Tuesday, 17 February 2015

Business for Scotland & Deutsche Bank Report

As one of Twitter's self-appointed guardians of good data, I occasionally have my attention drawn to articles that are being cited as proving some point or other to do with the on-going Scottish devolution debate.  The same culprits appear regularly and no one will be surprised to hear that "Business for Scotland" have been up to their old tricks again.

I've covered before how BfS are a thinly disguised SNP construct notably lacking in members who trade with the rest of the UK (our biggest trading partner).  If you doubt that, read "Business for Scotland: Who Are They?" and "Business for Scotland & the SNP".  Their economic analysis is notoriously ropey and I have taken them to task in various public forums so can attest that they tend to crumble very quickly when robustly challenged on their numbers.  Take for example "Response to Business & Economy: The Facts" or "The £8bn Lie" or (by a guest poster in my blog) "Bank Bail-out Myths".  I could quote more examples but suffice to say these guys have form.  

Their spinner in chief is Gordon MacIntyre-Kemp and on 14/02/2015 he was at it again with this pithily titled post: "Deutsche Bank the incomprehensible contradiction and the indefensible union".

The first hint that something might be awry is the fact that he doesn't link to the source document from which he skews his conclusions.  Is he afraid his readers might actually read the report themselves and make up their own minds or does he assume nobody who reads his postings would have the basic level of intellectual curiosity to want to read it? Either way here's the actual report which I urge you to read - it's accessibly written and takes a very rational and balanced approach > "Better off on their own?".

So let's look at Gordon's interpretation and check it against the source material.

Gordon says: "Scotland’s GDP per capita is 115% of the UK average says the report, once they had added in the oil revenues that Westminster governments like to exclude when talking Scotland’s economy down".  Is it possible Gordon didn't notice that the entire indyref debate was carried out using the figures with Scotland's geographic share of oil revenue allocated? 

True to form Gordon simply omits any mention of the cost side of our national accounts.  Maybe he didn't notice that the report also says: "All in all, it must be noted that in the area of public services Scotland reports substantially higher spending than the rest of the United Kingdom [...] total per capita spending in Scotland is also about 11% higher than at the national level. The relatively higher expenditures in Scotland are not a short-term phenomenon; the difference or gap of about 10% has existed since the 1980s at least". We all know this - but Gordon seems to think is he doesn't mention this inconvenient truth we might forget it.

Gordon says: "The report also says the risks of going it alone have decreased for smaller countries, as Eurozone membership has helped to “reduce some of the fundamental disadvantages that would otherwise be faced by countries such as Luxembourg, Malta, Cyprus and the Baltic states".  Do you notice how Scotland isn't one of the examples cited - do you think the fact that we aren't in the Eurozone may be a factor here?  Maybe Gordon has forgotten that participation in the Eurozone was explicitly ruled out by the Yes campaign during the referendum - I recall the carefully reasoned position adopted was "It's our pound and we're keeping it". 

The Report also says: "a seceding region would probably have to officially apply for EU membership".  Maybe Gordon missed that bit, he doesn't mention it.

Gordon Says: "This would mean that according to Deutsche Bank, in five months when Scotland’s largest natural economic asset halved in price, our economy went from being completely unable to afford independence to being one of the regions in Europe that can make an economic case for independence."  I've re-read this a couple of times and I have no idea what the "this" is that Gordon is referring to  - but either way it's clear he's suggesting that Deutsche Bank are now saying Scotland can make an economic case for Independence.  Guess what?  No they're not.

The Report actually says: "From a fiscal standpoint Scotland's public finances thus depend heavily on oil and gas production. Proponents of independence should keep that in mind, particularly in light of the recent drop of the oil price. In fiscal 2012/13 the offshore receipts – unlike in most of the preceding years – were unable to plug the gap between expenditures and revenues excluding offshore".

So the report actually highlights that volatile oil & gas revenues (the ones that according to Gordon and his cronies are simply "a bonus") are essential to plugging the fiscal gap - but they weren't sufficient to plug the gap in 12-13.  And - as the report specifically mentions - that's before the recent drop in oil price (we know that since fiscal 12-13 and current fiscal 14 -15 Scotland will have lost a further £3bn+ of North Sea tax revenues). 

Far from arguing that Scotland can make an economic case for independence the Report actually concludes"Objectively speaking, there are not many channels via which independence can actually generate financial advantages. One of the few, and perhaps the most obvious, is the disappearance of financial transfers to other parts of the country. Thus, only in a prosperous region (relative to the rest of the country) is it possible to maintain the fiction that going it alone would be the better option. In other words: one has to be able to afford it"

What Gordon is hoping the reader won't notice is that the Scotland is not an example where we are burdened by financial transfers to other parts of the country.  A cursory glance at GERS would tell you that.  The report itself highlights that in 2012-13 the oil revenues were not enough to "plug the gap" and that those revenues have declined dramatically since then.

In addition to this headline conclusion the report also reiterates other issues which were raised during the indyref but Gordon appears to continue to hope to simply ignore:
  • On debt and borrowing the Report states"Scotland would also have to shoulder a share of national debt. [...] this would result in substantial fiscal burdens" and "If Scotland had attained independence [...]  it would have to pay a premium on British bonds"
  • On trade links the Report states: "The rest of Spain is by far the largest trading partner for the Basque Country and Catalonia; the same applies to the United Kingdom in the case of Scotland [...] national borders often continue to play a significant role [...] it seems exceedingly unlikely that the intensive trade relations would survive a (possibly discordant) separation without sustaining any damage whatsoever [...] borders (whether political, linguistic, cultural …) still play  an important part in a united Europe"
  • On the general economic cases for independence the Report states:  "While there are few reasons, from an objective point of view, why Scotland or Catalonia should gain a substantial degree of prosperity via independence, nationalist parties cite this very issue as being one of the most important arguments.  Secession from an existing state structure harbours huge economic risks, though.

I think it's fair to say Deutsche Bank are not as convinced of the economic case for independence as Gordon suggests.  Not content with asserting that Deutsche bank are now saying Scotland can make an economic case for independence (when they have said nothing of the kind) Gordon concludes his post with this jarring non-sequitur: "However, the Scottish people have had their eyes opened, Westminster started to lose interest in the people of Scotland on the 19th of September and as a result the people of Scotland have lost faith in Westminster economics, big business and the mainstream media, and with Labour seemly locked in a Scottish death spiral, who can credibly defend the indefensible union when we ask the question again?"

Contrast this with the section of the Deutsche bank report that addresses the Scottish situation specifically - with reference to the post referendum changes the Report concludes: "If the additionally planned changes are adopted, the concessions made to Scotland should – at least from a financial perspective – actually suffice to address key demands being made by independence advocates."

So the Report actually says
  • Independence appears only to make economic sense if as a result you avoid large financial transfers to other parts of the country - and notes that's not the case with Scotland
  • The specific powers recommended by the Smith Commission should be sufficient to meet the demands of the independence brigade
Now why couldn't Gordon just say that?

4 comments:

Neil Lovatt said...

Great post Kevin. Business for Scotland as usual have absolutely no shame and are increasingly becoming a parody of Wings!

Anonymous said...

Great article.

Funny how the nats were stating how well regarded DB are internationally after the article came out. But were saying the exact oppersite only a few months ago when they said that Scotland was heading for a great depression if they had voted yes.

Paul Hudson said...

More reality and accuracy in the face of fantasy, misrepresentation and deceit.

Excellent as usual Kev.

Anonymous said...

Excellent analysis. Always cheers me up. Keep up the great work, you're helping me stay sane :-)