Thursday, 5 December 2019

Dissecting a Deception

Nicola Sturgeon keeps trying to mislead people by repeating a demonstrably false assertion. The truth is that if the SNP's Growth Commission recommendations had been applied to the conditions as they actually were a decade ago, Scotland would have suffered far greater austerity over the last 10 years - and we can prove it


That Ming-bearded mind-bothererTM Derren Brown1 is fond of telling his audiences that he achieves the seemingly impossible via a combination of "suggestion, psychology, misdirection and showmanship".

There's an assertion being repeated so often by Nicola Sturgeon that I'm amazed none of the mainstream fact-checking organisations have bothered to check it. It goes like this:
"if the [SNP] 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." - Nicola Sturgeon
That quote is lifted directly from her recent interview with Andrew Neil on BBC1 - she made the same asssertion to ITV's Robert Peston2 as well repeating it during the STV leaders' debate3 and, although I didn't listen to her call-in with Nicky Campbell on BBC Radio 5 Live, I'm told she repeated it there as well.

To understand the history of this assertion and how the SNP have tried to defend it is to understand how confident they are that "misdirection and showmanship" can allow them to claim the seemingly impossible.

The first time I heard this claim being made was by SNP MSP Kate Forbes (a member of the Growth Commission) on Question Time back in May 2018:
"Over the last 10 years the Scottish Budget has been cut by 8.5%; in contrast, this report predicts that if we had been an independent country our spending could have increased by 5% over those 10 years. Minus 8 to plus 5." - Kate Forbes
I then discovered that on the same day, during FMQ's in Holyrood, Nicola Sturgeon had told the chamber:
"I've got some analysis here which I'm going to share with the chamber, and hopefully it'll be ... it'll be of embarrassment to the Tories, hopefully it'll be of interest to Labour. If the spending recommendations of the Growth Commission had been applied over the past ten years, the £2.6bn real-terms cuts imposed on the budget of the Scottish government by Tory governments at Westminster would have been completely wiped out, it would have eradicated austerity in Scotland. That is the reality." - Nicola Sturgeon
Then the report's author, Andrew Wilson, used his column in the National a few days later to repeat the claim again:
"If the model we have suggested for reducing the deficit was applied to the last 10 years, it would have eliminated the Tory austerity cuts to the Scottish Budget." - Andrew Wilson
I think we can safely say that the SNP have been committed to this line for some time now - and they've decided that this general election campaign is the right time to crank up the volume.

Back in June 2018 I pointed out that those assertions were completely at odds with the Growth Commission's actual recommendations (I blogged on the subject here and here). This matters, because as a direct result we know how the SNP seek to justify themselves on this.

First of all let's be clear about what the Growth Commission actually recommended. I covered this in great detail in a report that was reviewed and endorsed by senior economists at the time [These Islands Growth Commission Response: The Truth About Austerity], but in essence their recommendation is simple (emphasis mine):
"real increases in public spending should be limited to sufficiently less than GDP growth over the business cycle to reduce the deficit to below 3% within 5 to 10 years" - Growth Commission 3.187
This isn't a selective quote - the recommendation is repeated four times4 in the report and every time it's made clear that spending growth must be sufficently less than GDP growth to reduce the deficit to 3% within 10 years5.

Even before we look at how the SNP attempt to justify their "we'd have escaped Tory austerity2"claim, it should already be obvious that their assertion is false: the Commission's recommendation is to get the deficit under control within a 10 year period entirely through spending restraint6  - so if the current deficit is still above 3%, then over the last 10 years their recommendations would have required Scotland to have reduced spending by more than has been the case.

Scotland's deficit in 2018-19 was in fact £12.6bn or 7.0% of GDP7. For that to have been reduced to 3.0% through spending constraint alone over the prior decade, annual spending now would have to be £7.2bn less - that implies a 9.6% reduction to Scotland's current Total Managed Expenditure8.

It's patently obvious that applying the Growth Commission's rules over the past decade would have led to far deeper austerity than "Tory austerity".

So let's see how the SNP try to justify their transparently indefensible claim.

