Thursday, 12 March 2015

Simple GERS summary

Yesterday I was asked for 400 (simple) words on GERS for today's Daily Record. I wrote this:


If Scotland had voted Yes in September we’d currently be preparing to stand alone next year.  We voted No, but the SNP are now campaigning for Scotland to be fully fiscally autonomous (which means Holyrood controlling all Scottish public expenditure and having to fund that exclusively with Scottish taxes or debt). Within this context yesterday’s Government Expenditure & Revenue Scotland (GERS) report makes for very interesting reading.

We should remember these are last year’s numbers; they can’t tell us what a Yes vote would have meant for our economy as we grappled currency questions and job losses caused by businesses moving South to avoid becoming exporters to their main market; they can’t tell us how a radically different set of economic policies might (over time) change the shape of Scotland’s economy. What these figures can do is give us a better idea of where we’d be starting from.

The good news is that Scotland (if we got to keep our oil) generated £400 more tax income per head than the rest of the UK.  The bad news is that the oil revenue within that was £600 per person lower than the worst case scenario the Scottish Government used in the Independence White Paper (and these numbers pre-date the recent dramatic oil price collapse).

Tax revenue is only half the story of course and at least - due to oil - we’re still generating more per head than the rest of the UK.  The other half of the story is public expenditure where (as has consistently been the case) £1,200 per person more was spent in Scotland than the rest of the UK (because we spend more on health, social protection, transport etc.).

The net result is that Scotland’s deficit (the difference between taxes raised and money spent) was over £800 per person (or about £4.5bn) worse than the rest of the UK.

This money has to come from somewhere.  Right now it comes from the Barnett Formula (the additional money we get from Westminster to fund our higher spending) but if we were independent or (as the SNP are suggesting) fiscally autonomous we’d need to find it by raising taxes, cutting expenditure and/or taking on even more debt.

If you think that’s not a problem consider this:  £4.5bn is the equivalent to a 40% increase on all our income taxes or a 40% decrease to the Scottish health budget.


With the freedom of this blog I would add the following:

Of course one of the ways to increase our tax income is to grow the economy. This is as true for the UK as it is for Scotland - every politician would rather grow the economy than drive unpopular cost cuts and tax rate rises.

Those campaigning for full fiscal autonomy argue it's the magic key to unlocking growth for Scotland. The question remains unanswered as to quite how or why.  What is clear is how much has to be achieved  - based on current oil revenues Scotland would need 10% real economic growth (above and beyond that which we are achieving in the UK) just to get back to being no worse off than we are now.  If you're not used to looking at macro-economic figures let me tell you that's quite an ask.

Maybe that can be achieved - its not unfeasible - but remember that during that period (5 years? 10 years?) we'd require either additional austerity measures (although probably not because it's argued these restrict growth) and/or more debt than we are currently creating within the UK.  So the argument appears to be: with full fiscal autonomy we could run a higher deficit and increase borrowing at a faster rate to stimulate growth.  Remember that because we already run a deficit our (Scotland's and UK's) debt is still growing at the moment; we didn't hear many politicians arguing during the indyref that the UK's problem was we weren't increasing our debt fast enough.

There are further implications of this strategy.   There is certainly no room for tax cuts or public spending increases - if these are made the size of the debt mountain increases faster.  There may be opportunity (which I would personally welcome) to redistribute who carries the larger tax burden or who benefits most from public spending - but that's a zero-sum game: for every winner there is an equal loser.  The SNP do not have a track record of implementing redistributive policies; we wait to hear who they propose the losers will be if they are serious about tackling social injustice.

A final note: the value of your economy can go down as well as up.  There is certainly no guarantee that full fiscal autonomy will unleash economic growth for Scotland - that argument seems to hinge on faith in the competence of politicians in Holyrood over those in Westminster - all we know for sure is that full fiscal autonomy would give us a starting handicap versus the rest of the UK.


BertWalker said...

There's no real debate that these are terrible figures for the notion of full fiscal autonomy. The only arguments I've heard to the contrary are essentially qualifiers:

1. It's only one year (true, but last year's report had us in a similar position and next year's should be much worse, plus the five year average doesn't give much backing for FFA either).

2. We'll just grow our way out of it with more productivity (this is political rhetoric rather than an argument - as you say productivity and growth can go up or down, there's no magic formula for it and it's never a get out of jail free card for unaffordable policies).

