Saturday, 5 November 2016

The £9bn Fiscal Transfer vs The £15bn GERS Deficit

I've noticed there still seems to be a lot of confusion about the difference between the GERS deficit, the deficit gap between Scotland and the rest of the UK and the effective fiscal transfer that the rest of the UK currently makes to Scotland.

So here's a very simple exhibit which explains the difference between the £15bn1 GERS deficit for 2015-16 and the £9bn2 effective fiscal transfer Scotland receives from the rest of the UK. The effective fiscal transfer is as a result of the fact that we pool and share our deficit (hence debt, hence debt interest in GERS) on a UK-wide per capita basis.

1. £14.8bn
2. £8.7bn


Eric said...

Can you comment on this article?

Can you add this into our discussion
its rather large just to post as a comment - especially the discussion around poi impact

Kevin Hague said...

That is indeed an interesting article - I'll try and get to it properly later this week but here's the link for others' ease of use: Margaret Cuthbert: What the GERS and Brexit reports tell us about Scotland's economy

Anonymous said...

The Cuthberts are lauded in separatist circles because they give give cover for two techniques used to wish away GERS: (1) that they reflect the current conditions, and that OBVIOUSLY things would be so different after independence that the costs wouldn't be so high because Scotland would be run so well; and (2) the data used to prepare GERS is bad.

Now, ask yourself: have you seen anything about the SNP that makes you think that Scotland would be exceptionally well-run after independence? Remember, this is the party to put a buy-to-let portfolio builder forward as an expert on the future of business.

The article says social spending could be less in the future when Scotland is so well run. However, when Nicola Sturgeon herself was asked why government costs more in Scotland (Sunday Politics back in March) she indicated that her experience as the Health Minister taught her that it costs a lot more to run the NHS in Scotland because 20% of Scots live in rural/remote locations.

So does Margaret Cuthbert think that after independence everyone will be relocated to the Central Belt?

As for the wheeze about the Scottish Government not having access to the right kind of data: how many years have the SNP been in charge now? Have you ever, ever seen them be shy about announcing that they think that they aren't being well-treated by Westminster?? If there is better data available and a better methodology for GERS, why aren't the SNP demanding it?

Anonymous said...

Fascinating article Eric, thanks for the link. Margaret Cuthbert makes excellent sense in calling not only for full transparency and full figures, but also in the case for a political perspective which looks at growing a long-term and more inherently self-sustaining Scottish economy. rocoham

David GREEN said...

Excellent stuff, Kevin.

I note the following in Margaret Cuthbert's piece:

"However, using the Consumer Price Index (equal to 100 in 2014) as a deflator, what we can say is that from 2002 to 2014, exports to Europe fell in real terms by just over £3bn; that is, a fall in real terms of 26.4 per cent.

Over the same period, again using Scottish Government export statistics, international exports from Scotland to the rest of the world grew in real terms by 23 per cent. Exports to the rest of the world outside the EU are now greater than exports to the EU (excluding other UK countries)."

Once again, Sturgeon is, at minimum, distorting the truth about the EU and Scotland, or simply telling lies.

And on the US election, Sturgeon and Salmond are completely stuffing up. Trump is half Scottish and eligible for a UK passport by right of descent. So where are the congratulations in Scotland? Total silence. Of course, with Salmond and Trump in some stupid stand-off, and with Salmond as a kind of pseudo Scottish Foreign Minister, Scotland urgently needs to mend its bridges. I'm told, in the press, that Trump does a good line in forgiveness, providing you crawl.

The irony is that Trump's slogan "Our plan will put America first", is essentially the same sentiment as the SNP for Scotland "Stronger for Scotland".

That's what you get when you play with nationalism. There is no such thing as nice nationalism and nasty nationalism. It is all unremittingly repellent. Sturgeon, Salmond, Farage, Trump: they're pretty much all the same.

Drew said...

I'm not surprised Scottish Unionists repeatedly talk about the Barnett formula and Scotland's deficit on a daily basis.

It is one of the few rational arguments against independence they can still cling on to from 2014. Brexit and Trump as President are going to change the UK and the world forever and there will be no going back.

The entire anti-independence campaign in 2014 was based on stability and predictability of the UK.