Justification Attempt No. 1

The first justification was offered directly by Kate Forbes herself, who had the good grace to reply to me when I challenged her about what she'd said on BBC's Question Time. She DM'd me the following 9  (remember: she was a member of the Growth Commission):
"its v simplistically based on what the GC recommends in terms of increasing public spending in Scotland over a 10 year period (by 0.5% per year (5.1% compounded))."
The obvious problem here is that the 0.5% figure is arrived at based on two key assumptions
  1. The starting deficit position - to determine by how much less than GDP growth spending would need to grow to get the deficit to 3% within 10 years (let's call it the "spending lag")
  2. Real annual GDP growth - to determine what real spending growth would be if it was suffciently less than GDP growth
To get to the 0.5% figure the Growth Commission assumed
  1. An onshore deficit starting position of 5.9%10 which - as they modelled it11 - meant that spending growth would have to lag GDP growth by 1.0% to get to the 3% target after 10 years.
  2. Real GDP growth at a "long-term trend" rate of 1.5% - so spending lagging this by 1.0% would mean real spending growth of 0.5% pa.
Now it's surely obvious that you can't apply the 0.5% figure to the last 10 years, because the starting position 10 years ago was a worse deficit and GDP growth was of course slower than "long-term trend" - that's why austerity was deemed necessary in the first place.

So Justification Attempt No. 1 is clearly nonsense - and although it's not really our job, for fun let's try and see what happens if we apply the actual figures
  1. 10 years ago, Scotland's onshore defict was 8.8%12. Using a recreated version of the GC's model suggests that spending growth would have to lag GDP growth by 1.5 - 1.9% to get to the 3% deficit target after 10 years13.
  2. Actual real GDP growth for Scotland over that 10 year period was 1.0%14 - so spending lagging this by 1.5 - 1.9% would mean a real spending decline of (0.5) - (0.9)% pa

Depending how you choose to define "the last 10 years", average annual real spending growth (TME8) for Scotland within the UK has been 0.9% (06/07 to 16/17), 0.6% (07/08 to 17/19) or 0.4% (08/09 to 18/19).

So however you cut it, the reality of the last 10 years hasn't been anything like as bad as a 0.5 - 0.9% real annual spending decline. Of course it hasn't - if it had been Scotland's deficit would now already have been reduced to below 3%.

Justification Attempt No. 2

Freedom of Information requests are funny things. I stumbled across this one a while back and it is extremely revealing. It includes emails that were being exchanged with the SNP on the same day that our These Islands response to the Growth Commission was released. The following caught my eye:

It's nice to know that "Special Adviser to the First Minister" Callum McCaig was paying attention (*waves*) - I wonder who the redacted recipient of this email could possibly have been?

But what should interest us most here is what this tells us about the analysis they used (internally) to justify their claim - presumably this is the "I've got some analysis" that Sturgeon referred to in the Chamber.

First of all, we have the familiar SNP trick of playing fast and loose with the concept time.

We've recently (November 2019) seen Ian Blackford referring to "the last 40 years" when he's actually talking about a 32 year period up to 2011-12. Now we discover that in July 2018 when Sturgeon referred to "the last 10 years" she was actually referring to a period that included 2 years into the future!

But the SpAd is right when he says that the starting year makes a difference - what they've done is ignore 3 years of generous spending increases which, needless to say, had they been applying the Growth Commission's recommendations then Scotland wouldn't have seen. Over the three years they conveniently ignore, average real expenditure (TME) increased by 2.4% pa which was an average of 3.4% pa more than GDP growth (because recession)

["bailing out the banks" is a red-herring - GERS only sees a per capita share of the "P&L" impact of the bail-outs (see here) - the impact in 2010 GERS was just £0.7bn or 0.5% of GDP, hardly significant in the context of the numbers we're considering]

What they apparently have now done is applied the 1.0% "spending lag" to the actual GDP growth rates over their "last 7 years plus the next 3 years forecast" definition of the last 10 years (i.e. instead of blindly applying the 0.5% real growth as per Justification Attempt No. 1) .

But there's a huge problem here - they've applied that spending lag of 1.0% which was calculated based on starting deficit of 5.5%. The actual onshore deficit in their chosen base year of 2010/11  - precisely because of those years of spending growth they've conveniently ignored - was 13.2% 14

If you're following what's going on here the issue is obvious: with that starting deficit, to get the deficit down to 3% within a decade (the Growth Commission's First Fiscal Rule) would require a "spending lag" of far greater than 1.0%.

