A: Independence Groundhog Day.
And we appear to be living it.
I can't be alone in being wearied by Scottish political discussions that rapidly segue into reruns of well-worn independence referendum arguments. I'm as guilty as anyone of this. I started out keen to get a handle on the true numbers behind the debate but quickly became so irritated by the misrepresentation of economic facts that I turned into someone who leaps on any statements that demonstrate a failure to understand the actual data. I'm not proud of that; I doubt it achieves anything much.
The frustrating thing is that there is an interesting debate to be had about the pros and cons of further devolution, of fiscal autonomy and even - whisper it - of independence. But any attempt at sensible debate quickly flounders on widely held misconceptions about the realities of Scotland's economy. This is arguably the independence referendum's most cancerous legacy - too many passionately held opinions have been built on the dodgy foundations of political campaign rhetoric.
So if we're to have a sensible debate about further devolution and possible fiscal autonomy, let's see if we can start with some agreed figures.
I'm continually staggered by the ignorance exhibited on social media about the nature of GERS figures so let me quote the Scottish Government's own summary of the GERS methodology
- The headline estimates of Scottish public sector expenditure and revenue in GERS embrace two key principles:
- Public sector revenue is estimated for taxes where a financial burden is imposed on residents and enterprises in Scotland
- Public sector expenditure is estimated on the basis of spending incurred for the benefit of residents and enterprises in Scotland
[It's worth mentioning that Treasury estimates show figures that look slightly worse for Scotland - mainly due to a £0.5bn lower assumption about how much corporation tax would fall to an independent Scotland.- but for simplicity we'll stick with widely accepted GERS figures]
Now let's look at two simple graphs showing the per capita deficit figures (the amount by whcih public expenditure exceeds tax revenues generated) taken directly from the GERS figures for that last 5 years.
This first graph includes oil revenues and assumes we Scotland get to keep "our" oil revenues. Scotland's deficit is shown in blue, the UK's in grey (the last columns show the 5 year average).
As I never tire of pointing, out this shows that the current Union arrangement has been remarkably balanced - over the last five years an hypothecated independent Scotland would have been running a per capita deficit of only £49 per person per annum lower than the whole UK. To put that another way: we receive almost exactly as much back in additional public spending as we contribute in additional tax if you attribute Scotland its geographic share of oil.
I've discussed in some detail the Scottish Government's dodgy approach to choosing oil and gas revenue forecasts to include the White Paper (> When will we ever learn) but we don't need to linger on that - what's clear is that the volatility of oil & gas revenues is being starkly illustrated by current market conditions. It seems that some are comforted by the campaign rhetoric which assured us that "oil is just a bonus". OK, let's check that.
The following graph simply removes oil & gas revenues from the tax revenues and recalculates the per capita deficits. Scotland is now shown in green, UK in light green.
So this graph shows that without this "bonus" Scotland would be running a deficit about £1,300 worse than the UK as a whole. Some bonus.
[This figure shouldn't come as a surprise: that Scotland receives about £1,200 more public spending per capita than the UK as a whole is a well known number; without oil and gas our tax revenue generation is similar to the rest of the UK.]
So when Alex Salmond (who Nicola Sturgeon must be delighted to see still defining SNP party policy) calls for full fiscal autonomy we have to question what that would mean for the people of Scotland.
Let's be clear: there are good arguments for fiscal autonomy.
- If you're directly responsible for raising your own tax revenues you can't blame others for difficult decisions - you have to take responsibility
- If you've had to make those difficult (and unpopular) decisions you're likely to take a more responsible attitude to spending
- If you believe in social justice - in shifting the balance of who bears the bigger burden for tax raising and who benefits most from public spending - fiscal autonomy facilitates that
Those benefits have to be balanced against what is lost - to gain fiscal autonomy you have to lose (at least some of) the benefits of pooling and sharing (the Barnett formula, the block grant, all that jazz). If we're sharing a currency we would have to work within certain financial constraints - running a consistently higher deficit than the rest of the UK would surely not be a sustainable position. So without the "bonus" of oil & gas, the first thing we'd have to achieve with that fiscal autonomy would be to raise an additional £1,300 tax every year for every man woman and child in Scotland and/or to reduce public spending by a similar amount. I'm not convinced that the majority of Scots would have the appetite for that if it's honestly presented to them.
So in the spirit of moving on, here''s something on which we can maybe all agree: Scotland needs to develop its economy to the point where we are less dependent on the benefits of pooling & sharing. We need our stand-alone economics to consistently match or better those of the rest of the UK - and that means we either need to get lucky again with oil & gas (it could happen) or we need to strengthen and broaden the Scottish economy.
Some will argue we need fiscal autonomy to get there, some will argue it's impossible without full independence. I'm yet to be convinced.
With the powers we have (and those that are coming) there are plenty of steps we can and should be taking now to encourage and develop more good businesses in Scotland. It strikes me that asking how the Scottish Government could support businesses (and therefore generate higher, better rewarded employment as well as improved economic growth) would be a somewhat more fruitful use of energy than rerunning the tired independence referendum arguments.
Let's wave goodbye to Punxsutawney Phil.