Andrew Wilson on Andrew Neil's Sturgeon Interview

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tl;dr
Andrew Wilson has written an article in which he accuses Andrew Neil of getting things wrong, making points that were inaccurate and of pursuing a confused line of attack. In the ensuing article, not only does Andrew Wilson fail to justify his claims, he goes on to get things wrong, be inaccurate and to pursuse a confused line of attack.

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“Every nationalist is capable of the most flagrant dishonesty, but he is also – since he is conscious of serving something bigger than himself – unshakeably certain of being in the right." - George Orwell

I hestitate to write this blog - but the reason I hesitate is also the reason I write it.

Andrew Wilson is author of the SNP's Sustainable Growth Commission (SGC) report. He has an unwavering commitment to Scottish Independence and is, as a partner at "Strategic Communications Company" Charlotte Street Partners, very well-connected, an accomplished networker and widely liked.

When I politely, but with unforgiving analytical rigour, wrote a critique of his SGC report - taking the time to have it reviewed by the These Islands Advisory Council and endorsed by senior economists  - some of Andrew's friends really didn't like it.

More than once I was offered friendly-hand-on-the-shoulder words of advice along the lines of: "you've been a bit harsh on him old-boy, was that really necessary?" Needless to say at no point did any of these friendly hands (or less friendly cybernats) drawn my attention to anything I'd written that was actually wrong.

Here's the thing: I have every reason to believe that Andrew is a lovely guy, a good human being and - despite his frostiness to me personally on the few occasions our paths have crossed - excellent company. But if he uses his platform to try and mislead people into sharing his belief in a cause that aims to break up the UK, I think it not unreasonable that I use my (admittedly far smaller) platform to counter his attempts to mislead or misinform. That I'll be invited to a few less dinner parties as a result really isn't such a high price to pay.

Which brings me to the piece he has published today in the National¹ , the paper that unashamedly thumps the tub for independence on a daily basis. It relates to First Minister Nicola Sturgeon's recent interview with Andrew Neil as part of his series of BBC1 leaders' interviews ahead of the forthcoming General Election.

I believe what follows to be a fair summary of the substantive points he attempts to make.

***

After he's expressed his general admiration for Neil's forensic journalistic skills, he suggests:

However, he can also get things wrong. And in this week's testing of First Minister Nicola Sturgeon he did just that, whether by accident or design. She handled him with an impressive command of the facts and realities.

The article that follows fails to show that Neil "gets things wrong" and, as we'll see, the argument that Sturgeon handled the interview well because she had "an impressive command of the facts and realities" is not substantiated at all.

In his piece he goes on to say:

He made a few specific points that were inaccurate pertaining to the report of the Sustainable Growth Commission (SGC) and on the economics of public finances, currency and accession to the European Union. It is worth rehearsing those points here briefly, however the most important point for independence campaigners is to learn about these lines of scrutiny and attack.

So he's promising to back up his assertion that Neil was guilty of inaccurate claims and also to offer the troops his insight into how to deal with these lines of attack. Exciting isn't it?

After some warm words about the need for pragmatism, the importance of telling the truth and having a rigorous plan etc. he moves on to specifics:

Taking the Neil points quickly in turn: Firstly he said that the SGC report argued that it would take five to 10 years to re-join the EU. It didn't. We argued that Scotland should seek to get back in as soon as practicable. What the timescale quoted referred to was the period required to put the public finances on a sustainable footing while growing public spending ahead of inflation and not assuming huge windfalls from growth. 

The problem for Wilson here is that some of us have read his SGC report in all of its painfully repetitive detail, so when he makes assertions about what it says we know whether they're true or not.

Frstly, the SGC report doesn't actually "argue that Scotland should seek to get back in as soon as practicable" - one of the striking things about the 354 page report is how little is said about the prospect of EU membership for an independent Scotland.

There are a couple of statements about "if" Scotland joins and Scotland's "aspiration" to join the EU², but there is no recommendation or statement of any kind about the urgency of so doing. I invite anybody to point me to where in the lengthy report it argues that "Scotland should seek to get back in as soon as practicable." It simply doesn't³, I'm afraid Wilson appears to have just made that up.

What the report does say multiple times is that "frictionless borders with the rest of the UK and EU should be a top strategic priority"⁴. At no point does it grapple with the possibility that in a post-Brexit world an independent Scotland wishing to join the EU would need to choose between having frictionless borders with either the rest of the UK or the EU. Presumably it doesn't grapple with this problem because, given 60% of Scotland's exports go to rUK and ony 18% go to the EU, it's pretty obvious which border friction would create most economic damage.

