Wednesday, 31 January 2018

Bonds of Union: Part I

"In war, moral power is to physical as three parts out of four" 
Napoleon, 1808
Debates about the United Kingdom's place within the European Union or Scotland's future within the United Kingdom are often framed as being about "head" vs. "heart".

The Brexit result is explained as happening because emotionally inspiring rhetoric about "taking back control" captured voters' imagination in a way that wearisome warnings of slower GDP growth simply couldn't. In part this was a function of the way the Remain and Leave campaigns were fought but, bar some rather unlikely scenarios involving another referendum, those arguments are now past.

But whereas our place in one 45 year-old union may be lost, the integrity of our existing 311 year-old union is still very much up for grabs. Many of us who feel a sense of dislocation and loss about Brexit continue to fear for the future of the United Kingdom itself. Whatever one's views on Brexit, those who care for the integrity of this older union should think long and hard about how we make our case.

This matters because when narratives take hold, they can be hard to dislodge. We run the risk that tactical decisions taken in the heat of the last battle become accepted as strategic wisdom for the next.

In the case of the ongoing Scottish Independence debate, an all too widely accepted narrative is that Scots' emotional desire for independence is dampened when faced with the stark reality of the economic pain that would be involved - that economic pragmatism trumps emotional ambition.

This framing of the debate is superficially persuasive but deeply flawed.

If we rely on a utilitarian economic argument to persuade people to remain in a union, how do we sell that union to those who lose out based on the same narrow economic logic? If our arguments are limited to only the selfish economic case, where do we turn to if - say as the result of another dramatic oil boom - the fiscal transfer arithmetic changes?

The truth is that not only is there a strong emotional case for union, but that "head" and "heart" are inextricably linked. The economic arguments only exist because they're underpinned by an emotional bond. At its core, the decision to pool and share resources is a moral one, based on a shared sense of responsibility for the social welfare of our fellow citizens. Put simply: the head doesn't keep functioning for long if the heart isn't there.

This artificial separation of "head" and "heart" - and with it the implicit ceding of the emotional ground to the Scottish Nationalists - is in large part a function of the way the 2014 Independence Referendum was fought.

The No campaign judged that the economic arguments against independence were compelling and would be persuasive to those voter who were either soft Yes, undecided or wavering No. Elections and referendums are won and lost among these all-important swing voters and Better Together took the tactical decision to focus on targeting them with the compelling economic arguments.

In the white-heat of a campaign period, that decision to focus on the practical at the expense of the emotional was probably tactically correct. Critics of the Better Together campaign - myself included - would do well to remember that they won the referendum. As time passes and we find ourselves in a post-Brexit, post-Trump world, the achievement of winning against a populist, emotionally driven, fact-denying and mainstream-media bashing Yes campaign looks increasingly impressive.

In contrast, the Yes campaign unsurprisingly judged that an honest presentation of the economic consequences of independence would be a vote loser. So they sought to obfuscate and misdirect when it came to financial matters and instead focused on the emotional case.

This was most clearly demonstrated in the 649 page Independence White Paper, in which the SNP couldn't find room for anything that could credibly be called an economic case. Instead they just forecast a ludicrously optimistic starting point where North Sea tax revenues would be £6.8 -£7.9 billion a year, provided no answer to the currency question and assumed and there would be no economic downsides of separation.

Those highlighting the recklessness of relying on such optimistic oil revenue forecasts were met with the logically nonsensical assertion that "oil is just a bonus" - a "bonus" on which the White Paper's spending promises were entirely reliant. Those asking what currency we'd use and what fiscal constraints would result were dismissed with meaningless soundbites like "it's Scotland's pound and we're keeping it". The Treasury's economic forecasts were scoffed at as being a "dodgy dossier". To question the lack of an economic case was to be accused of "talking Scotland down". Economic arguments that appealed to the head were sneeringly dismissed as "Project Fear".

The SNP lost the independence referendum in large part because these attempts to dismiss rational arguments failed. It's somewhat amusing to see them now enthusiastically promoting similar - but frankly far less compelling - rational arguments in their opposition to Brexit.

To achieve support even for the idea of another independence referendum, the SNP recognise that they'll need to fill the vacuum that still exists where their economic case should be. In September 2016 they created a "Growth Commission" and gave them the unenviable task of creating an economic case for dragging Scotland out of the UK single market.

In March 2017 the Commission's report was "due to be delivered to the first minister in the coming weeks" but, as we enter 2018 and near the second anniversary of the Commission's formation, still nothing has been published. The lengthy delay suggests that the Commission’s desire to be credible may be clashing with the Party’s desire for the case to be palatable. We wait with bated breath to see which wins.

