Friday, 12 August 2016

Response to Herald Letter from a GERS denier

The Herald's Readers' Opinon section today featured a letter headlined: "GERS tells us nothing about prospects of an independent Scotland"

I have sent the following response - I publish it here on the off-chance the Herald choose not to print it.


Dear Sirs

Today's Readers' Opinion from Alasdair Galloway under the headline "GERS tells us nothing about prospects of an independent Scotland" includes a number of incorrect assertions.

With reference to the GERS figures he stated "we don't know the true situation with precision".

The UK Statistics Authority designates the GERS figures as National Statistics and - unsurprisingly - statisticians know how to deal with statistical uncertainty. In fact the GERS report explicitly addresses the question of precision, showing [p.36, Table A12] that we can have 95% certainty that the figures are accurate to +/-£0.5 billion. So we know exactly how precise the figures are and should recognise that they're equally as likely to be generous by this amount as they are to be pessimistic.

He goes on to assert that costs associated with Crossrail and the London Olympics are attributed to Scotland on a population basis.

This is a widely held misconception and simply incorrect. The GERS report states [p.37] "In GERS, Scotland is allocated none of the expenditure associated with the London Olympics". Similarly the 2015 GERS report [p.77] explains clearly that railway costs are attributed to Scotland on an "in" basis, which means that only money spent in Scotland is allocated to Scotland. The only explicit exception to that policy is HS2, where Scotland is allocated just a 2.0% share based on our assessed share of the economic benefits - this is of course far less than our population share of 8.3%.

So Mr Galloway is wrong to state that being independent would mean we'd "no longer contribute to" transport spending in London - we aren't allocated any of those costs in GERS anyway.

He then cites economists Jim and Margaret Cuthbert as supporting his assertions. I presume he's referring to comments they made before the GERS methodology was overhauled under the SNP's watch. In this very paper in June 2008 the Cuthberts lauded the Scottish Government's work on GERS, stating "HM Treasury data [..] has been vetted thoroughly by statisticians in Scotland, and they have shown themselves willing to override the Treasury's figures"

Putting the methodological misunderstandings to one side, it's clearly ridiculous to assert that the GERS figures tell us nothing about the prospects of an independent Scotland. The figures explain our run-rate, describe how our independent public finances would look if we carried on raising taxes and receiving spending at these levels. Nobody's suggesting we would continue doing that. Indeed some of us are at pains to point out that we clearly couldn't carry on with this rate of tax and spend and want to hear a credible description of the sacrifices we'd need to make for our independent economy to work.

The Scottish Government's White Paper on independence rightly referred to GERS as the "authoritative publication on Scotland's finances" and cited them no less than 15 times while trying to make an economic case for independence. Unfortunately that case was built on recklessly optimistic assumptions about North Sea oil revenues.

Those who wish to champion the case for independence would do well to actually understand and address the issues raised by the GERS report rather than adopting the head-in-the-sand approach of GERS deniers.

Yours sincerely

Kevin Hague
Lynwood, Gifford

GERS 2016
GERS 2015
Herald Scotland June 2008 


Anonymous said...

AS usual devastating and to the point. Frankly I cannot believe the degree to which GERS denial still exists but then 5 minutes ago someone on my twitter timeline started to argue that the Bank of England should be nationalised. Lot of it about at the moment

Alastair McIntyre said...

Good work and I really hope they print your comment as we need to eradicate these stupid comments so we can focus on what needs to be addressed.

Anonymous said...

"For instance, a population share of UK defence spending is put against Scotland in GERS. So too is a population share of current "Projects of National Significance" – which disproportionately are in London, so Crossrail, previously the Olympics and so on."

Evidence that the inaccurate memes are taken 100% seriously by some Indy supporters. This is the damage which is caused by bull**** information. Had the author actually bothered to read GERS' methodology, he'd be far more clued up as to how it all works. To simply dismiss GERS because it no longer looks rosy for Scotland is frankly ignorant.

