What's £7 billion between friends?

In yesterday's Financial Times, Andrew Wilson (Chair of the SNP’s Sustainable Growth Commission) made the following sweeping statement:

“Scottish tax revenues cover the equivalent of the entire Scottish government budget plus social security and pensions payments in Scotland. Any deficit reflects UK government programmes which could be replicated or not.” 

That statement is near-enough true¹, but it's important to understand what Wilson is casually dismissing with the rhetorical flourish of  "UK government programmes which could be replicated or not."

If you take the time to go through the 515 cost line-items which make up the reserved expenditure allocated to Scotland in GERS² - and I have - you will find Wilson is glossing over the following c.£4.7 billion of non-defence related reserved spending incurred directly in Scotland²;

• £918m - Civil service costs relating mainly to the 8,260 DWP and 7,850 HMRC employees who are based in Scotland, as well as other departments where a higher proportion of employees are located in Scotland than charged to Scotland in GERS³
• £94m - Other civil service costs incurred in Scotland (figure relates only to those located in Scotland⁴)
• £884m - Network Rail (maintaining and improving Scotland's rail infrastructure)
• £726m - Renewable Obligation Certificates (support for Scotland's renewable power industry)
• £676m - Research Grants awarded to and spent in Scotland as well as the Renewable Heat Incentive⁵ 
• £529m - R&D tax credits and other tax reliefs⁶ supporting economic activity in Scotland
• £273m - Nuclear decommissioning costs in Scotland⁷
• £251m - BBC costs (in Scotland)⁸
• £125m - Scottish Ferries costs and Creative/Historic Scotland costs recharged to the rest of the UK in GERS⁹
• £70m - HMCTS central¹⁰, British Transport Police, CICA Agency¹¹
• £36m - Environment Protection costs¹²
• £118m - Other spending in Scotland, including elements of: Maritime and Coastguard Agency, UK Space Agency, Electricity Settlement Company, Broadband Voucher Scheme, CITB/ECITB; Lottery Grants¹³; Medical Research Council; etc.

In addition to the above non-defence spending in Scotland, roughly £2.5 billion of defence spending takes place in Scotland¹⁴.

So that's over £7 billion of existing reserved spending that takes place in Scotland that Wilson suggests "could be replicated or not".

That's over 19,000 civil service jobs in Scotland, it's the maintenance and improvement of Scotland's rail infrastructure, it's support for Scotland's renewables industry and environmental initiatives, it's R&D tax credits for businesses, it's critical research and innovation investment, it's support for our creative industries - it's investment in Scotland's economy worth over £1,300 pa. for every man, woman and child in Scotland.

I will let the reader decide whether Andrew Wilson is being honest with his audience here, or whether he is guilty of a clumsy attempt to mislead with this rhetorical sleight-of-hand.

Addendum 1

It's worth mentioning the other costs not spent in Scotland that Wilson is also suggesting "could be replicated or not";

• £891m - Overseas Development Assistance (in his Growth Commission report, Wilson commited to maintaining this via an "Annual Solidarity Payment" to rUK)
• £666m - EU transactions¹⁵
• £134m - Foreign & Commonwealth Office costs (the Growth Commission committed to continuing this level of spend)¹⁶

The remaining figure that Wilson is suggesting "could be replicated or not" is Scotland's £4.5 billion population share of the UK's debt interest payments. This population share principle was accepted by the Growth Commission, to also be paid (net of any offsetting net assets adjustment) via the Annual Solidarity Payment.

Addendum 2

For those who are curious, the full analysis which backs up this summary will be published soon on These Islands - the analytical approach taken involves attributing each line-item in the GERS/CRA database to one of the following categories, then triangulating with civil service headcount location data and various departmental annual reports to build up a fully reconciled breakdown of "other" reserved spend (i.e. excluding debt interest and defence), as summarised below;

Addendum 3

Had the Sustainable Growth Commission (or the Common Weal, or Richard Murphy, or Business for Scotland) bothered to do this analysis, they would know only c.£0.5bn of reserved expenditure allocated to Scotland in GERS takes place in the rest of the UK (i.e. could potentially be moved to Scotland, with a commensurate fiscal multiplier benefit). 

Both the Growth Commission and Common Weal assumed that figure was £2.4 billion ... and the Growth Commission actually assumed saving £0.4bn of rUK spending as well as moving £2.4bn of (basically non-existent) rUK spending to Scotland¹⁷.

To be fair to Richard Murphy, I guess when he asserted "the sum in question is unlikely to exceed £10 billion" he was right - £0.5bn is indeed less than £10bn.

/ENDS/

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1. According to 2019-20 GERS figures, Scottish tax revenues were £65.9bn, devolved expenditure £48.1bn and reserved "social protection" spending £18.4bn - so in fact a shortfall of £0.6bn. I am sure Wilson is not paying this much attention, but if he is he may have spotted that the Social Protection allocation includes £336m for ex-pat Scots' pensions, so technically that isn't spent in Scotland (although it would still be Scotland's laibility, one presumes), taking the short-fall to just £0.3bn. He may also have excluded the £284m which is Scotland's share of DWP "corporate" and "delivery" costs, but if he has done that is a mistake - because in fact a greater share of that expenditure takes place in Scotland than is allocated to Scotland in GERS (10.6% of DWP employees are located in Scotland, but GERS apportions just 9.1% of their costs to Scotland). 