But those of us who argued to keep the United Kingdom together during the independence referendum can't afford to be complacent. We have to face the difficult truth that the economic illiteracy of those campaigning for independence was nearly matched by the emotional inarticulacy of those of us campaigning for union.

The strength of the UK lies not just in what we share financially but in what we share emotionally: values, history, culture, belief in liberal democracy and a willingness to share responsibility. Perhaps it’s time we started talking less about the cold economic logic of fiscal transfers and more about the bonds of moral solidarity that bind us.


To think intelligently about how to frame the ongoing debate, we have to first step back and recognise that the way the battle lines are currently drawn is down to the circumstances of the time rather than anything fundamental about the nature of arguments for and against union.

If you're not convinced, try this thought experiment: how would the campaigns have been fought if the independence referendum had been  held in the mid 1980s when oil revenues were booming and "Scotland's oil" made Scotland a very significant net contributor to the UK's finances? We can safely assume that the Yes campaign would have been fought far more on rational economic grounds ("it's our oil", "We send far more to Westminster than we get back") and the No campaign would have focused on softer arguments about moral solidarity and our history of shared endeavour.

We should also be clear that this is not about positive versus negative arguments.

The Yes campaign may have been more focused on the emotional, but it most certainly was not and is not a positive campaign. Ask any journalist, creative artist or businessperson who had the temerity to speak out and argue for the union during the independence referendum, scan social media to see the levels of abuse they (we) still receive to this day. Observe SNP politicians' transparent attempts to mislead about the Scottish Government's own export data and their desperate attempts to undermine the credibility of their own GERS reports (when the numbers don't suit them). At its most sinister, see how some in the "Yes movement" seek to other the English, caricaturing them as heartless racists, creating a cartoon-villain "them" for "us" to rail against. The Scottish Nationalists may appeal to some base emotions, but there's very little positive about it.

Similarly, there's nothing inherently negative about the economic arguments in favour of union. If you're yet to be convinced of that, bear with me.

If we're to create a case that combines Napolean's one part physical with the three parts moral, we need to get right back to basics and take a holistic view of what makes a union work  - and that, my weary reader, is what we'll focus on in Part II.

Sunday, 21 January 2018

The SNP: Making the Case for Union

An edited version of this piece appeared in the Daily Record on 23/01/2018

By arguing for a soft Brexit, the SNP are doing a great job of making the case for Scotland remaining in the UK.

The SNP lost the independence referendum for many reasons, but the transparent dishonesty of their economic case was probably the biggest factor. They tried to sell Scottish voters a pipe-dream based not just on hopelessly unrealistic oil revenue forecasts and a non-existent currency solution, but also on fantastically optimistic assumptions about how Scotland’s economy would be affected by breaking out of union with the rest of the UK, our largest trading partner.

Now the SNP is making the case for staying in the EU single market by using arguments that apply four-fold to the merits of Scotland remaining in the UK single market. They’ve got themselves in a real guddle here, but then it’s hard to be logically consistent when “independence” is your answer to every question.

Let’s be under no illusions about why the SNP is dead set against a hard Brexit. It’s not because they think it’s best for the UK, it’s not even because they think it’s best for Scotland, it’s because they think it’s best for their all-consuming obsession of Scottish independence, for their defining political ambition of dragging Scotland out of the UK.

The simple truth is that the further the UK is from remaining in the EU single market, the more economically damaging Scottish separation would be. For those of us who oppose Brexit, this is the silver lining in what is otherwise a very dark cloud: if we suffer a hard Brexit, a future independence referendum means asking Scots to choose between the UK single market or the EU single market.

Scotland exports four times more to the rest of the UK than we do to the rest of the EU. Of course the EU market is much larger, but even after nearly 45 years of unfettered market access, our exports there are relatively small (16%) compared to those to the rest of the UK (63%)1. The reasons why are obvious: within the UK we’re transporting goods on the same island, we’re selling services to people who speak the same language, we’ve enjoyed over 300 years of free trade and of course we share the same currency.

Faced with this rather obvious point, supporters of Scottish independence either refuse to believe the Scottish Government's own data on exports1, or they adopt the quite astonishing position of denying that the UK single market even exists. That it does is self-evident. Since the Act of Union was signed in 1707, all parts of the UK have enjoyed free movement of goods, services, capital and people, there have been no customs borders, we’ve had common laws governing market regulation and we’ve shared a single currency. The Act of Union may have been signed 311 years ago, but the provisions within it that define the UK single market are still very much in force today2.

