Thursday 27 August 2020

Apples and Pears: GERS

The Scottish Government's economists yesterday published their latest Government Expenditure & Revenue Scotland (GERS) figures. I'll publish a more complete analysis on this blog soon, but the bottom line is they just confirm what we already know:

  • Mainly because of Scotland's spending per head being 12% higher than the UK average, Scotland has a far higher deficit/GDP than the UK as a whole
  • The scale of Scotland's notional GERS deficit (8.6% of GDP) is such that it would be unsustainable were Scotland to be independent or fiscally autonomous within the EU
  • The net effect of UK-wide pooling and sharing remains a fiscal transfer in Scotland's favour of £10.7bn a year or roughly £2,000 for every man, woman and child in Scotland

I wrote a brief summary of what this means for the Daily Record - it's the same old story.

But there is a piece of detail in the GERS report I want to draw attention to, because it illustrates the danger of the £2,000 per head number becoming a totemic figure in debates about Scottish separation. The table I'm referring to is on page 38 and details both Scotland and the UK's net contributions to the EU budget:

Let's get the Leave campaign's "£350m on the side of a bus" lie sorted first: you'll see the last row of the table show's the UK's net contribution to the EU was around £10bn pa, so in fact just under £200m per week. Of course the genius of the Leave campaign was to quote a false number so that we all kept talking about it - who honestly thinks the man in the street cares whether it's £200m or £350m? Either way its a big number and a big net cost. 

The true £10bn pa net cost to the UK is (coincidently) very similar to the net transfer that Scotland receives from the rest of the UK. Perhaps more relevantly, it's the equivalent of about £150 per head for every person in the UK.

Scotland's figure is a roughly £0.5bn pa net contribution to the EU every year, or about £100 per head (although without the UK abatement it would be nearly double that).

Here's the problem.  When people hear the "£2,000 per head fiscal transfer from rUK" number, common responses include "so what: leaving the EU is economically damaging and it didn't stop us" or "but the cost of leaving the EU is far greater". 

This is the danger when complex economic debates become reduced to a couple of headline-grabbing figures - people intuitively response by grabbing hold of the headline numbers (or arguments) they can remember ... and often end up making false "apples-for-pears" comparisons in the process. 

Let me explain.

Putting aside the EU exit charge, the annual impact of leaving the EU for the UK is a direct, day-one saving of c.£10bn pa or £150 per head. The comparable figure for Scotland leaving the UK is a direct day-one loss of  nearly £11bn pa or £2,000 per head.

So on a like-for-like "apples-for-apples" basis, the economic arguments are not even vaguely comparable. The UK leaving the EU prevents a £150/head transfer out from the UK, Scotland leaving the UK prevents a £2,000/head transfer in to Scotland.

The important point (both for Brexit and Scexit) is that this represents only the day-one fiscal tranfer impact before the impact of separation on our broader economic performance. It assumes nothing else changes - and the one thing that Scottish separatists and those of us who believe in UK-wide solidarity can agree on is that an awful lot would change (it's just the direction and scale of that change we disagree on).

The big headline "cost of Brexit" figures (e.g "£200 billion by the end of 2020") refer to this wider economic impact - normally an estimate of a cumulative GDP impact versus an alternative Remain scenario.

So what would the equivalent "cost of Scexit" figure be?

The first thing to note is the answer to that question is most definitely not the annual £10bn+, £2,000 per head figure that has become so totemic in this debate. If you've followed the logic up to here, you will realise that is a completely different additional cost that exists with Scexit, something which in Brexit terms was in fact a benefit.

Quantifying the long term economic cost of Scotland leaving the UK is of course not easy. Indeed Sottish separatists will argue that being freed from the contraints of Westminster will lead to a flourishing of the Scottish economy - but in doing so they echo the language of the Brexiteers and are falling into the same trap.

If we agree that Brexit will be a big net economic cost (I certainly do) then logically the equivalent economic cost for Scotland leaving the UK will be so much greater. 

The main driver of the Brexit downside is the risk of introducing trade friction with the EU. Scexit risks introducing trade friction between Scotland and rUK - and Scotland exports 3x more to rUK than we do to the EU (even after over 40 years of unfettered EU market access).

