GERS - Good News for Scotland

The Scottish Expenditure and Revenue Scotland (GERS) figures for 2015-16 were published this week. Despite some of the headlines that followed, they were great news for Scotland.

Scotland’s onshore economy (as measured by the taxes we raise before including North Sea Oil income) grew in real terms by 3.6% in 2015-16 and is shown to have steadily grown by about 2.2% a year for the last 6 years. Our total public spending also actually grew by 1.0% in real terms last year, despite the much moaned about “Westminster austerity”. These aren’t the figures of an economy that’s suffering.

The reason for the doom & gloom headlines is of course the £14.8bn (9.5% of GDP) “Scottish deficit” caused by the decline in oil revenues following the collapse of the world oil price.

Four years ago Scotland’s oil revenues were £9,663 million. The independence White Paper assumed oil revenues in the range of £6,800 to £7,900 million for this year. The actual figure last year was just £60 million and - because of decommissioning costs and tax credits - it’s now forecast to be negative.

This loss of oil income means that, despite the strong growth of our onshore economy, our total revenues grew by just 0.3% last year and are actually down by a whopping 10.6% in real terms since 2011-12 (the base year used for the Independence White Paper). In contrast, since 2011-12 Scottish public spending has declined by just 1.1% in real terms.

This means that, while we now raise £400 less in taxes per person, Scots continue to receive £1,300 higher spending than the rest of the UK (as we have done for over a decade). That’s one of the benefits of UK-wide economic sharing - we’ve been able to maintain our higher public spending despite our dramatically reduced revenues.

If you add our higher spending and lower tax generation, you can see we are now responsible for £1,700 per person more deficit than the average for the rest of the UK. Gross that figure up by our population and you get just over £9 billon, the infamous “black hole”. Even the SNP can't deny that this means we now receive an effective £9bn fiscal transfer from the rest of the UK, that pooling and sharing works massively in our favour because we share the UK’s deficit rather than being burdened with all of Scotland’s.

So these figures are only bad news if you’re determined that independence has to be the answer, because then we’d have to fill that £9 billon gap some other way.

To close the gap simply by spending less, we’d need to reduce all public spending by 13%. Nobody wants that.

So if we’re to eliminate the black-hole that currently scuppers the case for independence, we have to find a way of growing our onshore economy faster than the rest of the UK. Unless we achieve that we’ll continue to be net beneficiaries of fiscal transfers. You don’t have to be a die-hard nationalist to want that to change.

Obviously the main way to grow public revenue is by increasing the tax base though creating jobs and paying people more (who then go out and spend more). That means creating an environment within which businesses can thrive.

The SNP appear to be pinning their hopes on achieving this by managing to keep Scotland in the EU. Unfortunately remaining in the EU now means leaving the UK, which means waving goodbye to that £9bn fiscal transfer. There’s also a logical problem when the reason being given is a fear that EU/UK trade will be hindered as a result of Brexit. This seems to ignore the simple fact that we export four times more to the rest of the UK than we do to the EU. If a UK/EU border hinders trade, being on the EU side of that would hurt us four times more than being on the UK side.

There is another option: the SNP could stop talking up the prospects of yet another referendum and focus instead on building our economy within the UK.

Investors don't like uncertainty so they’re put off by the threat of yet another referendum and the resultant uncertainty around our future currency and UK trade borders. But I'd argue the cost of continual threats of indyref2 is more than just the effect on big business and investor confidence - it runs much deeper than that.

Scotland is a country where our political leaders invest their energies into trying to break our Union rather than working to build our economy.  Our young people are bombarded with negative messages, provided with excuses not to succeed, hampered by reasons they can't instead of encouraged with reasons they can. It's Westminster's fault, it’s the UK's fault - we're cheated, hard done by, put upon - we can't succeed unless we break from the UK, or so the SNP argument goes.

I can't think of a worse environment within which to try and encourage ambition, engender confidence, fuel entrepreneurial spirit and fill people with a sense of the possible - and yet that's surely what we need to do if we are to see our onshore economy out-grow the rest of the UK.

A parting thought. Consider how much of our time, energy and money has been expended fighting against the UK and pursuing the dream of independence at any cost.

Now imagine you could take just a fraction of that resource and invest it against positive, job creating, wealth building, economy boosting projects.

Just think what we could achieve.

*****

This article appeared in the Daily Record on 26/08/2016

For detailed analysis of the GERS figures that supports this piece, please see > GERS: A Story Told Through Graphs