One of the arguments used by the SNP during the independence referendum was that Scotland could stay in the EU and so stay in the same market as the rest of the UK, thereby avoiding any trade disruption. This argument was always dubious, but following a hard Brexit it would fall apart completely. None of the benefits of being in the UK single market could be guaranteed for an independent Scotland.

Of course nobody’s suggesting trade with the rest of the UK would stop following a hard Brexit, any more than the arguments against a hard Brexit assume trade with the EU would stop. What we’re dealing with here is potential disruption to trade.

This is where the SNP’s latest arguments3 expose them as not just being logically inconsistent but also shamelessly hypocritical. When Sturgeon quotes economists at Strathclyde University’s Fraser of Allander Institute on the risk to Scottish jobs supported by EU trade, she neglects to mention that those self-same economists reckon that more than four times as many Scottish jobs rely on our trade with the rest of the UK4. When our First Minister quotes Treasury forecasters on the likely economic damage a hard Brexit would cause, she assumes we’ll forget that they’re the same Treasury forecasters Salmond accused of producing a “dodgy dossier” when they quantified the likely damage to Scotland’s economy that independence would cause5. It seems the SNP are rather keen on “Project Fear” when it suits them.

So the current arguments about Brexit highlight the greater relative importance to Scotland’s economy of the UK market compared to the EU – but they should also serve as a reminder that Scotland’s place in the United Kingdom is about so much more than free access to the UK single market.

Within the UK, Scotland is part of a UK-wide fiscal framework that currently allows approximately £10 billion a year of higher spending in Scotland than would be possible if we were “fiscally autonomous” (that is: than if we were simply “paying our way” within the UK)6. These annual transfers now can be seen as the quid pro quo for the fact that the economic benefits of “Scotland’s oil” were shared across the UK in the 1980s; that’s how pooling & sharing works over time.

But this UK-wide “pooling and sharing” is something that has no parallel in the EU. When Greece was in trouble, there were no fiscal transfers forthcoming from German tax-payers to bail them out. That these fiscal transfers occur within the UK but not within the EU illustrates a deeper truth that is rarely articulated: the bonds of moral solidarity that bind Scotland to the rest of the UK are stronger than those which bind us to the EU.

Whether one explains those bonds by reference to our history of shared endeavour, our shared values, our sense of national pride or some other aspect of shared British identity, the fact that such large sums of money are freely (and largely without complaint) moved between the UK nations is evidence that a deep bond exists. This might be best explained as a shared belief in social justice – we’re comfortable to share financial responsibility for the well-being of all our fellow UK citizens.

Hopefully we can agree that the arguments in favour of union aren’t all about things we can put a pound sign in front of, but we should at least consider what those billions of pounds of fiscal transfers mean in practice. They mean £1,900 annually for every man, woman and child in Scotland. That’s extra money the Scottish Government gets to spend on education, healthcare, free prescriptions, free elderly care, no tuition fees, toll-free bridges, business rates cuts and much more - stuff the SNP can crow about in a party political broadcast while still campaigning to leave the very union which makes that level of spending possible.

The SNP’s hypocrisy and intellectual dishonesty is laid bare when they argue for the benefits of union within the EU whilst simultaneously denying those same (but objectively larger) benefits of union within the UK. In terms of both market access and hard cash to support our higher public spending, Scotland’s place within the UK is objectively worth much more to us.

The economic case for union is often presented as something which is distinct from the emotional case. In fact these tangible economic benefits are simply a practical manifestation of the emotional case: they exist because of the deep bonds of moral solidarity that bind us.


1. Export Statistics Scotland

2. "The Act of Union 1707: An Economic Union"

3. "Scotland's Place in Europe"

4. Fraser of Allander: Employment supported by Scottish Export Demand 

5. A spokesman for the First Minister said: “Danny Alexander must ­apologise for the Treasury’s dodgy dossier on the finances of an ­independent Scotland"

6. GERS: An Inconvenient Truth

Tuesday, 16 January 2018

The SNP's Conversion

Yesterday the SNP published "Scotland's Place in Europe". It's a good piece of work and a worthwhile read for anybody who wants to gain an understanding of the (UK wide) issues surrounding Brexit and the various options we face.

