Sturgeon on Andrew Marr, 25/04/21

Anybody who read my analysis of Sturgeon's last four TV interviews could be forgiven for feeling a weary sense of déjà vu if they watched her being grilled by Andrew Marr yesterday 

1. She sounds like a Brexiteer as she attempts to wish away border issues

Firstly Marr pressed her on the obvious fact that - post-Brexit - her proposition for Scotland to become independent and to rejoin the EU would inevitably mean a hard border between Scotland and England, with obviously damaging economic consequences (given 60% of Scotland's exports go to the rest of the UK.)

She starts her response with a revealing line: "it's not the SNP that raises issues of borders, this issue only transpires because of [Brexit]". As the following exchange shows, it's clear why the SNP don't want to talk about borders - but to suggest that the party pursing separatism is not "raising the issue of borders" is laughable.

Rightly pressed by Marr that "you can't have both [EU and UK market membership]" she just keeps repeating the same meaningless assertion that somehow these border issues can be wished away:

• "I want to and will work with others to make sure we keep trade flowing easily across the border between Scotland and England"
• "of course we want to keep trade flowing across the England/Scotland border [...] we would work to make sure that happened"
• "and we will work to make sure that we have trade flowing easily across that border"
• "we will need to work to ensure that that [free trade with rUK] can be secured"
• "we would work as a country to make sure that for our businesses there was no difficulties in terms of their day-to-day experiences in trading"
• "I want Scotland to be able to trade freely across that [EU market] and yes, do the work that takes away the practical difficulties for trade across the England Scotland border"
• "We will put in place arrangements and we will negotiate those arrangement with the UK that means that businesses do not in pracatical sense suffer from any of that [trade friction]"
• "We will keep trade flowing freely ..  we will put in place arrangements to keep trade flowing"

The fact that the SNP want to make border issues go away doesn't mean they would, any more than Brexiteers can make border issues on the island of Ireland go away.

Regular observers of Sturgeon's interviews will notice she throws in a couple of her usual attempts at misdirection along the way;

• "Scotland exports more manufactured goods to the rest of the world than we do to the rest of the UK" - but the issue under debate here is not "rest of the world" market access but EU market access specifically - and why focus on manufactured goods and ignore the massively significant services sector?
• On at least two occasions she mentions that the EU market is "seven times the size of the UK" - neglecting to mention that, after over 40 years of unfettered market access, Scotland exports three times as much to rUK as it does to the EU

She even states that "we shouldn't be forced to choose between these two things" - and yet in a world where Brexit has happened, it is only her proposal that Scotland should leave the UK which forces Scots to choose between UK and EU market membership.

2. She claims she doesn't know what the economics of separation will look like - but this doesn't stop her being convinced that it's in Scots' best interests

When asked if the SNP has modelled the impact of independence on people's incomes, for the second time during this interview she resorts to her trusty fall-back that it's unreasonable to expect her to answer any questions about the economics of separation - they are apparently for another day

• "we'll set out, when it comes to an independence referendum, what the implications are ..."
• "not yet, we will do all of that as we did in 2014 [...] we will do that then..."
• "you can go and look at the 2014 White Paper ..."
• "on the basis of quality, up-to-date information - that's what we did in 2014 and it is what we will do again"

You have to admire the sheer chutzpah of suggesting we look back at the 2014 White Paper on independence to see the quality of economic analysis we should expect from her party. Not only did that White Paper include the risible suggestion that the set-up costs for an independent Scotland would be just £200m [Sturgeon herself has subsequently claimed the set-up costs just for the limited welfare powers devolved in 2016 would be "between £400m-£660m"] but it also forecast oil revenues of £6.8bn-£7.9bn pa [since then actual oil revenues have averaged c.£0.6bn pa]. The 2014 White Paper has been shown to have been a false prospectus - why should we expect anything difference next time?

This claim that the economic analysis for separation just hasn't been done is a common theme from Sturgeon's recent interviews. The question this raises is obvious: if you admit to not knowing what the economic implications of separation would be, how can you be so sure it's in the best interests of the Scottish people? Or to put it another way: if that analysis showed that separation would be economically damaging, would you change your life-long committment to Scottish independence?

It is ridiculous to expect us to believe that the SNP hasn't done up-to-date analysis on the economic implications of their core strategy - the only reason they don't share it is surely because they know an honest assessment of the economic consequences of separation would be unpalatable to Scottish voters.

No economic case is offered because none exists.

In 2014 the SNP were fond of pointing out that Scotland's 8.2% of the UK's population generated 9.4% of tax revenues but received "only" 9.3% of public spending. The same Scottish Government GERS report they were quoting then now shows that (mainly due to the crash in North Sea oil revenues) Scotland generates just 8.0% of the UK's tax revenues but still receives 9.2% of public spending. It's not surprising that the Nicola Sturgeon is asking for more time to think of a way to manufacture a grievance out of those figures.

