What GERS can and cannot tell us

This meme is frequently shared by independence supporters as if it's some kind of "gotcha!". The quote comes from a radio interview I did with the perpetually confused Richard Murphy. He was indulging in his usual schtick of dismissing the GERS figures as "made up" and criticising them for presenting actual historical figures instead of hypothesising some imagined future scenario of Scottish independence.

Here is the verbatim extract, you can check for yourself

Murphy: "[...] let's not pretend GERS gives any useful information to a politician in Scotland, because it doesn't, it's literally made up information from the the rest of the UK, we have no idea if it's accurate [...] GERS cannot tell us [...] whether Scotland can survive independently or not, this data is not fit for purpose"¹

Hague: "Well,  I mean first of all, the key thing is they are fit for purpose - the most important thing is understanding what that purpose is. So Richard finished his piece there by saying they can't tell us what an independent Scotland's finances would look like - that is of course absolutely true; what the GERS figures do tell us is, historically, how do Scotland's revenue and expenditure figures look as an integral part of the UK [...] as long as you understand the data, as long as you understand what the data can and cannot be used for, it is good data [...] But Richard is right on one point, which is all it tells is is where we start from, it tells us how the Scottish economy currently performs as an integral part of the UK - and that is all it can do, that is all it is expected to do"

The fact that the GERS figures are historical actuals that describe Scotland's economy as an integral part of the UK should hardly be a revelation to anybody, but the nature of online debate is such that this observation is somehow considered meme-worthy.

If it needs spelling out any further², then let me do so again here:

The GERS figures describe Scotland’s historical finances, with Scotland raising taxes and incurring public spending (including reserved expenditure) as an integral part of the UK. From the perspective of hypothesising a possible future independent Scotland, we are looking at what in financial accounting terms would be considered pro-forma accounts.

So of course the figures do not tell us what the future accounts of an independent Scotland would look like - how could they? They do however describe the starting point (the “run-rate”) from where we can start to consider the possible impact and fiscal implications of independence.

Precisely how independence would change Scotland’s economy is of course a hugely complicated subject that require us to consider, amongst other factors;

• The outcomes of uncertain negotiations around inherited share of UK debt and potential EU membership

• The challenges of either sustaining money-supply under Sterlingisation or of building the reserves requires to support a new independent Scottish currency [see here]

• The explicit tax and spend choices that the government of an independent Scotland might make (inevitably constrained by the outcomes and decisions above) which would include choices around wealth redistribution, defence spending, industrial and economic policy, international affairs, debt and deficit management, social policy priorities and much more

• The costs involved in replicating the delivery of services that currently rely on shared infrastructure with the rest of the UK (e.g DWP and HMRC functions)

• Depending on the outcome of EU membership negotiations, the possible impact of trade friction between Scotland and  the rest of the UK (the destination for 60% of Scotland's exports)

• The impact of factors outside the Scottish Government’s direct control such as how businesses and the labour force would respond (e.g. possible capital flight), the global oil price, international credit ratings and the cost of Scotland’s debt

• The cumulative effect of all of the above (positive or negative) on Scotland’s economic growth

Now look again at the beginning of the Murphy quote above: when he says “let's not pretend GERS gives any useful information to a politician in Scotland, because it doesn't, it's literally made up information from the the rest of the UK, we have no idea if it's accurate" he is insulting: the Scottish Government’s own economists who compile them; the National Statistics Authority who award them National Statistics accreditation; the authors of both the Independence White paper and the SNP's own Sustainable Growth Commission who used the GERS figures as the basis for all of their analysis.

In fact, there are no respected economists who dimiss the GERS figures as "bad data"

I've dealt with the details of Murphy's publicity-seeking confusion over GERS before here but- for completeness - let's remind ourselves what happened when a well-briefed politician challenged Murphy on some of his more extreme assertions in front of a Holyrood committee:



/ends/

Notes

1. His opening ramble is over 2 minutes long - this is very much his style: he chucks out so many daft assertions in one go that it becomes impossible to refute them all in response without descending into a similarly lengthy and confusing statement. His objective is obfuscation and - give him his due - that's one thing he is good at it

2. I really have been very consistent about this - the following from 2016 alone

"Nobody is arguing that things would remain the same. Those of us who argue for rational debate simply ask for those making the case for independence to actually explain coherently what the different "economic strategy" would actually be and provide a realistic assessment of how (and by how much) it would change the figures compared to those of Scotland being within the UK." - Chokkablog August 2016

"We should be very clear about what this analysis of historical fiscal data can and cannot tell us. The figures only tell us how an independent Scotland’s finances would have looked if we had already been independent but were still raising taxes and incurring public spending (including reserved expenditure) as we have been as an integral part of the UK. We are looking at what in financial accounting terms would be considered pro-forma accounts. The figures do not tell us what the future accounts of an independent Scotland would look like. They do however describe the starting point (the “run-rate”) from where we can start to consider the possible impact and fiscal implications of independence." - Chokkablog March 2016

"All I have been attempting to do is ensure we have clarity around our starting point. Were we to be independent or fiscally autonomous now, what would our pro-forma accounts look like? What is our economy's run-rate? This frames the debate, shows the size of the challenge. If we are all honest about this starting point then maybe we can have an interesting and constructive debate" - Chokkablog June 2016

"This onshore deficit gap matters because it is revealed - it becomes real - as oil revenues decline. This is not to say that were Scotland to be independent this gap would remain; it might narrow, it might widen. It merely gives us an idea of the run-rate relative disadvantage we would be starting with if we sacrificed the benefits of UK-wide pooling and sharing (assuming the days of significant oil revenues are indeed behind us). If you like, it's the head-start we'd be giving to the rest of the UK." - Chokkablog February 2016