Scotland's Deficit Figures Show that the UK Works

This article was orginally published in the Spectator Coffee House on 6th September 2017

Last week the Scottish Government published their annual Government Expenditure and Revenue Scotland (GERS) report.

The figures were good news for those Scots who believe in the value of pooling and sharing resources across the UK, bad news for those who believe Scotland should be independent (or for some reason needs to be fiscally autonomous).

The UK’s deficit is running at 2.4% of GDP and, because Scotland voted No in 2014, that fiscal context determines Scotland’s ability to continue to sustain spending on vital public services. By contrast, Scotland’s notional stand-alone deficit according to GERS is 8.4%. The EU’s “excessive deficit” threshold is 3.0%. Even before considering the challenges of creating a currency and weathering the shock of separation from the UK single-market – a market objectively four times more important to Scotland than the EU - it’s clear that an independent Scotland wouldn’t be able to sustain the tax and spend levels described in GERS.

The SNP’s Independence White Paper predicted that this year under current constitutional arrangements Scotland’s deficit would be 1.6 – 3.2% of GDP. This means that their starting point, the base on which they attempted to build their economic case, was out by £8.1 - £10.7 billion a year. The main reason for this shortfall is that the SNP famously used recklessly optimistic oil revenue forecasts of £6.8 – 7.9 billion for 2016-17. The actual figure has turned out to be just £200 million.

The reaction of the SNP and their pro-independence outriders to last week’s completely unsurprising figures laid bare the astonishing paucity of their economic arguments. The SNP once proudly proclaimed that they had Nobel Laureates championing their cause. Now they’re reduced to relying on the increasingly embarrassing contributions of accountant and tax specialist Professor Richard Murphy, the man who suggested that John McDonnell was “all too willing to accept conventional neoliberal thinking”.

Murphy’s argument is basically one of incredulity:  he simply refuses to believe the GERS figures can be correct because he doesn’t understand them. He casually advertises his ignorance of how the figures are compiled by admitting to being “continually bemused” because he thinks the numbers are somehow “improbable”.

The graph on this page illustrates the simple truth that the perpetually befuddled Professor Murphy seems unable to grasp.

The three lines show 19 years of relative spending and revenue per capita for Scotland versus the rest of the UK (rUK). The picture is clear: Scotland’s per capita deficit is much larger than the rest of the UK’s mainly because of higher spending. When oil was booming, Scotland’s revenues were sometimes enough to largely offset that higher spend, but as oil revenues have declined the underlying onshore deficit gap has been exposed.

Professor Murphy attempts to obfuscate and misdirect on this point, but the per capita spending difference shown by GERS has nothing to do with estimates or allocations, it is fully explained by known actual figures. Nobody disputes that more is spent per capita in Scotland then the rest of the UK on social protection, education, housing, health, transport and pretty much every other area of public spending. There isn’t anything inherently unfair about this either; Scotland has geographic, demographic and socio-economic characteristics which mean greater per capita spend is required to deliver equivalent services. So there’s really nothing bemusing or improbable about the relative scale of Scotland’s deficit. Surely only the most desperate politician would lean on rent-a-quote Professor Murphy’s transparently misguided proclamations for support?

Which brings us to SNP MP Mhairi Black. Not only did she use a recent newspaper column to cite Professor Murphy as reason to dismiss her own government’s figures but, in an incredible display either of ignorance or dishonesty, she claimed £15bn had been found “missing from Scotland’s oil revenues in the last few years”. The opposite is In fact the case. Scottish Government economists have accepted that their previous Scottish oil revenue assumptions were overly optimistic and have restated historic figures down by £7bn over the last decade.

It gets even worse. Ms Black joined SNP MSP Joanna Cherry QC in endorsing the suggestion that low oil revenues are Westminster’s fault for not taxing the North Sea oil industry heavily enough in the last few years. Have they really forgotten that the SNP sought to protect Scottish jobs by calling for tax cuts for the embattled North Sea oil industry, then celebrated those cuts as a victory for their party when they came?

The pro-independence camp likes to suggest that the GERS figures show Scotland failing under the yoke of Westminster rule. In fact they show UK-wide sharing of resources allowing greater spending on public services in areas with greater economic need; only the most narrow-minded nationalist could see that as a failure.