Tuesday, 3 December 2019

The SNP: Living in the Past

The SNP's Ian Blackford recently made the following statement (presumably to Adam Boulton) on Sky News:
"But the simple fact of the matter, Adam, is that if you look back over the course of the last 40 years, UK Government figures make it absolutely clear that Scotland has subsidised the rest of the UK in most of the last 40 year period.”
This set alarm bells ringing for those who pay attention to this sort thing, because it is a statement dramatically at odds with the Scottish Government's own data.

Following a minor Twitter storm, Channel 4's @FactCheck had a look at it and published a Fact Check which concluded that it was "impossible for us to stand up Mr Blackford’s claim at the moment". Some of us thought that was an extremely generous conclusion and this blog will, I hope, explain why.

An aside on Channel 4's FactCheck: I have spoken with one of their team who took the time to call me and explain why they had written what they have. I appreciate that they have a policy of not doing analysis, but rather following the audit-trail offered to them for any claims made. Whilst I will come on to show why the audit trail they were sent down was perhaps a dodgy path, I want to be clear that this blog is a criticism of Blackford's claim, not of Channel 4's FactCheck. Heaven knows, given the breadth of issues they have to cover, we can't expect them to be as familiar with the intricacies of Scotland's economic data as sad souls like me who have buried ourselves in this topic for more than 5 years now.

What's particularly useful about Channel 4's FactCheck is that they have clearly spoken with the SNP (as of course they should) and been told how they attempt to justify the claim. FactCheck quote an SNP spokesman (*waves*) as saying:
"We have demonstrated to you using official government statistics that Ian Blackford’s comments are correct. The evidence shows that tax revenues per head in Scotland have been considerably higher than the UK – that has unquestionably subsidised UK public spending over the period."
We'll come back to this statement, but first let's clarify what's going on here.

According to FactCheck, the claim is based on a publication in April 2013 which relied on "An Experimental series of historical fiscal balances for Scotland 1980-81 to 2011-12". We'll refer to this data source from here forward as the SNAP data (as it's colloquially known1).

So here's the first point, as rightly made by FactCheck: "The stats only cover 1980/81 to 2011/12 (that’s 32 years), and recent years are missing".

Pause for a moment.

So when Blackford said "the last 40 years" he was actually referring to "the 32 years up to 2011/12"?

That's a 32 year period that ended 7 years ago!

Fun fact: in 2011/12 that SNAP data showed income from North Sea oil for Scotland of £7.9bn. Anybody with even a passing familiarity with what's been happening to tax revenues from the North Sea will immediately see the issue that's coming here - but let's step our way there carefully.

Here's another area where I have sympathy with Channel 4's FactCheck - I've followed enough audit-trails offered by the SNP to be familiar with their shoddy approach to data sources.  In fact those SNAP figures were updated to cover the 33 year period to 2012/13 [here] so from here forwards the most recently available SNAP figures are the ones I'll use. I presume the information FactCheck link to was as given to them by the SNP - and it's perhaps not unreasonable for them to assume they'd been pointed at the most recent data by the people attempting to justify Blackford's claim.

OK, so let's see what that SNAP data shows us (before we come on to the SNP's attempted debt-dodge).

First we need to understand how we can identify when Scotland could be considered to be "subsidising" the rest of the UK.

Scotland is allocated a population share of the UK's debt costs both in the SNAP data and in the more up-to-date and accurate GERS data that we'll come on to consider. This means that Scotland is considered a net contributor to the rest of the UK when it's per capita deficit is lower than the UK's per capita defict (and vice-versa).

A corollary of this is that - assuming Scotland is accruing responsiblity for a population share of the UK's debt -  when Scotland is responsible for less than its population share of growth in that debt, it's net contributing to the rest of the UK2.

So let's graph that SNAP data and see what's going on - this is the difference between Scotland's SNAP deficit per capita and the UK's deficit per capita (from the same source):

[note: "1980" = 1980/81 (and so on) and all figures are deflated using the UK GDP deflator]

When that line is above the axis, Scotland was a net contributor to the rest of the UK, when it's below it was a net beneficiary.

So immediately we can see a profile which will be familiar to regular visitors to Chokkablog: Scotland was a massive net contributor to the UK when oil boomed in the 1980's but - according to the experimental data as presented by the Scottish Government in 2014 - from 1998 onwards we pretty much just paid our way.

So far so good. If we accept setting the clock running just as we strike oil and if we accept that Scotland gets to "keep" oil revenues from oil fields in Scottish waters (which is what these figures assume) then the SNAP data shows Scotland being a material net contributor to the UK over the 32 years between 1980 and 2012.

In fact if we accept these assumptions and add the annual numbers together, it works out at a cumulative net contribution from Scotland of nearly £16,000 per person. It's Grievo-Max time and perhaps one can see why Ian Blackford wishes that's where we still were.

But let's remind ourselves what Blackford actually said: "UK Government figures make it absolutely clear that Scotland has subsidised the rest of the UK in most of the last 40 year period."