3. She asks us to believe she still hasn't read the LSE's analysis on the border friction impact of Scexit - yet she enthusiastically endorsed the same team's analysis of the costs of Brexit based on the same model

Possibly the highlight of this interview is when she is pressed on the LSE modelling which shows how damaging leaving the UK to join the EU would be for the Scottish economy. As with previous interviews, she rather unconvincingly claims not to be that familiar with the analysis and tries to dismiss it as being "very narrowly based"

• "if that's the study I think you're quoting at me - and I'll be corrected if i'm wrong here -  I think by its own admission it was a very narrowly based study that didn't properly take account of ..."

But Marr is well prepared and she's walked into his trap - he notes that when the same economists using the same model ran the same analysis for Brexit she had said: "this analysis demonstrates that leaving the EU will have profound and long-lasting impact on the public finances and the wider economic and societal well-being of Scotland"

She's trapped, so this famously well-briefed politician feigns ignorance of this headline grabbing analysis: "fine, well ... you know what you're quoting, I don't know for sure what you're quoting because I don't have it in front of me ...". 

[As an aside: she needs to be prepared for many more of her words to come back to haunt her. The parallels between Brexit and Scexit are manifold and pretty much all of the economic objections to Brexit which she wholeheartedly agreed with apply to Scexit, only more so.]

She then claims she will "engage on the substance of the point" before heading off down another well trodden path by setting up a straw man which has nothing to do with the point Marr was making:

• "[you're suggesting that] somehow uniquely Scotland is incapable of being a successful properous independent country .."

This is another standard "go to" for Sturgeon when snookered on economic questions: unable to answer the specific point, she accuses the interviewer of suggesting independence is not possible (when all they are doing is highlighting what the costs of independence might be, a question she refuses to engage with).

4. When rattled, she resorts to claiming Scotland is "one of the wealthiest countries in the world" while simultaneously claiming that lots of countries are "wealthier than Scotland" (which is the UK's fault, obviously)

She's clearly rattled at this point and launches into a confused and frankly rather logically incoherent rant. It's worth repeating in full:

• "look across Europe right now, we look across the world and we see a plethora, a multitude of countries similar in size to Scotland - sometimes smaller than Scotland - lacking all of the resources that Scotland has and - you know - by and large, almost without exception these countries are wealthier than Scotland, they are ... er .. healthier than Scotland, they are happier in terms of the studies that are done - Scotland is one of the wealthiest countries in the world and if you're pointing me to studies that are about Scotland's fiscal position [he wasn't] within the UK then frankly that's not an argument against independence, that is an argument for Scotland being able to take control of our vast resources, make better economic decisions than Westminster governments tend to make on our behalf and build the same prosperity that countries similar to us enjoy already ..."

Apart from claiming Scotland is "one of the wealthiest countries in the world" at the same time as complaining about all of these countries that are "wealthier than Scotland", she's pre-empted Marr's next question - she know's she's going to get asked about the scale of Scotland's deficit so wants to get her retaliation in first.

Predictably enough, she goes on to claim that Scotland's deficit makes the case for breaking away from the UK ("you're making my point for me"). 

What she fails to address is that Scotland's higher deficit is not due to poor economic performance in terms of revenue generation, but higher spending due to the benefits of UK-wide pooling and sharing (i.e. Scotland's 8.2% of the UK's population receiving 9.2% of public spending).

Presumably the scale of Scotland's deficit is the basis on which she claims that all those other countries are "wealthier" than Scotland. I'd be tempted to ask why she insists on talking Scotland down ... but I'd rather ask whether if the Barnett Formula was scrapped and public spending in Scotland was cut by 10% (which would obviously reduce the deficit), would she think that would make Scotland "wealthier"?

She then repeats her lines from previous interviews about all countries having deficits (ignoring the relative scale of those deficits) and quotes the UK's total debt figure (something which makes separation more costly, not less) before repeating another well rehearsed line:

• "right now the taxes that are paid in Scotland pay for health and education and all of those devolved services as well as reserved services like welfare and pensions"

To repeat what I've said before: this is sophistry of the worst kind. 

Pensions and social security are the only areas of reserved spending that Scottish taxes would fund over and above what is currently the Scottish Government's budget. That means funding from elsewhere would have to be found to fund the additional c.£7bn of reserved spending that currently takes place in Scotland [e.g. Network Rail costs, subsidies for Scotland's renewables industry, R&D tax credits, research grants, civil servants employed in Scotland, nuclear decommissioning costs, BBC spending in Scotland, defence spending in Scotland and much, much more]. That £7bn is also before considering Scotland's share of Overseas Development Aid, UK's international diplomatic presence, debt interest costs and defence spending outside Scotland [details here].