2. All of the expenditure data in GERS is backed-up by the “Supplementary data - Detailed Expenditure Database” provided by the Scottish Government’s economists  (see "supporting files"). This in turn is based upon HM Treasury’s Country and Regional Analysis (CRA) database. Because GERS is published ahead of the CRA database, full line-by-line detail back-up of the expenditure figures in GERS is only ever available for the prior year. This means that in the most recent 2019-20 GERS report, the line-by-line spending detail only exists for 2018-19 (the 2019-20 data is extrapolated from the 2018-19 data, as explained in the GERS Detailed Expenditure Methodology paper). All of which means we can only create a robust and detailed analytical audit-trail for the 2018-19 figures. This is not a particular problem - the data does not change dramatically year-on-year.

3. See https://www.gov.uk/government/statistics/civil-service-statistics-2020: 10.6% of DWP employees and 11.7% of HMRC employees are located in Scotland; the cost figure used here includes HSE, OFGEM, ACAS, DfID  and Office of Rail & Road employee-related costs in Scotland, as these are all departments where a higher proportion of employees are in Scotland than costs allocated to Scotland. For these departments the cost given in GERS is £716m, whereas (allowing for Scottish civil service salaries being 95% of rUK mean salaries) we estimate an additional £202m is actually spent in Scotland.

4. [Employee numbers source as above] - mainly 1,070 Home office employees, also 200 DBEIS, 80 Met Office, etc. The cost allocated to Scotland in GERS for these departments id £322m, significantly higher higher than the £94m we use here as our estimate of "in" spending.

5. Research grants awared to and spent in Scotland (UK Research Council, Technology Strategy Board, EPSRC, STFC, BBSRC, ESRC etc.) and £171m for the Renewable Heat Incentive

6. Includes £41m for the Financial Services Compensation Scheme (the levy for which is included in Scotland's tax revenues, so it is consistent to include the cost here)

7. GERS shows £221m as Scotland's population share of UK costs, but the costs incurred in Scotland (per the CRA database) were £273m

8. Compared to the £298m allocated in GERS, this figure of £251m represents the estimated spend in Scotland per the 2019-20 Annual Report. This figure is made up of £202m "dedicated direct spend in Scotland" and £49m of indirect spend, mainly for distribution costs.

9. An often over-looked fact about GERS is that 29% of ferries costs (Caledonian Maritime Assets Ltd & Ferry Services Dept) and 57% of Creative Scotland, Historic Scotland and Royal Botanic Garden costs are allocated as costs to the rest of the UK, not Scotland 

10. HM Courts and Tribunal Service spending in Scotland (non-devolved tribunals)

11. Criminal Injuries Compensation Authority (compensation claims from people physically or mentally injured because they were victim of a violent crime)

12. Natural Environment Research Council spending, Low-Carbon Initiative (eg, support for offshore windfarms), energy efficiency loans and flood risk management (RE)

13.Lottery income is included in Scotland's tax revenues, so it is consistent to include this cost

14. This compares to £3.3billion which is Scotland's population share of UK spending in GERS, and is based on ratios of personnel costs (6.8% of regular and civilian personnel are based in Scotland) and MOD regional per capita spending with UK industry

15. Obviously this would be contingent on an iScotland gaining entry to the EU. The figure in GERS is £270m, but this includes £397m as a population share of the UK's abatement, which an iScotland would surely not inherit. Even if it did, Scotland would get a contribution share not a population share of the abatement, so the net cost would be £413m

16.  Albeit recognising it would result in Scotland having a diplomatic presence in significantly fewer than the 169 countries where the FCO is present

17. It's easy to prove the Growth Commission figure is bunkum - ask them to identify the £2.4bn with reference to the 515 cost line-items that make up the reserved expenditure figure in the GERS/CRA database - they won't be able to.

In yesterday's Financial Times, Andrew Wilson (Chair of the SNP’s Sustainable Growth Commission) wrote:

"Scottish tax revenues cover the equivalent of the entire Scottish government budget plus social security and pensions payments in Scotland. Any deficit reflects UK government programmes which could be replicated or not”

The ridiculousness of that statment is clear if you take the time to understand what he is dismissing with the phrase “UK government programmes which could be replicated or not”. 

By implication¹ he is referring to all reserved spending other than Social Welfare costs. As it happens I have spent a lot of time going through the 515 cost line-items that make up the reserved spending that is allocated to Scotland in GERS², so I can tell you precisely what he is suggesting "could be replicated or not" by an independent Scotland.

·         £2.x billion of non-defence spending in scotland

o   £899m - Network Rail (Scotland’s rail infrastructure)

o   £726m - Renewable Obligation Certificates[2]

o   £482m - Research Grants (inc MRC, AHC etc etc)

o   £569m - civil service costs (x thousand employees, mainly HMRC and DWP

o   £487m - R&D tax credits and other tax reliefs

o   £251m - BBC

o   £273m - nuclear decommissioning

o   £171m - Renewable Heat Incentive

o   £125m - ferries and Creative/Historic Scotland

o   £70m – HMCTS[3], British Transport Police and CICA[4]

o   £41m - Financial Services Compensation Scheme

o   £36m – Environmental Protection[5]

o   £31m – Lottery grants[6]

o   £26m - Maritime & Coastguard Agency costs

·         £? billion of money spent for Scotland

o   £336m of overseas pensions costs for ex-pat Scots

o   £270m as Scotland’s share of the UK’s EU membership costs

o   £59m of EEA medical costs

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1. in 2019/20 Scottish tax revenues were £65.9bn, devolved spending was £48.1bn and reserved socail protection spending was £18.4bn - so in fact a shortfall of £0.6bn

2. 

[1] Financial Times, 30/01/2021

[2] support for Scotland’s renewable pwer industry)

[3] HM Courts & Tribunal service for non-devolved tribunals held in Scotland

[4] Criminal Injuries Compensation Authority

[5] Natural Environment Research Council grants, low-carbon initiatives (e.g. offshore windfarms), energy efficiency loans and flood risk management

[6] Lottery income is included in Scotland’s tax revenue figure