Well it's only "absolutely clear" that Scotland "subsidised" the rest of the UK when that line is above the axis  - and you'll find that's the case in just 15 of the 33 years shown. So even using this extremely out-of-date data (that conveniently stops just when oil revenues crashed) the statement "in most of the last 40 year period" is not supported.

But more importantly, we're not still in 2012.

Time doesn't stand still, oil reserves are finite and we have both more recent figures and a better handle on the figures for some of the years covered by SNAP - we have GERS.

GERS [Government Expenditure and Revenue Scotland] figures are compiled by Scottish Government economists in St Andrew's House and - unlike the experimental SNAP data - they qualify for the National Statistics Kitemark. Thankfully we don't need to re-run the tired old arguments put forward by GERS-deniers to be able to agree that GERS is better data than SNAP - that point at least should be beyond dispute.

Now FactCheck baulked when they realised that the GERS data only goes back as far as 1998/99. I guess that's fair enough; they wouldn't necessarily know how or if GERS figures reconcile with SNAP figures  - and you'd need to be familiar with the reporting history to understand how to explain the apparent inconsistencies.

But fortunately we can deal with those issues because we've been down this road (so many times) before.

It's easy to plot the two sets of data and see how they overlap:

So immediately we can see that where the data overlaps the more recent and more accurate GERS figures show a (slightly) worse picture for Scotland than the SNAP data.

The simple explanation is that revisions made by the Scottish Government's own economists to the historical figures reduced the amount of North Sea oil revenue that they believe should be attributed to Scotland. The most dramatic adjustments were made in the 2016-17 GERS figures - I highlighted this at the time. To avoid getting bogged down in the detail of that here, see note 3 below.

Of course even more significant than the correction downwards in the overlapping years is the dramatic shift to Scotland becoming a large net beneficiary of the UK in the last 7 years (as North Sea oil revenues have declined).

So if we use the best available data (GERS after 1998, SNAP before) we can create a full time series against which we can fairly judge Ian Blackford's claim:

Remember: when that line is above the axis, Scotland is a net contributor to the UK, when it's below Scotland is a net beneficiary.

You can see why Ian Blackford wishes the world had stood still in 2013 (and that he could ignore Scottish Government data corrections), but I don't think that makes it acceptable that he makes assertions assuming that were the case.

The more eagle-eyed among you will have spotted this is in fact a 39 year time period, but that's by-the-by (it's closer to 40 than 32 is!). Now let's check Blackford's statement against this best available data:
"UK Government figures make it absolutely clear that Scotland has subsidised the rest of the UK in most of the last 40 year period"
In fact these figures (which come from the Scottish Government, albeit they include UK Government figures) show that - to adopt Blackford's own terminology - Scotland has subsidised the rest of the UK in only 12 of the last 39 years.

So not "in most of" them then - that's simply wrong.

But more importantly, unless we believe a time-machine is going to be an option in any future referendum4, we really should look at the more recent run-rate. That shows us that in every one of the last 10 years Scotland has been a net beneficiary of UK-wide pooling and sharing, in recent years to the order of £2,000 a year for every man woman and child in Scotland.

That figure shouldn't suprise anybody paying attention: £2,000 x a population of 5.4m = £10.8bn - that is the effective fiscal transfer that people like me have been banging on about ever since 2014/155, when we could see that this would be the result of oil revenues falling away.

What about that cumulative figure that showed Scotland having net contributed £16,000 per person between 1980 and 2012 (per the SNAP data)?  Well that figure now (using the best available an dmost up-to-date data) works out to now be just £2,000 per person as of 2018.

Given we're well into 2019/20 and we can be confident that the fiscal transfer (I don't like "subsidy") this year is going to be similar to the last few years, as we sit here today it's fair to say that, in real terms, Scotland has got back from pooling and sharing as much as it has paid in since 1980.

Isn't that great? Pooling and sharing since 1980 has worked out to be pretty much neutral for Scotland and - as long as Scotland remains in the UK - the fact that going forwards Scotland looks set to continue to be a net beneficiary is nothing to be embarrassed about: what goes around comes around.

It's not a "subsidy" - its UK-wide pooling and sharing in action.

But wait: remember I said all this was before the SNP's debt-dodge?

Well this is based on an extremely dubious interpretation of a thought-experiment that Prof Brian Ashcroft proposed way back in 2013. At that time he hypothesised that (again: if the clock had started in 1980, if Scotland could have kept it's geographic share of oil revenue) then Scotland could have been debt free - so what if Scotland didn't pay for a population share of the UK's debt?

Apart from the obvious point I've already made (we don't have a time-machine option) the flip-side of that assumption is that now Scotland is contributing far more than it's population share to the UK's debt, you'd need to be allocating more than a population share of the interest costs of that incremental debt. I'm sorry but this really does start to get a bit silly.

But you know what?  Let's see what the figures would  have looked like if Scotland paid nothing towards the UK's debt costs over that time (i.e. this is a debt-free Scotland vs a debt-burdened UK):

So even with this frankly outrageous assumption [i.e. that we're running a massive deficit and paying no debt costs because we've somehow jumped in a time machine and created an oil fund instead of pooling and sharing with the rest of the UK] we'd still be in a situation where Scotland is now a significant beneficiary from UK-wide pooling and sharing, even if we pay nothing towards the UK's debt costs.

