Dissecting a Deception

tl;dr
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

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

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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.

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Notes

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