But what about "the timescale quoted"?

Well here's the direct quote from the SGC: " [...] aiming to achieve a sustainable fiscal position within 10 years. This timeline is necessary to ensure consistency with EU fiscal rules".

Now, I suppose you could argue that Scotland could join the EU before having complied with the EU fiscal rules, but I think - given no other timescale for rejoining is given anywhere else in the report - it's pretty reasonable for Neil to have interpreted the report as suggesting it would take "5 to 10" years to rejoin the EU. Frankly, one could argue that the low end of that range is generous given the only analysis included in the SGC report shows Scotland taking fully 10 years to get the deficit under control (and places no timescale on resolving the currency question).

Which brings us to "while growing public spending ahead of inflation". This is a particularly mendacious misrepresentation of the SGC recommendations. In fact, the explicit recommendation was for a Deficit Reduction Policy "with a target of delivering the initial deficit target of under 3 per cent of GDP within 5 to 10 years. Public spending increases in transition should be limited to sufficiently less than money GDP growth to deliver this.”

Only by making a series of spectacularly optimistic assumptions about painless public spending savings an iScotland could make, ignoring the downsides of any economic shocks (or trade friction) caused by independence and then assuming average GDP growth of 1.5% pa (roughly twice the average rate of the last 10 years) is the SGC able to translate that into 0.5% pa real spending growth.

Using more realistic assumptions - or if we apply the SGC's recommendations retrospectively (see below) - their stated Deficit Reduction Policy looks like a recipe for greater austerity than Scotland has suffered within the UK.   This issue was covered in detail in These Islands' formal response to the SGC report [in the chapter "The Truth About Austerity"] and was the conclusion drawn by the IFS among others.

He goes on:

Scotland would begin the independence transition with a higher deficit than the other EU member states but with a lower debt position than almost all. 

The "lower debt position" is a huge assumption based on the outcome of uncertain negotiations with rest of the UK. The 2014 White Paper assumed Scotland would inherit a “negotiated and agreed” apportionment of UK debt, but the SGC makes the more optimistic assumption that – by negotiating a debt servicing cost and calling it part of a ‘solidarity payment’ – an independent Scotland would be considered as starting ‘debt free’ from a market (and EU) perspective. It is far from clear that this attempt to move the debt ‘off balance-sheet’ would work as the SGC hopes.

He continues:

The deficit is not as bad as it might first appear and can be dealt with purposefully. It is also a function of the unsustainable UK model. But we can’t deny we want to reform it. I can see no constraint from this line of attack from Neil at all. 

It's hard to know where to start with this: an iScotland's deficit would be "not as bad as it might appear [..] can be dealt with purposefully [..] we can't deny we want to reform it [..] I can see no constraint"?

I presume these statements are an oblique reference to the SGC's attempt to argue for a series of cost savings to arrive at a starting "legacy deficit" for an iScotland of 5.5%. This compares with 2018-19 deficit figures of 7.0% for Scotland and only 1.1% for the whole of the UK (the UK's deficit being the one that Scotland actually carries the cost of, assuming Scotland remains within the UK).

That these assumptions were not only hugely optimistic but involved a combination of rounding-up, double-counting and a basic misunderstanding of how the base GERS figures work was also covered in the These Islands response to the SGC report [in the chapter "A Reality Check"].

As for the defict being "a function of the unsustainable UK model" - this assertion of unsustainabilty is a tired trope that really needs to be quashed.

That level of deficit would be unsustainable were Scotland to be independent, but the fact that Scotland has prospered⁵ while this notional deficit exists and hasn't had to endure any "excessive deficit procedure" is empirical proof that within the UK the position is sustainable. The truth is that the "GERS deficit" only becomes unsustainable if Scottish independence makes it real - and it only exists at all because the totality of the UK supports far higher public spending per head in Scotland than the UK average. This point is also covered in detail by the These Islands response paper [in the chapter Making the Case for Union].

He continues:

And indeed, by re-joining the EU it is likely that our pace of improvement will be greater because of the attendant benefits.

This blithe assertion blatantly ignores the obvious downsides for Scotland from losing the benefits of being part of the UK: being in the UK single market and Sterling currency union, enjoying the benefits of UK-wide fiscal pooling & sharing.

The economic downsides of leaving the UK are such a glaring omission in all of Andrew Wilson's arguments and analyses, one can only assume that he hopes he can avoid getting trampled by this particular elephant-in-the-room by stubbornly insisting it isn't there.