Now of course you could start arguing that in the time-machine scenario Scotland would have invested in an oil fund which by now would ..... ahhgggghhhhhh make it stop!

We can't change the past: decisions we make now should be based on where we are now and reflect what we can see is happening to revenues going forwards not looking backwards.

But let's finish where we started: with Ian Blackford's claim and the statement made by the SNP spokesman:

"We have demonstrated to you using official government statistics that Ian Blackford’s comments are correct."
Well given this was by reference to 32 years of SNAP data that stopped in 2011-12 and did include a population share of UK debt costs ... no you haven't.

"The evidence shows that tax revenues per head in Scotland have been considerably higher than the UK ..."
For what it's worth that is true, but only "considerably higher" because of oil revenues (which is why it hasn't been true for the last 5 years) ...

[note: green = onshore revenue only, black = inc geographic share of oil revenues; for SNAP/GERS overlap see note 6.]

... and of course that observation fails to consider the impact of higher per capita spending levels in Scotland, which have "been considerably higher than UK" for every one of the last 39 years (and that gap in spending is actually growing significantly - thank you Joel Barnett)

[note: for SNAP/GERS overlap see note 6.]

"... that has unquestionably subsidised UK public spending over the period."
Well I'm sorry, but if anybody has read all of the above and believes that statement is an accurate representation of reality ... well I give up.



1. Among people who are sad enough to need colloquial short-hands for different Scottish Government data sources - in this case it refers to the Scottish National Accounts Project

2. This is not a controversial assumption and is consistent with base approach taken by Prof Brian Ashcroft whose analysis from 2013 is cited by FactCheck (I presume having been pointed in that direction by the SNP's spokesman).  It's perhaps only fair to point out that Prof Ashcroft has reviewed and approved my analysis in this area before (see here).

3. Extracts from GERS 2016-17: there are of course other adjustments every year, but this North Sea revenue adjsutment was the one that had the most dramatic impact on the historical view of Scotland's deficit

4. It isnt - at least not one that allows people to travel back in time, otherwise they'd be here now telling us about it

5. Readers of this blog will have seen this graph in April 2015 - it shows how the "onshore deficit gap" (the difference between the blue line of relative onshore per capita revenue generation and the red line of relative per capita spending ) was fairly constant at around £9bn pa ... and that this gap was sometimes "washed away"by North Sea oil revenues  (the black line adds oil revenue per capita difference to onshore revenue)

We can bring this right up-to-date now (with GERS data that now corrects the historical over-statement of oil revenues) and we can see that even including current oil revenue the deficit gap has grown to over £11bn (because of the widening gap between per capita spending in Scotland and rUK).

I know people get confused by the difference between the deficit, the deficit gap and the effective fiscal transfer, so here's a simple summary:

6. For completeness, these graphs show the overlapping SNAP and GERS data, so you can see how the SNAP data compares when more accurate GERS figures are available.

On the revenue figures it's clear that the big correction is the (Scottish Government economists') downwards revision in assumptions about oil revenues attributable to Scotland - it would be interesting to see the same corrections applied back to 1980, but I suspect there isn't much political will to get that done

On the cost figures (note the left-hand scale is much smaller than on the revenue graph) the effect of the SNAP/GERS revisions are fairly marginal


Jock Tamsons Bairn said...

"They don't like it up 'em Pike " :-)

Eric Martin said...

so as the Tardis - or other time machine is not available, assuming we inherit the population share of the debt plus current spending and what is day 1 scenario?
just to keep you busy
assuming we "use" the pound - we would have UK rules?
assuming we move to using the euro (then I guess EU rules)
and finally what about bringing in the Groat

Thanks for all your analyisis!

Ronnie Laing said...

If Blackford assumes no debt falls to Scotland then he has to factor in its place somultaneously the cost of setting up as a separate state and Reserves for a central bank, and also calculate the impact of the financial crisis on an independent Scotland at that time.

The cherry picking of a date just before oil revenues maximised is statistical manipulation. And the ending of the analysis in circa 2012 compounds that manipulation by excluding huge deficits in recent years.

The most recent years are the bedrock for illustrating the position an independent Scotland would start from, and thatsca circa £12bn annual deficit meaning unprecedented cuts to spending, and certain recession.

Anonymous said...

"what is day 1 scenario ?"
The approx. loss of £10.7bn of UK Gov Fiscal Transfer to the Scottish Spending budget its currently paying for about 16% of Scotland's own Public Services.

"assuming we use the pound - we would have UK rules ? No, Scotland would have no control of Interest Rates or of money supply ("not all the levers"), "using the UK£" (Sterlingisation) is not at all the same as "sharing the UK£" in a true Currency Union see info in this link. https://www.these-islands.co.uk/publications/i330/choose_your_poison_the_snps_currency_headache.aspx

I see Kevin in a previous life was the "the turnip thinner of lanzarote "
and has kept this up to the present day by being the "Turnipheid thinner of East Lothian"