Anonymous said...

Excellent and informative - hope you response is printed.

David GREEN said...

It is, perhaps, stating the obvious that GERS deniers come in two forms: 1) those that deny that the present fiscal position of Scotland has any bearing on the future, and 2) those who accept that GERS figures might have some bearing, but choose to mitigate the unpalatable future by fiddling the GERS figures to flatter the independence outcome.

Sturgeon herself is too smart to be caught doubting the GERS figures. However, she doesn't want to be caught embracing their obvious consequences either. Her political tactic is to winnow away at the sores of any argument she wishes to co-opt to the independence cause. Currently, it's Brexit. She has the gall to complain that the Westminster government is still defining its negotiating position some 7 weeks after the referendum. (I was not a Brexiter; nor am I one now). Since lack of preparation is so reprehensible, I assume she will shortly be announcing detailed plans for the day after the SNP achieves a Yes in any IndyRef2. Presumably, it will contain detailed projections from the latest GERS figures, plans for an independent bank, a Scottish currency, etc.

Fat chance! What it will contain are airy promises about the EU relationship that she cannot possibly deliver on: the Thatcher opt-outs in full, not adopting the Euro, not being part of the Schengen zone, possibly not being part of NATO, open borders with a non-EU country, no reduced budget deficit, etc. In other words, Scotland as a complete free rider. The list is ridiculous and a fantasy. Sturgeon is not so much a GERS denier as a political reality denier. That is what makes her so dangerous.

Kenny said...

GERS clearly CAN'T tell us much about the finances of an independent Scotland. For example, even government departments with offices in Scotland are never headquartered in Scotland. An independent Scotland would need all of those departments in full though. If we take approximately 10% of the costs and personnel of just Defence, Home Office and Foreign Office, that's an immediate one billion pounds no longer spent predominantly in London but in Scotland instead, providing some 30,000 jobs. That's money GERS treats Scotland as already spending.

Somewhat similar is defence spending as a whole. Scotland is charged far more than is actually spent here, and what IS spent here is the highly capital-intensive Trident programme. As was mooted in the 2014 campaign, we could spend less but increase spending IN Scotland AND spend it on more personnel than mass murder machines.

After that, there are smaller but potentially very impactful changes in other areas too. Right now, the BBC spends around £100m/year on English football, while the entire BBC Scotland sport budget is just £4m. That means that BBC funding of Scottish sport is at least £4m less each year than our population share. Could Scottish teams maybe do a bit better in Europe if that imbalance was corrected? What would the knock-on effect be to Scottish tourism, attendances, club profits and so on? That's without even looking into the impact on Scotttish media from retaining all of a putative SBC licence fee in Scotland. How many more programmes would be made here? How many more journalists would be employed at Pacific Quay and in revived Scottish newspapers?

By my reckoning, at no additional cost to what Scotland spends now, an extra £3bn (at least) or so would be added to the Scottish economy, and some 50,000 jobs would be moved here just from the creation of an independent state. The knock-on effects from lower unemployment, the reduction in people moving south because it's the only way to advance their careers (horribly common in the Civil Service), and simply in taxes raised in Scotland being spent in Scotland are almost incalculable. For all you may want to attack "GERS deniers," I think it's equally nonsensical to act as though Scotland's putative "worse than Greece" finances are a real thing. Have you actually been to Greece? Do you really believe that Scotland is in a weaker economic position today? Until we ALL start talking about what a real independent Scotland might look like then none of us can claim to be truly objective or honest.

Kevin Hague said...


I have a problem with much of your analysis - not least that you seem to be contradicting the Scottish Government's own assessment of those impacts per the White Paper.

The Scot Gov / White Paper did a details analysis on defence and assumed a £0.5bn net saving - we can't keep counting that figure in different ways (as you do above). It's a debatable saving, but for the purposes of debate I include it as part of the claimed independence dividend (to be offset against the loss of now c.£9bn fiscal transer).

