in 1707 than Canada did when Newfoundland joined in 1949 then you are as entitled to that English, British, Ukanian, whatever nationality as I am to mine.

            The Unionist ideologues I object to (the majority strain I believe) say, to the contrary, that Scotland is a nation just like Finland, Austria etc but with one difference: we are a crap nation of feckless incompetents dependent on our larger neighbour for a decent standard of living. For want of a better word, I call that ‘racism’ and it has no economic basis, but GERS as it has developed is used as a propaganda device to back it up.

            GERS: I don’t say it is completely useless, or that the statisticians are incompetent; it’s in part their data after all which is used to construct the counterfactual account of the size of the Scottish surplus (at least £150 billion) given something like fiscal autonomy in 79. It’s the statisticians themselves, not me, who point out that nearly all the 26 or so elements rely not simply on statistical estimates of UK data but on the additional assumption that assigning a population share gives the Scottish figure. They themselves note other ways are possible and give no argument for their simple assumption: thus guess. It would be interesting to know how much divergence there would be given other plausible assumptions in each individual case (of course some might increase the supposed deficit). If differing reasonable assumptions produced wildly divergent figures then GERS is completely useless. If not, I am happy to use the data to draw up various scenarios as to what fiscal autonomy would be like: I object to a sole, unrealistic one, developed to denigrate the Scots, being used.

            Everyone cautions about using GERs to draw conclusions about likely Scottish debt and deficit on independence. So, in part, do you. And then in the next breath you don’t. I go with what I think is the consensus view here: we should be extremely cautious about drawing any conclusions from GERS about independence, even short term. (Btw as Dr. Cuthbert has cogently argued, Barnett is effectively dead, given the effect of the block grant abatement.)

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