It is with a heavy heart, dear reader, that I have to inform you that we're only now getting to Wilson's second attempt to justify his claim that Andrew Neil "gets things wrong" - the good news is that this is his final attempt:

Neil’s second line of attack was confusing and confused. He was probing the requirement to build reserves of foreign currency before launching a Scottish pound so that its value may be defended and stabilised by the Scottish Central Bank. [..] The point of this test and the other five are to ensure that Scotland keeps the pound throughout the independence transition and only creates its own currency when it is in our own interests. And not before. 

The problem with this position is that, because of Scotland's fiscal and current account deficits, Sterlingisation would be unsustainable for any significant period of time - a point clearly explained in the These Islands paper: Choose Your Poison: The SNP's Currency Headache.

But let's see if Wilson answers the actual question of how and over what time period Scotland could build those reserves:

But he spent a great deal of time arguing that Scotland had a deficit in the public finances and the balance of payments (our international balances) and so could not run up any reserves. He is right that the UK has the second worst balance of payments in the world and again a price of the UK model would be our starting point. The most sustainable way to fix that and increase reserves would be to grow export earnings in all of their forms which is a core recommendation and focus of the report of the SGC. But there are other tools available also.

Can you see what he did there?

After asserting that Neil's line of attack was "confusing and confused", he tacitly accepts that the issue exists and that he hasn't shown over what time period it could realistically be addressed.

He says "the most sustainable way to fix that [...] would be to grow export earnings" - but that's precisely the point Neil was pushing at: how much would export earnings need to increase to reverse Scotland's current account position? How would this be achieved at the same time as creating trade friction between Scotland and rUK, where 60% of Scotland's exports currently go? How long would it take to then build up sufficient reserves?

These are questions that neither Wilson or Sturgeon can answer, so he attempts to distract by throwing in an observation about the UK's balance of payments - but the last time I checked the UK wasn't proposing to launch a new currency from scratch.

However, Neil might also like to have observed that in preparation for a no deal Brexit the UK government has grown its foreign exchange reserves very substantially at the same time as running both a public finance deficit and one of the worst balance of payments positions there is. They rose by $23 billion in the fourth quarter of last year alone.

This is another classic attempt at misdirection: not only was this very much an exceptional quarter, but the UK is in a position to be able to borrow to build foreign exchange reserves.

This is perhaps why Wilson offers only the gnomic "there are other tools available also" - it would be hard for him to argue that a newly independent Scotland should borrow to build currency reserves when he himself has (quite rightly) ruled that option out.

In Andrew Wilson's own words: "We could borrow to build [currency reserves] up [..] but borrowing such vast sums, with added currency risk on top of deficit funding we would inherit from the UK, before we had properly established ourselves, would be very expensive indeed. This would cost taxpayers and public services now and saddle future generations with the most expensive interest we will ever have to pay."

Remind me again: who's arguments are he calling confusing and confused?

Anyway, we're nearly home - his last flailing attempt is as follows:

On currency itself the Succession Acquis is less clear and certainly does not require Scotland to immediately set up its own currency and then plan to join a third currency (the Euro) shortly after. This would be in neither Scotland nor the EU’s interests. But we cannot deny that our transition to both independence and EU membership would provide a unique circumstance for the EU and all the more positive for it.

I've read that paragraph several times now and I still can't find any sense in it. What on earth does "But we cannot deny that our transition to both independence and EU membership would provide a unique circumstance for the EU and all the more positive for it" mean?

Is he suggesting that Scotland would be able to join the EU while retaining Sterling? I don't think he is, and he'd be right not to because that would clearly breach Chapter 17 of the Acquis Communautaire.  It's worth taking a moment to read what chapter 17 requires:

"The acquis in the area of economic and monetary policy contains specific rules requiring the independence of central banks in Member States, prohibiting direct financing of the public sector by the central banks and prohibiting privileged access of the public sector to financial institutions. Member States are expected to co-ordinate their economic policies and are subject to the Stability and Growth Pact on fiscal surveillance. New Member States are also committed to complying with the criteria laid down in the Treaty in order to be able to adopt the euro in due course after accession. Until then, they will participate in the Economic and Monetary Union as a Member State with a derogation from the use of the euro and shall treat their exchange rates as a matter of common concern."

Having a central bank implies having your own currency. As Kirsty Hughes, Director of the Scottish Centre on European Relations (she's one of those pesky experts, and not obviously a fan of the Union) has so pithily expressed on Twitter:

"An accession country must have an independent central bank & a currency. It must have policies directed at price stability, make exchange rates a matter of common concern & an intention to join the euro. So using the £, Scotland can’t do this." - May 28 2018

"The point remains you can't join EU and meet treaty requirements if you don't control your own monetary policy. There's nothing to negotiate, you just have to show you conform to treaty." - Nov 25 2019

And that's basically it.