Guaranteed EU membership? Soon to be gone

Economic stability and growth? Looking doubtful. If Spain continue to drive a hard bargain over Gibraltar's sovereignty now that Rajoy Government is back in power, then Madrid can veto any EU trade deal with the UK until after the 2 year negotiating deadline and all we'll have left is WTO trade conditions on imports and exports. That will have a major impact for our exporters and consumer markets.

Guaranteed security and stability being part of NATO? Looking doubtful. If Trump fails to protect the Baltic states from Russian aggression then the whole 'an attack on one is an attack on all' principle is dead in the water. Deterrent only works if the threat of retaliation is real.

Scotland's poor fiscal position is the one thing Unionists can be thankful for.

Drew said...


'However, when Nicola Sturgeon herself was asked why government costs more in Scotland (Sunday Politics back in March) she indicated that her experience as the Health Minister taught her that it costs a lot more to run the NHS in Scotland because 20% of Scots live in rural/remote locations.'

I would say the First Minister isn't being entirely honest about this. The reason health and social care costs are so high in Scotland are because of our chronic problems with alcohol, drugs and reoffending.

The Scottish Government are well aware and often cite evidence that shows alcohol abuse in Scotland costs our economy and public services £3.6 billion annually.

The same goes for drug addiction at £3 billion.

Per head of population we have one of the highest prisoner populations in Europe. As a result, repeat and frequent reoffending costs us £3 billion per year.

Throw in the age old problems of smoking (£1.1 billion) and obesity (£4 billion) and you are looking at nearly £15 billion that is lost from our economic output, potential tax revenue and costs to public services.

This is a scandelous waste, not least for the poor souls and their families that have to suffer as a result.

Unless a Scottish Government, any Scottish Government, brings in far more effective policies to prevent alcohol abuse, addictions, repeat offending and obesity in the first place, we are going to continue to waste billions of public money trying to react to them.

We have the power to bring in a sugar tax, so the blame lies squarely at Holyrood for that one.

But we are going to need a little help from Westminster on the others. Currently, the sin taxes (alcohol duty and smoking) are reserved, as is the Misuse of Drugs Act.

We can't use tax to influence the price of smoking and alcohol and generate extra revenue to increase spending on programmes to address the issues without them being devolved. Neither can we stop criminalising people with drug problems and jailing them, costing the taxpayer around £30,000 per person every year, which could be better spent on rehab, unless we can change the law on posession of drugs.

Drew said...


'There is no such thing as nice nationalism and nasty nationalism. It is all unremittingly repellent. Sturgeon, Salmond, Farage, Trump: they're pretty much all the same.'

You are missing out Ghandi, an Indian nationalist and David Hume, a Nobel peace prize winning Irish nationalist from your list.

It is nice to view the world in black and white because it make everything much more straight forward and easy to understand. Goodies and badies, cowboys and indians, cops and robbers.

In your ideal world, presumably without nationalism and independence movements, Spain, France, Netherlands, Portugal and the British would still be colonising most of the globe through empires, treating local populations as slaves and cheap labour, forcing them off their lands or making it illegal for them to own property.

Wouldn't it be great if those annoying independence movements in Africa hadn't got in the way and the great powers could still plunder their natural resources freely?

Only the other week my Canadian family and friends in Australia were complaining about how badly things had turned out for them since the end of British colonial rule.

And clearly the Soviet Union did the right thing for the people of Eastern Europe, you know, what with the long queues for basic food stuffs, denied many freedoms they now take for granted and being sent to Soviet labour camps.

Many of the Poles, Latvians and Slovaks now living and working in the UK often get together in bars and restaurants where I live and reminisce about those happier and less confusing times.

Anonymous said...


I wish I could be as certain as you that legislation is the way to improve Scotland's health.

For example, Scotland has introduced tougher restrictions on smoking than England yet the relative decline has been pretty much the same, which would suggest that the extra legislative measures enacted in Scotland have had no discernible effect. So I don't know what you mean by "more effective" measures, and although you do mention increased taxes as a disincentive most overseas studies suggest that overall consumption is independent of price increases.

Similarly, a sugar tax is fraught with operational difficulties. Apple juice famously contains about the same amount of sugar as Coca-Cola, and as for orange juice - well you can forget about that completely. In the words of US obesity expert Dr Robin Lustig "calorie for calorie, fruit juice is worse for you than fizzy drinks". Whatever - both fizzy drinks and fruit juices contain unacceptably high levels of sugar, but no-one mention taxing fruit.