But if we allow ourselves to step back from the Brexit question for a moment, it's interesting to read the report while considering the SNP's continued commitment to drag Scotland out of the UK Single Market. A couple of observations;

Firstly, the report is admirably thorough but with one major exception: it simply ignores Scotland's exports to the rest of the UK (rUK) when scaling the economic issues. Given we're looking at the Scottish Economy here, we should surely scale figures in the context of total Scottish exports, not just "international exports" (a term they use to allow them to ignore exports to rUK completely). Let's take a quote from the report and correct it;
"24. The EU is Scotland’s second most important international export market. In 2015, Scottish companies’ exports to countries within the EU were estimated at £12.3 billion, which is 43%  16% of Scotland’s total international exports and supports, directly and indirectly, hundreds of thousands of jobs across Scotland."
[Notice by the way that these figures come from the Scottish Government's Export Statistics Scotland publication, a report that nationalists decry as wholly unreliable when they don't want to face the reality of what the figures show]

Let's take another example - note they no longer even bother with the "international exports" qualifier here;
"38. To replace a 5% reduction in Scotland’s EU exports with increased trade from the BRICS economies would require a 30% increase in exports to those economies. Even if the UK signed agreements with the 10 biggest non-EEA single country trading partners (including USA, China, and Canada), a process which would take many years, this would only cover 37%  14% of Scotland’s current exports compared to 43%  16% of current exports that go to the EU"
Of course we could also rewrite that quote thinking from the perspective of Scotland leaving a post-Brexit the UK;
"38. To replace a 5% reduction in Scotland’s EU UK exports with increased trade from the BRICS economies  the EU would require a 30%  20% increase in exports to those economies. This within the context that our current levels of EU trade have been achieved after almost 45 years of unfettered market access."
Let's do one more - but first we need to highlight an apparent error in the base figures;
"90. Similarly, in relation to the agriculture and forestry sectors, Brexit represents a hugely significant challenge. Food and drink alone accounts for Scotland’s biggest non-energy export, with over two-thirds of exports worth £1.2 billion in the first three quarters of 2017 going to EU countries."
There is no source given for the "two-thirds of exports" assertion (the next sentence references this report which doesn't seem to give that figure, unless I've missed it?). The most recent ESS data (for 2015) gives a full year figure for Food & Drink exports to EU of £1.8 billion (so would seem consistent with the above, given that's a "first three quarters" number), but that's 38% (over one-third, not over two-thirds)  of "International Exports" of £4.8bn and just 20% of all exports (when rUK exports is included) of £8.9bn.  So the corrected version would read;
"90. Similarly, in relation to the agriculture and forestry sectors, Brexit represents a hugely significant challenge. Food and drink alone accounts for Scotland’s biggest non-energy export, with over two-thirds less than one third of exports worth £1.2 billion in the first three quarters of 2017 going to EU countries."
OK, so they ignore exports to rUK when scaling the export figures (and they may have made a "two-thirds" instead of "one-third" typo) ... but assuming Scotland remains in the UK with unfettered market access this approach could be defended, albeit I would suggest it's presented in an intentionally misleading way.

The second observation is that the SNP suddenly seem very happy to believe economic forecasts from HM Treasury, the National Institute for Economic & Social Research (NIESR) and Fraser of Allander. They are variously cited throughout the document and their forecasts summarised in this handy table at the back

[We can forgive the NIESR/NEISR typo]

Anybody familiar with the indyref debate must surely be raising their eyebrows at this point. Notice how the Scot Gov forecasts are at the most pessimistic end of the spectrum - "Project Fear" anyone?

Now let's just remind ourselves of the attitude shown to HM Treasury forecasts when they related to the outlook for an independent Scotland;
  • Here's Alex Salmond referring to The Treasury's figures - which were using what turned out to be extremely optimistic Office for Budget Responsibility (OBR) forecasts:

    "But the First Minister dismissed the OBR’s figures as “stuff and nonsense”. A spokesman for the First Minister said: “Danny Alexander must ­apologise for the Treasury’s dodgy dossier on the finances of an ­independent Scotland"
  • When HM Treasury analysis suggested the one-off costs of setting up the institutions for an independent Scotland would be £1.5 - 2.7bn, Salmond called it a "highly misleading briefing". He suggested the true figure would be nearer £0.2bn, a figure which was obviously fantastical at the time. Later that same year the Centre for Economics and Business Research (CEBR) published a report which concluded: "The set up costs for an independent Scotland would run to nearly £2.5bn"
It's worth looking at the forecasts the Scottish Government produced prior to the indyref compared to the numbers from HM Treasury (and others variously dismissed by the SNP at the time) ... and note what we now know to be the actual outcome

As for NIESR, the SNP weren't quoting them during the Indyref when they concluded that;
"on the basis of any reasonable division of existing assets and liabilities, Scotland would begin its independence with a substantial debt burden and less scope for risk-sharing. We estimate that Scotland would need to run primary surpluses of 3.1% annually order to achieve a Maastricht defined debt to GDP ratio of 60% after 10 years of  independence. This would be more restrictive than the fiscal tightening over the last four years."
Finally for now, within the Scotland's Place in Europe report the Fraser of Allander Institute (FAI) is quoted in relation to the jobs threat from Brexit;
"The FAI have also presented the impact on jobs, suggesting Brexit could cost up to 80,000 jobs."
That's the same Fraser of Allander Institute who have suggested that more than four times as many jobs are supported by rUK exports as by rEU exports.