Those are two arguments reasonable people might try and use to debate the point. The second one in particular is pretty spurious, but as a "who knows what the future holds" qualifying statement it's about the best anyone can do.

On top of those of course you'll hear emotive nonsense:

3. It's not our debt, if you took the debt away everything would be fine (nonsense).

4. Westminster stole x amount of billions from us over the years - where's that money now? (weak appeal to nationalist grievance)

5. The figures are all wrong! It's all made up! (nonsense)

All things considered, what you really have to ask yourself is can you honestly look at those figures and come to a conclusion that out of the two options we have (maintaining our current relatively stable level of funding or pursuing full fiscal autonomy) we'd be better off with FFA? If you go back to that one or the other choice I really struggle to see any reason to believe FFA is the better option.

The only people making that argument seem to be people who already think greater autonomy is justified whatever it costs and I'd wager most people in this country (SNP supporters or not) wouldn't go along with that if you explained the implications of the choice to them openly and honestly.

Ron Sturrock said...

As trailed, the GERS 14 report proved to be a financial reality check for the SNP government.

True to form the SNP accentuate the fact that Scotland sent £400 more to the exchequer than most of the UK.

The duplicity of the SNP was plain for all to see in that they deliberately down played or failed to mention the other side of the credit/debit account.
Scotland receives £1,200 from Westminster.
So we have £400 debit, but a £1,200 credit, result £800 up on the deal.
Mr. Micawber would indeed be displaying a cheerful visage.

Disappointing as GERS 14 is, it must be taken with the realisation that the financial year 2014/15 will, in all probability, show a deterioration of offshore revenues resulting from the fall in the oil price, to which early indications show as being in the region of 50%. Equating to £2bn or so geographic oil revenue.

I will readily admit that the fall in oil price to around $50/bbl was not foreseen; there were many forecasts as to the oil price and subsequent revenues that did not show this. Notwithstanding this, there was however, a persistent commentariat euphorically promoting oil revenues based on topline estimates.
The silence of the bursting commentariat hubris is deafening.

But we are where we are, and measures to assist the offshore industry by altering the tax structure, are as I understand, have been underway for some time. I would far rather have the government come to a considered sustainable tax regime than have acted in haste.

There does however, the remain the prospect that medium term offshore revenues may continue to be lower than expected, barring of course any sudden upward tick of the oil price.

The tax regime is only one element of field viability; you can entertain yourselves in considering other fiscal determinants.

These are of course my views, but I will leave you with a spooky statistic, of the 450,000 (or so) oil related workers it is estimated that, 45% are based in Scotland and 55% based outside Scotland

Anonymous said...

£400 per head extra raised in Scotland?

of which

£1.1bn Scottish water revenue (£206 per head)

note 4

Ron Sturrock said...

Ah, FFA, the nearest link to nirvana this side of independence.

Ah, FFA, FFS what does it mean?

FFA is the ability to operate the functions of government based on revenues with the option to borrow.
SG has said it will contribute towards the MOD and FCO, my guess ata a cost of £3.5bn.
It is worth rememebering the other liabilities and costs towards operating UK wide functions such as, but not limited to:
The BoE continued regulatory oversight
The Home Office for Immigration/border control
The MCA for continued marine safety etc.
Security services. etc, etc.

You get the gist, someone should compile a comprehensive list with estimated costs.

I reckon, a pure guestimate, this will cost iro £8bn.

If SG were to run a balanced budget based on £54bn of revenues, which they can't, borrowing of significant levels will definitely be required.

Of course the fly in this particular ointment is the loss of Barnett, buy you wouldn't think so if you listened to the DFM.

Our share of UK debt is currently approx £120/5bn based on population.
If FFA was agreed, what would be the postion regarding borrowing.
Would any borrowing accrue to our UK liability using the BoE (credit card 1) as LOLR or would it be separate, where us Scots (credit card 2) are in effect the LOLR?

To equalise the deficit with UK it is said would, as an example, require an 8p in the £ rise in income tax (to 28p). Tough luck on the 2.6 million who do pay income tax because it means for someone on the Median salary of circa £27K a rise in tax (before any allowance etc) from £65 to £92 a week.

Apologies if I sound cynical, maybe that is becasue I am.

Ron Sturrock said...

Prof. Ashcroft's latest;

SG continues in the same economic fantatist mode.