So we've shown that Justification Attempt No. 2 is also nonsense - and again, althought it's not really  our job, for fun we can have a quick go at estimating the "spending lag" required to get from a 13.2% deficit to a 3.0% deficit in 10 years. I have had a go (using the Growth Commission's modelling methodology) and I reckon the figure becomes something like a 3.0% spending lag required.

So even taking the "long-term trend" GDP growth rate of 1.5% pa, I estimate that applying the Growth Commission's model to the 2010/11 starting conditions would imply real terms spending cuts of 1.5% pa for a decade. Even allowing for "through the business cycle" caveats, it's clear that this would have been far more extreme austerity than Scotland has actually suffered.

Now whether my quick attempts to correct the SNP's assertions are right or not could be open to debate, but that's not really the point - what is clear is that the justifications they've offered (or that we've found out they're using internally) are clearly nonsense.

Nicola Sturgeon is frequently repeating the same false assertion - in the Chamber; on BBC1 and ITV; in interviews and in debates - and she should be held to account.

No amount of suggestion, psychology, misdirection, showmanship (or even bending of the concept of time) should be allowed to distract from this simple fact: Sturgeon's claim that applying the Growth Commission's recommendations on spending over the last decade would have spared Scotland from austerity is as shonky* as hell.

*shonky: dishonest, unreliable, especially in a devious way.



1. I'm a fan - that description is his own from the dust-jacket of "Tricks of the Mind" (which I highly recommend)

2. "If [the Growth Commission's] recommendations had been implemented retrospectively we'd have escaped Tory austerity over the last decade"

3. See exchange with Richard Leonard at 47:20: "In fact if we'd had the Growth Commission's recommendations implemented over the past decade, we wouldn't have had the austerity that we've suffered under the Tories, that's the reality"

4. Directly from the Sustainable Growth Commission report:

page 42
Page 45
Page 92
Page 101

5. The report used the phrase "within 5 to 10 years" which is just the same as saying "within 10 years" (unless anybody is going to suggest that they're implying they wouldn't want to have the deficit below 3% of GDP in less than 5 years?)

6. It's important to note that when modelling deficit reduction over a 10 year period, the Growth Commission simply use "trend GDP growth" (which given the inevitable economic disruption that separating from the UK would cause - leaving the UK single market, leaving the Sterling currency union, losing the fiscal transfer from rUK - is arguably a very optimistic assumption). More importantly: as we see in the two attempts to justify these assertions, at no point do the SNP present a case that suggests they'd have changed historical rates of GDP growth.

7. Source GERS (the same base data the Growth Commission used) for 2018-19

8. The sound-bites offered by the SNP tend to refer to the "Scottish Budget" - of course the Growth Commission's recommendations relate to Scotland's total expenditure ("Total Managed Expenditure" in GERS terminology) which includes rather important costs that are outside Scotland's Budget, not least Social Welfare costs including pensions. It's impossible to read across from the Growth Commission's spending restraint recommendation to specifically what that would mean for only those costs in the Scottish Budget, as the GC make no specific recommendations about Social Welfare spending (for example).

9. I considered sharing a screen cap of the DM but that feels like crossing a line - but if any journalists or fact-checkers want to see confirmation of this I would happily provide

10. This is in itself a hugely optimistic assumption based on some highly questionable analysis - but I don't want to get bogged down in those arguments which were covered in These Islands Growth Commission Response: A Reality Check. Similarly the target of a deficit of 3% of GDP within a decade is insufficiently aggressive on the Growth Commission's own terms, as covered in the These Islands Growth Commission Response: Aiming Too Low, but I'm trying to avoid this blog re-running too much ground that's already been covered

11. There is a wrinkle in their model which (see B12.19) in that they assume "savings of 0.3% GDP associated with investment in best-in-class institutions realised over a three year period from year 5" - that basically makes it easier for them to get to the 3% figure in 10 years. Bar that wrinkle and the impact of assumed debt interest on new debt, the model is incredibly simple: revenue grows with GDP, Spending grows more slowly (by the "spending lag") and hence the deficit must come down.