It will be interesting to see how the SNP respond to HM Treasury and other respected institutions' analyses and forecasts if their fabled indyref2 ever occurs.

Saturday, 13 January 2018

The UK Single Market

The SNP believe that the UK leaving the EU will damage EU/UK trade - this argument has merit.

The SNP argue this means the case for Scotland leaving the UK is strengthened - this argument is ridiculous.

Any argument that Scotland should leave the UK because of trade friction created by Brexit is so obviously flawed it's hard to explain why without sounding condescending - so bear with me;
  1. Scotland exports four times as much to the rest of the UK (rUK) than we do to the rest of the EU (rEU). The information that tells us this comes directly from the Scottish Government themselves (and has nothing to do with which ports goods leave the UK from, because the data is based on customer location)
  2. To argue Scotland should leave the UK because of EU/UK trade friction is to argue that Scotland would be better off in the EU because then we could continue to trade freely with the EU, would avoid the downside of post-Brexit trade friction
  3. But if Scotland chooses to be on the EU side of an EU/UK trade border, we would see that same trade friction impacting our trade with the UK. EU countries don't get to negotiate their own bilateral trade agreements.
  4. So we're choosing between trade friction with the EU if we stay in the UK or with rUK if we leave. The fact that our exports to the latter are four times greater than those to the former makes it obvious that, if we have to choose which side of a post-Brexit EU/UK trade border to be on, the economic argument for staying on the UK side is compelling
So how do the SNP deal with the glaring logical inconsistency in their argument? With the now wearyingly familiar mix of misdirection, obfuscation, deceit and denial.

The flaw in the SNP's logic is most easily explained by describing Scotland's choice as being between the "UK Single Market" or the "EU single Market".

That the UK Single Market exists is self-evident. We have free movement of goods, services, capital and people, we have common customs and excise duties and we have a single currency. But some within the SNP simply try to deny its very existence (SNP MSP Joan McAlpine claims UK single market ‘doesn’t exist’).

They are hampered by the fact that, in the context of Brexit, the "UK Single Market" concept is easy to grasp and widely referred to;
  • The Scottish Governments own Nobel Laureat-laden Fiscal Commission Working Group referred to the fact that "retaining a common currency would promote the single market ..."
  • In The implications of EU withdrawal for the devolution settlement (Scottish Government commissioned, foreword by Joan McAlpine SNP MSP) the author states "Withdrawal could, however, call into question the UK single market ..".
  • The House of Lords European Union Committee records the term "UK Single Market" being used by a variety of contributors and adopt it themselves - for example the term appears 10 times in this report
  • In "Brexit and the Territorial Constitution" Professor Risk Rawlings (a staunch proponent of further devolution) uses the phrase "UK Single Market" no less than 7 times
I could go on, but the next nationalist argument becomes that the UK Single Market can't exist because there's no Single Market Treaty. People who argue that are not familiar with the 1707 Act of Union which explicitly provides for;
"full Freedom and Intercourse of Trade and Navigation [..] the same Customs and Duties on Import and Export [..] Laws concerning Regulation of Trade, Customs and such Excises to which Scotland is by virtue of this Treaty to be lyable be the same [..] the Coin shall be of the same standard and value throughout the United Kingdom"
Those words may be arcane, but they do a pretty good job of defining free trade, free movement, a customs union and a single currency.

At which point nationalist keyboard warriors accuse those referring to a 300 year-old treaty as "living in the past" - neglecting the fact that the provisions quoted above have never been repealed, so represent current legislation.

Next comes "well why didn't you use the term UK Single Market during the indyref?". The answer is, rather obviously, that the UK Single Market only becomes something one needs to distinguish from the EU Single Market as a result of the Leave vote.

Then we get the echo of UKIP's straw-men of "are you saying all trade will stop?" or "but we'll still want to trade with each other!". Needless to say, nobody's arguing trade will simply stop or there there will be a lack of desire to trade - what we're talking about is damage to Scottish/UK trade for the very same reasons that the SNP argue UK/EU trade will be damaged.

The SNP like to distract by quoting figures highlighting the number of Scottish jobs that are supported by EU trade. What they conveniently neglect to mention is that (using comparable assumptions) more than four times as many jobs depend on rUK trade.