But Scexit introduces additional downsides: we share a currency, a welfare state and deeply integrated machinery of state within the UK. Leaving the EU will be a cake-walk in comparison - the economic cases are not even remotely comparable.

7 comments:

ScotsWaHay said...

All well and good but you'd think the polls would have registered, not reversed since 2014. What can be done to pull people to their senses?

John Silver said...

The people are coming to their senses and realising that being part of a union where apparently the bottom right hand corner is subsidising everyone else is as bizarre as it is irrational. The notion that only London and the home counties are economically viable and the whole rest of the UK is an economic basket case is clearly nonsense.

Andrew Carey said...

This fiscal argument against independence doesn't compute for me - so Scotland leaves the UK and if all else remains equal every not-Scot is better off. Well Scots like their nieghbours, so if they are better off, well that's good and good luck to them to.
And so what if the Scottish government is worse off by £2k/head. This is a serious question: what will happen? They will have to make some tough decisions, such as reducing spending, particularly on the UK's highest farmland owner subsidies but I can think of much else that needs a slash too, and they could increase economic freedom to boost GDP, and equalise consumption taxation across food, energy and other.
But let's say that Scotland doesn't follow good policy. Well they can kick the government out by persuading 65 MSPs that they've got things wrong, rather than having to petition Westminster and persuade 325 MPs that they've got economic policy wrong.
So with independence our neighbours gain, and we gain a more accountable government and hopefully fewer subsidies for the rich and more economic freedom, and a government that has to make tough decisions.
If the idea is being advanced that it would be good to be governed by a government with easy decisions and benefitting from large hand outs from our friends, then that is an idea that needs kicking over the posts at Netherdale. Imv, of course.
Yes Kevin you've demolished the SNP all right, but you have not diminished the case for independence, which will result in better governance and benefits for our friends.

Anonymous said...

If independence happens then all these good things will follow as inevitably as day follows night. Oh yes, of course they will.

Anonymous said...

Never mind whether it's the reality, eh, John Silver? It's bizarre, irrational and clearly nonsense as far as you're concerned, so let's have no part of it, however much it benefits us? FAFFS.

Anonymous said...



I just saw this , has he bothered to actually ask Scots what they want ? Or does he like other Politicians think they know better than we do. I do not want a federal UK this is simply just giving Nationalists another stepping stone , the SNP will be laughing their heads off at this. Doesn't he even understand the SNP's following in because ex Labour Members have been bombarded by fake propaganda for tha past ten years. None of the Labour Voters i know want more powers to the Scottish Government they want Labour to expose the SNP for the charletans they are. This stupidity will be the death knell for Labour in Scotland , how utterly deaf can a party ldership be. If this happens I won't be voting Labour any more after 40 years. I may have to finally considering moving South. What the hell are they thinking of, Nationalists don't want to make Devolution work nor will they want to make a Federal Scotland work. I'm completely sickened. https://www.heraldscotland.com/news/18922648.labour-leader-sir-keir-starmer-set-new-offer-devolution/?ref=twtrec&fbclid=IwAR385pInhh5gLo3a0Nax3QcwFjN3vpMVcAOJ_mFdbW2NavYEn7VSAkGouh4

Anonymous said...

(did i post this or not ..not sure)

I just saw this , has he bothered to actually ask Scots what they want ? Or does he like other Politicians think they know better than we do. I do not want a federal UK this is simply just giving Nationalists another stepping stone , the SNP will be laughing their heads off at this. Doesn't he even understand the SNP's following in because ex Labour Members have been bombarded by fake propaganda for tha past ten years. None of the Labour Voters i know want more powers to the Scottish Government they want Labour to expose the SNP for the charletans they are. This stupidity will be the death knell for Labour in Scotland , how utterly deaf can a party ldership be. If this happens I won't be voting Labour any more after 40 years. I may have to finally considering moving South. What the hell are they thinking of, Nationalists don't want to make Devolution work nor will they want to make a Federal Scotland work. I'm completely sickened. https://www.heraldscotland.com/news/18922648.labour-leader-sir-keir-starmer-set-new-offer-devolution/?ref=twtrec&fbclid=IwAR385pInhh5gLo3a0Nax3QcwFjN3vpMVcAOJ_mFdbW2NavYEn7VSAkGouh4