12. As we'll come on to see, the definition of "10 years ago" will become important. Here I have used 2007/08 as the starting position: this is the year the SNP came to power and - given these initial assertions were being made in May 2018 so we'd just completed year 2017/18 - that seems like 10 years ago to me. The second definitional issue we have is "onshore deficit" at that time (the onshore deficit is the figure the Growth Commission consistently use) - per most recent GERS (so dealing with any historical restatements) the 2007/08 onshore deficit was £12,774m. If we divide that by onshore GDP of £120,929m we get a figure of 10.6%; if we divide it by total GDP of £145,372 we get a figure of 8.8%. To err on the side of caution, I have taken the lower figure.

13. The previous conclusion we drew when modelling this was that a lag of 1.5% would be required - the analytical challenge relates to what one assumes in terms debt costs for the counter-factual historical case. The higher figure comes from simply taking the forward model (as per our recreated Growth Commission model), changing the "legacy deficit" assumption to be as per the historical deficit and then working out what the lag would need to be to get to the deficit to 3% after 10 years - that gives the higher end of the range (basically because we're having to service more incremental debt in the future model because we're no longer sharing our deficit with the rest of the UK)

14. This gets a little tricky as at the time Kate Forbes and Sturgeon first made their assertions, the latest GERS figures available were for 2016-17; since then 2017-18 and 2018-19 figures have been published and of course these will include historical restatements / corrections. Taking the most recent 2018-19 version of the figures, over either of the 10 year periods from 06/07 to 16/17 or 07/08 to 17/18 gives the same answer of 1.0% annual GDP growth [the 10 years to 18/19 would now give us a 1.2% average]

15. Again using the latest (2018-19) GERS report: the onshore deficit in 2010-11 was £19,607, onshore GDP was £124,611m and total GDP was £147,983 - again I'm erring on the side of generosity by using total GDP as my onshore deficit denominator


Anonymous said...

I think the other elephant in the room is this: they are anticipating continued GDP growth forever, whereas it is a mathematical certainty that, sans the fiscal transfer, defence contracts, the naval base at Faslane, etc, and the resultant multiplier effects, Scotland will end up in an economic morass
- my upper end prediction is that 20% will be wiped off her current GDP by end of year 3 - which would be cataclysmic and take decades to recover from. I almost want to see this happening, in order that the people pushing this can be shown to be the fantasists that they undoubtedly are.

Anonymous said...

According to "Country and regional analysis: 2019" published November 2019

Table A.2b Total identifiable expenditure on services by country and region per head (1) in real terms (2), 2014-15 to 2018-19

Increased public spending per head:
+£257 = Scotland
+£66 = Wales

Reduced public spending per head:
-£226 = N Ireland
-£36 = England

Identified Per head expenditure 2018-18

£11,590 = N Ireland
£11,247 = Scotland
£10,656 = Wales

£9,296 = England

Anonymous said...

"my upper end prediction is that 20% will be wiped off her current GDP by end of year 3 - which would be cataclysmic and take decades to recover from. I almost want to see this happening"

From the perspective of an Anglo-Scot who has moved from Aberdeen to central southern England and who has seen the impact of austerity down here, I can understand this sentiment and have sympathy with it. My suspicion is that there is an implicit belief among many Scots that if everything goes wrong after independence then the English will be around to save the day. After all, they helped bail out Irish banks didn't they? (and noticed how little thanks they received from Dublin).

It is already apparent to me from personal contact that there is a steadily growing and almost total indifference among ordinary English people to Scotland's fate, a feeling that the Scots have done significantly better from the Union than they have in recent decades and yet constantly complain how hard done by they are by 'Engerland'. Nicola Sturgeon is loathed by all I know down here and there is a growing realisation of the underlying Anglophobia in so many SNP pronouncements and actions.

Breaking the union through independence will cause huge resentment 'down south' ('why do they hate us so much?'), and there will be concern that creating a new economic basket case across the border will lead to an influx of unwanted Scots emigrants seeking jobs. I predict that there will be no sympathy or friendly sentiment for Scotland among those without family contacts there and they will soon be seen as just another (and not very friendly) European country. Many English people will simply not care if a hard border is created, if there are movement restrictions on Scots, or if Scottish imports are reduced, as the affectionate feeling towards the Jocks that has existed for decades is rapidly being washed away.