Finally (for now) the SNP then resort to simply trying to hide the scale of Scotland's trade with rUK by ignoring it. Hard to believe I know, but in press releases (as detailed here) and published papers (as detailed here) they claim that 43% of Scotland's exports go to the EU, a figure they arrive at by ignoring rUK exports. The correct figure (from the Scottish Government themselves) is that 16% of Scottish exports go to the EU, compared to 63% going to rUK.

I'm happy to keep having this argument though. The more those arguing for independence argue that the UK single market doesn't exist, the more they draw attention to the fact that it does ... and the more they help publicise and expose the flaws in their latest argument for breaking up the UK.

Thursday, 11 January 2018

The Act of Union 1707: An Economic Union

Because of some fairly ridiculous arguments about whether or not the UK is a single market, I've found myself reading the Union with England Act 1707 - the "Act Ratifying and Approving the Treaty of Union of the Two Kingdoms of SCOTLAND and ENGLAND".

Given the absence of any punctuation, the introduction is pretty hard going  - but when you read the specific provisions they're actually pretty easy to understand.

Originally there were 25 clauses of which 15 were economic in nature. A number of the provisions have since been repealed - reading just those still in force we can see very clearly that the Act of Union explicitly provides for the UK being (in the language of  Brexit) a Single Market and a Customs Union.

Quoting directly from the Act (highlighting mine):

  • "IV.  That all the Subjects of the United Kingdom of Great Britain shall from and after the Union have full Freedom and Intercourse of Trade and Navigation to and from any port or place within the said United Kingdom […]  And that there be a Communication of all other Rights Privileges and Advantages which do or may belong to the Subjects of either Kingdom"

    So that's Free Trade and Free Movement

  • "VI. That all parts of the United Kingdom for ever from and after the Union shall have the same Allowances Encouragements and Drawbacks and be under the same Prohibitions Restrictions and Regulations of Trade and lyable to the same Customs and Duties on Import and Export …"

    So that's a Customs Union

  • "XVIII. That the Laws concerning Regulation of Trade, Customs and such Excises to which Scotland is by virtue of this Treaty to be lyable be the same in Scotland from and after the Union as in England …"

    So that's Single Market Regulation

  • "XVI. That from and after the Union the Coin shall be of the same standard and value throughout the United Kingdom as now in England …"

    So that's your Single Currency

There can be no doubt that the Act of Union was explicitly and in large part an act of Economic Union - and the provisions that make it so are still in place, so we're not getting distracted by an historical curiosity here.

It's not surprising therefore that those arguing for separation from the Union have been stymied by the economic arguments and appear breath-takingly hypocritical when they argue the economic case for remaining in the EU while dismissing the economic case against Scotland leaving the UK.

That the economic arguments for remaining in the UK trump those for remaining in the EU is relatively clear when we remember that the UK market, according to the Scottish Government's own figures, is currently four times more important to Scotland than the EU.

This is a fact that the SNP actively obfuscate and mislead about. Take this press release from December 2017 which boldly states:
"The single market is made up of almost 500 million consumers – over eight times the size of the UK market. It is the destination for 42 per cent of our exports, contains eight of our top 12 export destinations and contributed £11.6 billion to the economy in 2014."
This is staggeringly misleading. We know from the Scottish Government's own figures above that 16% of "our" exports go to the EU, so where do they get the 42% from?  If you exclude the UK as an export market then (per the figures above) the EU represents 43% of Scotland's trade outside the UK. There's no doubt that the "our" in this press release is referring to "us Scotland", so the 42% figure is - not to put too fine a point on it - flat wrong.

It took me a while to work out where the figures quoted come from - they're close to but don't match figures in the latest ESS data (published a year ago) and that bugged me. The clue is in the fact that they quote a "worth to Scotland" figure from 2014 - and sure enough in a press release dated 07/12/2017 they quote stats from ESS 2014, despite the fact that their own  ESS 2015 data had been available for nearly a year when that press release was written. They don't gain anything from using out-of-date statistics - it's just shoddy work that makes a fact-checker's job harder. So the £11.6bn figure is needlessly out of date, the latest available figure is £12.3bn

As for "contributed £11.6 billion to the economy", the equivalent (and up-to-date) statement would be that "exports to the rest of the UK contributed £49.8bn to the economy in 2015".

They go on to say
"According to the Centre for Economic and Business Research an estimated 300,000 jobs in Scotland rely on our trade with the rest of the EU."
I'm guessing this is the source for this stat, an analysis which unfortunately doesn't show how many Scottish jobs "rely on our trade with the rest of the UK" if we were to use comparable assumptions.