My point here is that improving Scotland's health is not readily susceptible to legislation. It's like hitting someone on the head with a mallet every time they have a cigarette - after a bit they just get used to it.

The solutions are much more nuanced and probably best achieved by an array of social and cultural messages.

Unfortunately I don't place much faith in the Scottish Government, devolved powers or not. I see, for example that last year Nicola Sturgeon hosted an "Irn-Bru Festival" where "unlimited Irn-Bru was available to everybody in Glasgow". “Irn-Bru is Scotland’s favourite drink,” Nicola said. “What better way to put a smile on the faces of local Glaswegians?" Sure - so long as you don't mind the smile of rotten teeth.

Drew said...


I agree that legislation alone is not the only answer, education and more information are also important.

I'm convinced by the evidence that the smoking ban in public places, a ban on self-service sales from vending machines and a tobacco display ban in shops has had a beneficial impact in Scotland.

Bear in mind England also has implemented some of these measures like the smoking ban too, so you would expect them also to see benefits.

The fact is smoking rates in adults in Scotland have fallen by around a 3rd between 2003 and 2015.

A study in Scotland found a 14 per cent reduction in hospital admissions for heart problems among smokers, and a 21 per cent reduction in admissions among non-smokers.

There were 35,059 alcohol-related hospital stays in 2014/15.

Most health experts have drawn a direct correlation with falling prices of alcohol in Scotland in the 1970s, with a growing rate of problematic drinking from the same period.

You can have all the health warning campaigns you want but the only real way to make a serious impact on both supply and demand is through price. It is basic economics. And the only really effective way to influence price is through taxation.

If we could also achieve a 30% reduction alcohol consumption in Scotland, we would see a big difference in not only health but a likely reduction in violence. In 54% of cases involving violent crime, the offender is said to be under the influence, according to the latest crime survey.

I take your point about the sugar tax but let's not kid ourselves Scotland's poor dental hygiene is down to people drinking too much fruit juice.

There are hidden sugars in many fruit juices for sure but I think we know Scotland's problem with fizzy drinks is far greater than that of our fruit juice intake.

You seem to assume the Scottish Government and the SNP are one and the same but while it looks unlikely at the moment, they won't be in power forever.

It is my hope Labour and the Lib Dems will make a come back some day. If they can come up with a much more effective and convincing policy on home rule for Scotland, I think the voters would be prepared to take a chance on them again.

Alastair McIntyre said...

I see this has developed into more general comments on Scotland and Scottish solutions to what are serious problems that cost Scotland billions.

I really blame this in the committee system in Scotland where we seem to get members that are supporters of the SNP and the same faces keep appearing. What we need is new blood coming in to serve on these committees as new thinking is needed.

And I did note the attempt to fix the healthy eating issue in Glasgow and if I remember correctly it was a 10 year program and at the end of that people were worse off that when they started. The point that was made is that people on low incomes ate cheap food that filled them up so pie, beans and chips did that for them. Fruit and Veg were expensive and not filling. Seems rather obvious to me what they should have done. Just because you have a degree doesn't mean you're clever.

It's like saying bacon is bad for you... so am I going to give up eating bacon? No chance. I'd rather live a few less years and enjoy my bacon butties.

Then we also see our Justice system is deeply flawed with people not turning up to be judged or witnesses not turning up so case deferred yet again. The whole court system is a joke and must cost Scotland a fortune as a result.

I still say that promotion of Scottish tourism to the Scots Diaspora is very poor indeed. Like millions in North America turn up at the hundreds of Highland Games but where are Scottish Tourism or Scottish Business at these events. Simply not seen and thus a huge favourable market completely ignored.

Trump has been quoted as saying that he's very much in favour of Brexit and has said he wants an early meeting with May to discuss all kind of things including trade. Of course Nicola and the SNP go out of their way to lambast Trump and given that the USA is Scotland's second largest export market ahead of the EU minus rUK it just seems to me she is astonishingly stupid. She's in danger of ensuring that rUK will do very well with the USA and Scotland won't.

Given the huge number of Scots living and working in England, some 800,000 or so, it seems to me they do that to get a job or a better job. So why do they need to do that? I haven't seen any research into this. I will say that in my early life I joined British Home Stores as a Trainee Manager and was promptly sent to Coventry. Of course when looking for a new job I looked locally so had another 3 jobs all based down in England. Unlike many I did come back to Scotland but working for an English based company.