Remember Wilson started with the claim that Andrew Neil had "got things wrong" and "made a few specific points that were inaccurate". I've looked closely and if anybody thinks I've missed anything in that piece where he actually justifies that claim, let me know by posting a comment below - but I'm confident I have covered all of his substantive point here and I can't see that he has in any way justified those claims.

Wilson's concluding paragraph includes this sentence:

But I believe that our case has never been more considered, more honest and set out more clearly.

I guess technically that is a relative statement: it depends how ill-considered, dishonest and poorly set out their case has been before.

Suffice to say that all he has done with this article is confirm that Andrew Neil was well-informed and right to push on the points he did. Nicola Sturgeon may be a polished performer, but she got through that interview by skating over the issues, not by having "an impressive command of the facts and realities" as Wilson claims.

***

A parting observation on one of the more tetchy exchanges that came at about 18 minutes in to the interview:

First Sturgeon asserted that the Growth Commission "recommended spending increases above the rate of inflation". We've already seen that's a very dodgy interpretation of what they actually recommended which was that "Public spending increases in transition should be limited to sufficiently less than money GDP growth to deliver [a defiict of 3 per cent of GDP within 5 to 10 years].

Then she asserted that "if the Growth Commission recommendations on spending in an independent Scotland had been applied over the past 10 years, Scotland wouldn't have suffered the austerity cuts to our budget that we have suffered".

Andrew Neil challenged this and asked her to cite the economic model that justified that assertion - she was flustered and said "I've had that figure done by the Scottish [pause] Government ...".

Funnily enough Andrew Wilson didn't choose to take the opportunity in his article to clarify this point -  a point which needless to say the SGC report itself did not attempt to make.

Apart from the fact that it would be weird for the Scottish Government to be doing analysis on the impacts of something the SNP's Growth Commission were proposing for a putative independent Scotland, we know how she arrives at that assertion because it's come up before.

When this claim first surfaced, Growth Commission member and now SNP minister Kate Forbes was kind enough to tell me that the assertion was "based on what the GC recommends in terms of increased public spending in Scotland over a 10 year period (by 0.5% per year)".

So it's based on ignoring what the actual starting deficit position was 10 years ago and what actual levels of GDP growth were and instead relies on just blindly applying the rate of spending growth that was modelled by the SGC for the future assuming a 5.5% starting deficit (10 years ago it was actually 8.7%⁹) and assuming GDP growth of 1.5% (the last decade average was actually 0.8%).

In our These Islands paper we modelled the implications of applying the SGC rule as actually stated to the actual starting conditions 10 years ago i.e. public spending growth "sufficiently less than GDP growth" to deliver a 3% deficit over 10 years. Needless to say applying the rule in this way would of course have led to significantly less public spending in Scotland than we have seen - by our analysis the spending reduction (vs "Westminster austerity") would have been around £60bn over those 10 years⁶.

/ends/

Addendum 1.
There was so much nonsense to deal with here I realise I missed a significant point. In an attempt to respond to the "currency & EU membership" question Andrew Wilson writes "On currency itself the Succession Acquis is less clear and certainly does not require Scotland to immediately set up its own currency and then plan to join a third currency (the Euro) shortly after."

We'll brush over the fact that he says "Succession" when he means "Accession" - it would be childish to score points over that kind of slip-up - but instead I want to pick up on the words I've highlighted

This is another feeble attempt at misdirection. At no point did Andrew Neil suggest "Scotland would have to immediately set up its own currency and then plan to join the Euro shortly after". He asked a direct question ("How long before Scotland could rejoin the EU?") and in the ensuing debate he challenged on the point that trying to join the EU while using a currency over which you have no monetary policy control would breach EU rules.  Instead of answering the question - despite having 24 hours to come up with something - the best Wilson can offer is a denial of something nobody's suggested.

Addendum 2.
Having rewatched the inteview to check for Addendum 1, I'm struck by something else in Sturgeon's answers. She boasts that Scotland's 7.0% deficit in 18-19 is lower than the SGC projected for 20-21. Well that is - just - true: the SGC projected a 2020-21 deficit of 7.1%.

The question of course is why does Scotland appear to be two years ahead of the SGC's deficit reduction projections? A quick glance at the SGC methodology shows they relied heavily on an IFS projection which in turn relied on the OBR forecasts that existed at the time.