Fortunately Fraser of Allander have done such an exercise and their findings are clear and unsurprising: more than four times as many jobs in Scotland are supported by trade with rest of the UK than are supported by trade with the rest of the EU.

We know - because Blair McDougall submitted a Freedom of Information request asking the question - that the Scottish Government hasn't carried out any analysis on "the economic impact of an independent Scotland being outside of a customs union with the rest of the UK (assuming for example the rest of the UK had left the European customs union and Scotland voted to become independent)". 

I'm not surprised.

Wednesday, 10 January 2018

Having Reservations

As "architect of the Scottish Parliament", Donald Dewar argued that everything that could be devolved should be devolved1. A corollary of that would be to say we should seek to devolve powers unless there is a compelling reason not to.

With my These Islands hat on, I've recently been looking at devolution from a Welsh perspective.  In doing so I discovered that Wales offers a perfect case-study of why devolving spending powers is not necessarily a good thing for the devolved nation concerned. Those arguing for further devolution of spending powers to Scotland would do well to take note.

If the United Kingdom stands for anything, it stands for the pooling and sharing of resources. Without such pooling and sharing, Scotland, Wales and Northern Ireland wouldn't each be currently receiving many billions annually in fiscal transfers from England. Without those fiscal transfers, public spending in the devolved nations would need to be dramatically reduced (or, less realistically, tax revenues would somehow need to be dramatically increased).

Using ONS data2 we can see how significant these fiscal transfers currently are on a per person basis, not just nationally but also across England's regions.

 [To understand this chart: if you multiply each regional per person amount by the regional population you would get the cash amount transferred in or out - add these figures together and they net out to zero (I've checked, it works) - We're just shuffling money around within the UK here.]

To head off the standard Scottish Nationalist response: no this data doesn't show that Scotland is somehow being damaged by being in the UK. In fact it reflects the fact that Scotland is able to spend more on public services than it would be able to if it wasn't part of the UK. It's worth noting that transfers "in" for Scotland are caused almost entirely by relatively high spending, for Wales mainly by relatively low revenue and for NI by a mix of both relatively low revenue and high spend. I'll publish more complete analysis by nation/region soon.

The current mechanism for adjusting the budget available for devolved nations is the Barnett Formula. There are detailed briefings on the These Islands Website which explain both the history and mechanics of the Barnett Formula (How does the Barnett Formula actually work? and What is the Barnett Squeeze?), but all you really need to know is this: the Barnett Formula is not needs based, so changes in devolved budgets do not reflect changes in need.

The Barnett Formula in practice is highly sensitive to rates of change in population, resulting in it serving Scotland (with its declining population) relatively well compared to Wales and Northern Ireland. This is not in any way "fair" or "needs based". The chart below shows the impact over time of applying the Barnett Formula for Scotland, Wales and Northern Ireland, using realistic assumptions and where the only difference between the three nations' formula driven per capita budgets is their actual relative rates of population growth/decline.

This in-built unfairness is why whenever anybody sensible takes a look at the Barnett Formula, the conclusion is the same: it needs to be replaced by a needs based formula.

That the Barnett Formula remains in place today is testament to the combined forces of political inertia and the strength of the Scottish parliament. Scotland is most likely to suffer (relatively) if a "fairer" mechanism for allocating spending among the devolved nations is put in place.

This is of course why, when "The Vow" was being delivered, the SNP insisted that the Smith Commission recommendations included the line "the block grant from the UK government to Scotland will continue to be determined by the Barnett Formula". It's also why the SNP dropped their brief flirtation with the idea of "Full Fiscal Autonomy" for Scotland, because that would mean scrapping the fiscal transfers that enable Scotland's higher public spending.

What struck me when looking at the relative per capita spending data for Wales (see table below) was that the only comparable area of spending where Wales receives a higher per capita spend than Scotland is Social Protection. Social protection is of course not devolved, it's fully reserved. Being fully reserved it is effectively guaranteed to be allocated on a needs basis, because the entitlement to (for example) a State Pension is standard UK3 wide - if there are proportionately more pensioners4 in Wales, they'll get proportionately more funding.

Now look at all those other areas where Wales has less per capita spending than Scotland
  • Health and Education are fully devolved  - so we know that Wales' capacity to spend in these areas has suffered relative to Scotland due to the way the Barnett Formula works
  • Transport is c.80% devolved, so tells a similar story
  • The mix of devolved vs reserved is less clear for other areas - but we can observe significantly lower spend for Wales relative to Scotland in "Economic Affairs", "Housing & Community Amenities", "Enterprise & Economic Development", ...

At this point the analysis only really takes me far enough to ask a pointed question: are these lower spend levels for Wales justified by lower need, or has the Barnett Formula left Wales unfairly starved of funds?