So after we stop double-, triple- or quadruple- counting defence savings ... you're in to frankly trivial (from a country economy perspective) grievances that could be easily offset by similar counter-arguments (loss of benefits of scale from shared resources, cost of duplicating existing systems etc. etc.).

"by your reckoning" an extra £3bn and 50k jobs just by being independent?

1. Call the SNP quick and let them know - they will be delighted to learn what they've missed

2. What impact on jobs are you allowing for being separated from our largest export market, what currency solution and costs are you assuming, etc. etc.

Again: the GERS numbers don't provide the answer, they allow us to ask the right questions

You have double-counted defence savings a number of times, cited economically trivial grievances, asserted a headline figure with no meaningful back-up, counted only optimistic upsides and not even considered the obvious downsides ... and you still haven't come close to closing the £9bn gap.

Do you see the problem yet?

User512 said...

Kenny said...

For example, even government departments with offices in Scotland are never headquartered in Scotland. An independent Scotland would need all of those departments in full though. If we take approximately 10% of the costs and personnel of just Defence, Home Office and Foreign Office, that's an immediate one billion pounds no longer spent predominantly in London but in Scotland instead, providing some 30,000 jobs. That's money GERS treats Scotland as already spending.

The flaw in that argument is that Scotland has 10% of UK civil service jobs. Because, as you say, Scotland is allocated a population (8.3%) share of the costs of the civil service, but has 10% of the jobs, this is another area where independence would lead to cuts in Scotland, not gains.

It would also make the transition to independence difficult, because Scotland would have to set up government departments whilst cutting civil service jobs. The civil service is highly unionised...

Anonymous said...

@Kenny 14.52
We keep hearing from nationalists that Scotland does not receive its 'fair' allocation of UK defence spending. But nor do most parts of the rest of the UK either. Some spending is allocated to personnel, some to equipment and consumables and some to basing and command arrangements. Now you could argue that Scotland should have more personnel based there (it's current correct share would be around 12,600 and the SNP suggested the SDF would have around 15,000 after independence, a 20% increase). But are you aware that the idea was that expensive services like flying training, defence procurement and officer training would have been out-sourced (at significant cost) to the RUK?

Scotland's defence industries are fairly minimal and what there is provides specialist equipment largely unsuited to the needs of a small Scottish Defence Force. Therefore every purchase of equipment, ammunition, aviation fuel, etc would have gone to such well known Scottish companies as Airbus, BAE Systems, Lockheed Martin, Boeing, General Dynamics, Leonardo, Saab and Heckler & Koch. There is no way in which the proposed £2.5 bn defence budget could all or even largely have been spent within Scotland. Indeed, it is quite possible that much of it would have been expended in the RUK, meaning that even less is spent domestically than happens currently.

You would have seen those Scottish companies involved in defence production relocating to the RUK or elsewhere to be near their main markets. The Scottish Defence Forces would be a small, poor and uninteresting customer for international companies. The Clydeside naval shipbuilding would certainly have closed (this an area I have worked in and nobody with first hand knowledge has any doubt about that). The planned defence budget would not have allowed the building of anything much larger than some small offshore patrol vessels and, with no warship design capability in Scotland, there would have ben no export market.

I am struck about this naivety and parochialism about defence spending. Are you saying, as a comparator, that a Scottish airline should only spend its budget in Scotland? No foreign built aircraft, no overseas employees, no foreign sub-contractors and, presumably, no overseas flights? Because that is the only way to guarantee that a country ensures that the bulk of spending occurs at home. Autarky is rarely a sensible economic policy and yet that is the logic of this childish petulance over Scotland's 'unfair' share of national defence expenditure. If you want to see a country with a really unfair share, but which does not constantly whine and whinge about it, try looking at Wales.

Kenny said...