The nationalists continue to delude themsves that the rest if the UK will pay their pensions, depend on their economy being propped up by oil (and that bubble is already burst), will share or use their pound sterling without problems, will flock to their universities, build their warships there, etc. No, Trident will move south (Falmouth?), high speed rail links will cease at Manchester, ships will be built at Birkenhead and Portsmouth again, renewable energy and nuclear power will replace oil, fiscal transfers wil disappear, the financial industry will head to London and the Scots economy will find itself mired in debt, huge economic strains and a worthless currency. Those Scots who can afford to will relocate to Cumbria and Northunberland.

But there who be one great benefit:

Scotland will have achieved Freedom at last and can blame all its new problems on the wicked historical exploitation of the English colonial power. That should generate enough heat and energy until the EU and IMF decide to bail them out to avoid a humanitarian crisis. Somehow, I don't see London making any great effort to assist. If Scotland remakes its bed then it should be prepared to lie in it without expecting the English to do the laundry afterwards.

Andrew Carey said...

I've got a problem with these claims from the pinned tweet:
"if Scotland were independent the deficit would need to be controlled by dramatically cutting public services"
"leaving the UK means losing £10bn pa that Soctland currently gets from the rest of the UK through fiscal pooling and sharing"
Neither claim is true in my view although they do contain truth, they are exaggerated. First up, I should declare that my ideal outcome would be an independent Scotland outside of the UK and EU which is able to set the vast vast majority of its own laws and regulations. Keeping free movement of people, goods, capital and services is a good idea. The Norway or Icelandic model of cooperation with your neighbours if you like. Unilateral free trade added on top would be even better. ( Hey, I can wish ).
So why are the quoted claims wrong?
Let's assume Sco is 10% of the UK in population and GDP. It isn't but it makes the numbers easier.
UK governmental foreign development aid of around 13bn a year is not a public service that benefits Scotland. Let's allocate 1.3bn of that to Scotland and keep the part that deals with humanitarian relief, disasters, and communicable diseases. That's £1bn of the deficit already and no impact on public services in Scotland.
UK net contribution to the EU is around 10bn a year. Let's allocate 1bn of that to Scotland and abolish it. This deficit is starting to come down now, right. Impact on public services in Scotland is nil. Scotland wasn't 'getting' this money anyway, it's just allocated in such a way that you include it in the amount Scotland gets.
Landowner subsidies incident on owners of large areas of agricultural land in Scotland are around £1bn a year. Let's abolish this. There's a wealth of literature that farmland owner subsidies are not a public service. There's even analysis that abolishing subsidies increases national income by three times more than any other cut in a government's budget because the resources get allocated to something more productive. So national income will grow in the long term.
That deficit is coming down a lot, and no impact on public services so far.
What about Scotland's share of the UK national debt. That's about £3-4bn a year allocated to Scotland in Scotland's overspending figures. This is not a public service, it's a return to people who bought UK government bonds, but reneging on them could mean less investment , a loss of trust and capital flight which would affect public services. Can Scotland negotiate to defer its portion of say half of this for 30 years - the English do like Scotland and control the printing press down there - I think something like this could be done.
So another 1.5bn off that deficit and no impact on those public services.
Do you get the idea Kevin?
I could get the deficit down further, without affecting 'public services' but I've picked the low-hanging fruit first.
So will you withdraw your claim that Scotland gets net £10bn pa net? It appears to, because we allocate the spending in such a way that Scotland appears to get it, but from subsidies to landowners, to the EU, to foreign development which makes the giver poorer and the receiver no richer ( Reynal-Querol, Besley, Montalvo : Curse of Aid, is my reference ) to bond holders, a lot of this 'net' is not incident on Scotland already.

Alastair McIntyre said...

Nicola is good at deception. I remember writing to her to ask why she was so convinced that Scotland had to be in the EU after Independence as it seemed to be while you got an Independent country you then gave away a lot of that Independence to the EU.

Her answer was to say that the EU was Scotland's largest export market. Now of course I then discovered that in fact England was our largest export market by a long way followed by the USA and then the rEU.

So by saying the EU was the largest market she was telling the truth as at that time England was part of the EU. BUT you can see she is being economical with the truth. This is why you really can't trust anything the SNP say and so your analysis shows yet again why you need to fact check everything they say.