This is a blog, so you'll perhaps forgive a rambling conclusion (Chokkablog's motto is "thinking allowed" after all):
  • From a "UK-wide" perspective, devolving further spending powers without replacing the Barnett Formula with a needs based formula would be both imprudent and reckless - because the Barnett Formula is not "fair"
  • Devolving revenue raising powers carries similar risks. Even if you allow some base level fiscal transfer to remain (i.e. so that if 100% of revenue raising powers were devolved, Scotland would still receive some of England's tax revenues) you would still be exposed to the problem of how that figure was adjusted over time. It's also hard to see how such a situation would be tenable from an English perspective - the more revenue powers are devolved, the closer we edge to Full Fiscal Autonomy. Regular readers of this blog know that would be a terrible idea for Scotland
  • Devolving Social Protection powers (for Scotland or Wales) would take away the assurance of  "needs based" funding that reservation of those powers gives
  • There's a democratic trade-off involved in accepting that the UK-wide priorities may not be the same as those Scotland or Wales alone would choose - but being in a union is all about compromising how much influence you have in return for enjoying the benefits that accrue from being part of a greater whole. The data suggests Scotland does pretty well out of "the greater whole". At least as far as the Barnett formula is concerned, that's more by accident than design.


1. Profile: Donald Dewar the architect of the Scottish Parliament

2. Country and regional public sector finances: Financial year ending March 2016

These figures are used to allow consistent comparisons between regions and nations. The "geographic" (favourable to Scotland) N Sea revenue allocation methodology figures are used, but in the year in question N Sea revenues were only c.£60m or about £11/capita for Scotland (so frnaly irrlevant).

The deficit for Scotland using these figures is slightly higher than that shown by the 2016/17 Scottish Government GERS Report (£15.2bn vs £14.5bn in GERS for 2015/16 - a £130/capita difference).

The figures are very close also to the GERW data produced by Cardiff University for Wales (£14.8bn vs £14.7bn).

3. Except NI

4. As indeed there are: ONS data

The Act of Union 1707: Religion

For a blog post explaining the economic foundations of Scotland's place in the United Kingdom, I was reading the Union with England Act 1707 - the "Act Ratifying and Approving the Treaty of Union of the Two Kingdoms of SCOTLAND and ENGLAND".

The Act also ratifies the Hanoverian Succession1 which (since the Act of Settlement 1701) excludes Catholics (or anybody who has married a Catholic) from inheriting the Crown. Given the Monarch's role as Supreme Governor of the Church of England this is unsurprising - but the stark language used is quite shocking to a contemporary reader
"II. That the Succession to the Monarchy of the United Kingdom of Great Britain and of the Dominions thereunto belonging after Her Most Sacred Majesty and in default of Issue of Her Majesty be, remain and continue to the Most Excellent Princess Sophia Electoress and Dutchess Dowager of Hanover and the Heirs of Her body being Protestants upon whom the Crown of England is settled by an Act of Parliament made in England in the twelth year of the Reign of His late Majesty King William the Third entituled An Act for the further Limitation of the Crown and better securing the Rights and Liberties of the Subject And that all Papists and persons marrying Papists shall be excluded from and for ever incapable to inherit possess or enjoy the Imperial Crown of Great Britain and the Dominions thereunto belonging or any part thereof And in every such case the Crown and Government shall from time to time descend to and be enjoyed by such person being a Protestant as should have inherited and enjoyed the same in case such Papists or person marrying a Papist was naturally dead according to the provision for the Descent of the Crown of England made by another Act of Parliament in England in the first year of the Reign of their late Majesties King William and Queen Mary entituled An Act declaring the Rights and Liberties of the Subject and settling the Succession of the Crown"
[There's a load more on  "securing the Protestant Religion and Presbyterian Church Government" in provision XXV]

This brought to mind the fact that in the Scottish independence referendum in 2014, there's evidence that Catholics were significantly more likely to vote Yes than Protestants - if you like, were more likely to vote to scrap this Act. I think few in Scotland will be surprised by this fact, but I suspect a good many don't understand the possible historical reasons why.

There may be other correlating factors (e.g that Catholics in Scotland may have a markedly different sage or socio-economic profile than Protestants), but it's at the very least interesting to note that religion is a better predictor of whether someone is likely to have voted Yes (or No) than either place of birth or gender.

1. When Queen Anne died in 1714 with no living children, this led to George I inheriting the Crown. Someone who knows their history tells me George I was 51st in line to the throne, after some 50 Catholic heirs who had been disbarred by parliament, and a great grandson of James VI/I