On Defence spending, I'll grant you that potential savings might not be huge and that yes, not all of Scotland's defence expenditure would be spent in Scotland. When we're talking about a "£9 billion black hole" though, even half a billion of savings and half a billion more spent IN Scotland would be more than 10% of the gap filled. We could also be assured of building ships on the Clyde; I'm sure I'm not the only one who suspects that at least part of the reason why the Type 26es haven't yet started construction is because HMG doesn't want to have such an asset under some kind of threat from any further independence referendum in the near future. It's also worth highlighting again that Trident (which covers a big chunk of current MOD spending IN Scotland) is MASSIVELY capital intensive. Unless you're Jackie Baillie, it supports relatively few jobs. By shifting the direction of military spending in Scotland, more people could be employed while spending quite a bit less money. That could free money up to be spent on other aspects of our defence. That's a policy question though, and I want to focus as much as I can on just the money.

On the other issues though, I stand by my claims. In 2011 (the most recent clear statement I could find -, the UK Government employed some 31,690 civil servants in Scotland. Around 9000 of those are employed by the DWP, mostly in Jobcentres. Whatever happens, we'll still need Jobcentres or similar in an independent Scotland. Almost 10,000 WERE employed by HMRC in the various tax offices around Scotland. However, we now know that around 3000 of those are going (or already gone?) despite specific promises during the referendum campaign. I assume Scotland will still need tax collectors, so we'll presumably hold on to those jobs too. I'm struggling to find clear and accurate figures on what all the others are, though some are in the MOD (presumably civilian staff at Faslane and the various other bases around Scotland) which would also still be needed and a fair chunk come from DFID in East Kilbride - another department I am certain would be wanted by an independent Scotland. None of that contradicts my core point - that departments like the Foreign Office and Home Office (and Defence, which still has the vast majority of its civilian staff based in London) would be needed in an independent Scotland. If *just* those departments are counted, that reduces the "black hole" by a further billion.

Kenny said...

You criticise me for double-counting, but of course, in this context double-counting is entirely appropriate. If the notional Scottish deficit is £15bn or 9% of GDP, then an additional £1bn and 30,000 jobs (again, calculating ONLY those three departments) adds £1bn to Scottish GDP, thus slightly reducing the size of the deficit relative to GDP. However, up to 50% of that very quickly comes back to the Scottish exchequer in tax receipts AND the extra jobs reduce social security spending by around 30,000 x £10,000pa = £300m. So that change - just one fraction of the "independence dividend" - adds up to an almost £2bn reduction in the cash deficit and a small impact on the overall size of the economy, thus reducing the deficit further in percentage terms. If the total of civil service spending moving to Scotland added up to a bit more - let's say £2bn or so, as I initially suggested - then the same sort of calculation reduces the "black hole" by about £4bn. Again, GDP would rise too, so the percentage size of the deficit falls a little as well. There are also fiscal multipliers to think about as well as reduced health spending as a consequence of having so much more employment available, but I'm not at all equipped to do those sums so let's just say that the potential is there for even greater savings and even greater growth in GDP.

Anonymous said...

I would have thought that an independent Scotland that was "going to do things differently" would start by avoiding pro rata duplication of Whitehall's civil service expenditure, but hey...

The main problem with Kenny's analysis is of course that these are all public sector jobs, so they sit on the expenditure side of the economy, not the revenue generating side. They may add to the overall GDP (and so flex the ratio), but in the context of Scotland's public finances (which is what GERS deals with), these 30,000 jobs and their considerable on-costs represent additional expenditure which the Scottish taxpayer will have to fund. It would be very different if they were private sector - but they're not.

And the question could also be raised of just where the particular skills required for these civil service jobs will be so readily found within the Scottish market. Suggesting ("...the extra jobs reduce social security spending by around 30,000 x £10,000pa = £300m.") that they can simply be sourced from the ranks of the currently unemployed or low-waged seems wishful thinking at best.