The IFS assumed "onshore tax revenues per person in Scotland are projected to be 95.3% of the average for the UK as a whole". As it turns out (per GERS) the actual figure was indeed 95.3% in 2018-19⁷.

The IFS also assumed "government spending in Scotland remains the same proportion (9.3%) of UK-wide government spending as in 2017–18". And again, as it turns out (per GERS) the actual figure was indeed 9.3%⁸ 

So put simply, the reason why Scotland's deficit has reduced (slightly) faster than what the SGC (via the IFS, via the OBR) projected is that the UK as a whole has performed (slightly) better than the OBR projection. And indeed we can easily see that is the case: the OBR projections that underpinned this analysis were at the time for a 1.3% defict and the actual out-turn for 2018-19 was 1.1%.

So, when cast through the nationalists' distorting prism, the fact that the UK is performing better than expected becomes an argument in favour of Scotland breaking away.

A corollary of this is that, as "Tory austerity" succeeds in reducing the deficit for both the UK and Scotland within the UK, nationalists will both complain about austerity and argue that the positive results of those austerity measures in terms of deficit reduction somehow strengthen their arguments. You don't have to agree with the way austerity has been implemented in the UK to spot the blatant hypocrisy here.

Notes

1. Despite notionally being behind a pay-wall, it's really not very difficult to read the text if you're familiar with "ctrl-U" on a Chrome browser

2. Aspiration for EU Membership

"If Scotland became an EU member in the future" 

"First, the debt limit in the EU’s Fiscal Compact (60% of GDP) is a useful starting point. Ensuring that Scotland holds to meeting this minimum standard has several advantages. It is an understandable target (for the public and by markets), it is consistent with Scotland’s aspiration for EU membership"

"Independence and membership of the EU Single Market would create new opportunities for businesses in Scotland"

"to enjoy the best access to both markets Scotland must be positioned in the EU single market."  - this is a highly dubious assertion in a post-Brexit world, and note the reference is to being in the EU single market rather than necessarily being an EU member (i.e. it encompasses possible EFTA membership)

3. If you want to know how repetitive the SGC report is, try a ctrl-f on "eu" and see how often the same phrases are repeated

4. References to the importance of frictionless trade with the EU are always placed within a context that (correctly) places frictionless trade with the UK as the first priority

"Securing frictionless borders with the rest of the UK and EU should be a top strategic priority of the Scottish Government."

"maximising frictionless trade and market access with the rest of the UK and with Europe is of critical importance to the performance of the Scottish economy in the short and long term."

"Scotland’s economic interests will be best served maximising frictionless trade and ensuring access to UK, EU and wider global markets."

"Priorities include the nature of on-going market access from Scotland to the UK and the EU"

5. Scotland has prospered within the UK: the SGC points out that Scotland as part of the United Kingdom is “without question a rich and successful nation” with “economic performance […]
amongst the best performing decile in the world” and that “Scotland’s economic output per head is the best of the UK nations and regions, outside of London and the South East”.

6. Our analysis is already demonstrably more sophisicated than the SNP's "just say we grow spending by 0.5% pa in real terms and ignore what the deficit and GDP growth levels actually were." approach.  It would be possible to be more sophisticated still and make assumptions about how a few years of not cutting spending might have affected longer-term GDP growth (there's a valid case for this) but the question becomes what level of GDP growth do we then assume? What's clear is that neither the SNP nor the SGC has done such an analysis or you can be sure by now they'd have shared it.

7. There is some volatility in these figures because past numbers are continually revised as more accurate data becomes available (or due to changes in methodolgy). This really just highlights that it would be foolish to draw any conclusions based on 0.1% of GDP one way or another. When the IFS projections were made based on 2017-18 data, the figures available at that time suggested Scotland's onshore revenue per head was 95.3% of the UK (the IFS just projected off OBR UK forecasts on that basis) - that 2017-18 figure has subsequently been revised down to 94.5%. The reason for this adjustment is primarily a reduction down in attributed Scottish income tax receipts; the introduction of a higher tax rate in Scotland has focused greater attention on the accuracy of these figures (see GERS 2018-19 pages 15 & 55).

Once you've got all of that out of the way, the graph below should help understand how the IFS forecast can have turned out to be right, but the SNP can also say that onshore tax revenues in Scotland are gowing faster than the UK average. Needless to say a little bit of historical context shows how marginal the "faster onshore revenue growth" observation is

8. Scotland's share of UK spending is pretty stable (and if anything increasing)

9. That is using the most generously interprested deficit figure using the SGC's "onshore deficit" definition = [onshore deficit] / [onshore GDP]