I do think there should be some research done on why so many Scots live and work in England.

I did run my own company in Scotland for many years but in the end I found Scots has no real vision on how to develop business. I was an early adopter of the online industry prior to the Internet but Scots didn't see the vast potential that could come out of it. Then when the web first burst onto the scene it was a positive disadvantage to be in Scotland as our telephone rates were way more expensive than in England.

So overall I think what Scotland needs is new blood to look at Scottish issues both at home and abroad. To me this means using Brexit as a learning curve for Scotland so it become better prepared to deal with the Global community. And please consider the Commonwealth as all countries in it speak the same language and have similar laws and it does have some 2.3 million people which is much larger than the EU and growing whereas the EU is in decline.

David GREEN said...

I do not regard Gandhi as anything other than an incidental nationalist. His primary aim, as I understand it, was to rid India of an autocratic occupying power based some 5000 miles away. Any comparison with Scotland is ridiculous. As for Hume, the Nobel Peace Prize is awarded by the Norwegian Parliament and is intensely political, and frequently naive. Plenty of them have been awarded to nationalists over the years, but what does that prove? Nothing much, in my view.

The world currently is self-evidently battling a rise in nationalism that will have unexpected and destabilising effects. Sturgeon may be small fry but is as much an instigator of this destabilisation as Farage, Trump and Le Pen, and to suggest otherwise is also ridiculous. There are some real grievances associated with globalisation, as anyone who follows Michael Moore will know only too well, and the industrial hollowing out suffered by the Scottish west coast, and much of northern England is very real. But for Sturgeon to think that her nationalism is uniquely nice is quite wrong. It is filled with endless lies and half-truths, just like Farage's and Trump's.

But occasionally, the real world creeps in. I see that Sturgeon has now decided to start Trump-crawling, just like May. Not a very edifying sight, but a necessary piece of real-politik.

Drew said...


I still don't see how you can square the logic between 'There is no such thing as nice nationalism and nasty nationalism. It is all unremittingly repellent.' and then say 'I do not regard Gandhi as anything other than an incidental nationalist.'

At first you argue there is no excuse for nationalism and there are no grey areas, then you seem to excuse Gandhi's nationalism because he had a 'just' cause.

I don't agree that Brexit and Trump are evidence of a rise in nationalism. It is a revival of the idea of nation states being the supreme sovereign authority in international relations, as opposed to supra-national institutions.

That's not nationalism, at least not in the conventional sense of the word. Nationalism would be US states seeking to declare UDI from the Federal Government. Which may happen in the future but at present isn't a serious issue.

Trump's plans to make the US more isolated in the world by rolling back international trade agreements and being lukewarm towards NATO and the UK leaving the EU are examples of putting the interests of sovereign nation states first.

There have been backlashes from the left against globalisation going on for decades with mass protests against the WTO, the G8 etc. All that is happening now is voters across the political divide in America and the UK are blaming the failures of neo-liberalism and globalisation on bodies like the EU and Washington elites.

I would agree that the SNP have been less than honest about some of their motivations, economics and political strategies. As such you could accuse them of misleading the voters. However I think the worrying thing is Trump and Farage have been open and upfront about their disregard for the global community and immigration. And the voters have lapped it up regardless of the economic consequences.

I am not justifying their behaviour because my own political views are liberal, Scotland needs more immigration not less and I was in favour of joining the Euro and creating a 'United States of Europe'. But I think accusing everyone you disagree with of being 'a nationalist, nasty or repellent' is a policy doomed to failure. You don't win people round by calling them names, that is politics of the playground and will merely play into their hands.

The best political strategies are to respect your opponent, understand them, find out their strengths and weaknesses, then seek to exploit those weaknesses.

Robert said...

Kevin, Am I correct in assuming that an Independent Scotland would as it currently stands start life with a £15 billion fiscal deficit PLUS an additional annual £9 billion black hole in its economy due to the cessation of the Barnett Formula fiscal transfer. Sorry to be slow on the uptake here.

Kevin Hague said...

Robert - no, the £15bn is the deficit we'd have as a result of not having the UK fiscal transfer (i.e. because we share the UK's deficit instead of having to bearing "our own" we're £9bn pa better off)

Robert said...

Thank you for that Kevin.