This isn't complicated. Perhaps an interviewer should ask her: if Scotland's taxes pay for all of that stuff, why do her own government's national accounts show a (pre-pandemic) deficit of £15 billion or 8.6% of GDP? 

She just talks over Marr when he tries to make this point and gets quite ranty - she really doesn't like being asked about the deficit: "Scotland needs no lectures about tough choices, we have suffered a decade of Tory austerity".

Yet pressed on how she'd fund her spending committments, she admits that "because we're still within the UK" the Barnett Formula will deliver the funding she needs. But asked how she'd pay for her spending proposals if Scotland were independent:

• "we'll deal with a deficit in the same way almost every other country across the world that has a deficit deals with that - you manage your finances through borrowing, through prudent decisions about public spending ..." 

... and at that point the interview runs out of time, which is a shame. 

Sturgeon's plan is for Scotland to continue using Sterling indefinitely, which means that unlike "almost every other country across the world" Scotland wouldn't have the ability to deal with the defict in the way most have: by printing money. Similarly the cost of borrowing for a newly independent country without its own currency and central bank would be far higher than for a mature economy like the UK.

As for making "prudent decisions about public spending" - well that's exactly the point some of us keep making: being "prudent" about public spending would mean massive cuts to public services. Her own Growth Commission (whose approach she recently confirmed she still endorses) recommended shrinking the deficit to below 3% within a decade by growing public spending more slowly than GDP. Given the economic starting position an independent Scotland would face, in layman's terms that translates into austerity on steroids. No wonder she doesn't want to admit to any analysis of the economic implications of separation.

Perhaps that's why Sturgeon always refers to "Tory austerity" - to differentiate it from what would, in her eyes at least, be the morally justifiable "SNP austerity" which would inevitably follow Scexit.

Sophist's Choice: how Sturgeon dodges questions on the economics of separation

sophistry /ˈsɒfɪstri/
noun: the use of clever but false arguments, especially with the intention of deceiving.

sophism /sofˈi-zm/
noun: a plausibly deceptive fallacy

sophist  /ˈsä-fist/
noun: an intentionally fallacious reasoner

Over the last week there have been a number of TV interviews with Nicola Sturgeon which some of us hoped would be used to expose the fundamental flaws in the SNP's economic case for independence

• 15 April 2021: ITV News Interview with Peter Smith [@PeterAdamSmith]
• 15 April 2021: 4 News Interview with Ciaran Jenkins [@C4Ciaran]
• 20 April 2021: STV News Interview with Colin Mackay [@STVcolin]
• 21 April 2021: ITV Peston interview with Robert Peston [@Peston]

Unfortunately the combination of time-constraints, interviewers' lack of understanding of the economic detail and Nicola Sturgeon's command of sophistry means these opportunities went begging.

Here's how she did it.

At it's simplest: Scotland benefits from fiscal transfers from the rest of the UK. If Scotland became independent those fiscal transfers would either have to come from somewhere else or Scotland's deficit would have to be dramtically reduced. Given the SNP's stated desire to join the EU (and the nature of the EU's fiscal rules) combined with the need to create the economic conditions necessary to launch Scotland's own currency and build credibility with international capital markets, an independent Scotland would have to address it's underlying fiscal deficit.

We know Sturgeon accepts this, because the SNP's Sustainable Growth Commission recommended it and she confirmed her commitment to their approach in her interview with Ciaran Jenkins of C4 News:

“the general approach of the Growth Commission is one that I absolutely agree with, but the figures of course pre-date Covid .. and we have to take account of the changes around Covid [...] the underlying approach of the Growth Commission is one that i very much sign up to”

That "underlying approach" is to get the deficit below 3% (the EU's excessive deficit threshold) within a decade of independence and to achieve that by growing public spending more slowly than GDP. That is pretty much the text-book definition of austerity. Of course the Growth Commission's numbers pre-date Covid - but "to take account of the changes around Covid" means recognising that the starting deficit would be worse than they had assumed. It follows that the scale of austerity required would be even greater than they recommended. This point was not put to Sturgeon, so she was able to move on.

Others asked her how, if Scotland were to be independent, public spending would be maintained and her recent additional spending committments could be met. To Peter Smith of ITV news she repeated a line which her economic advisor Andrew Wilson had used in a recent FT article:

"If you look at taxes that people in Scotland pay, they fund all of the services like NHS and education they also fund the services that are currently reserved like pensions and social security ... most countries right now run a deficit [...]" 

As I have explained elsewhere on this blog  this is sophistry of the worst kind. 

Pensions and social security are the only areas of reserved spending that Scottish taxes would fund over and above what is currently the Scottish Government's budget. That means funding from elsewhere would have to be found to fund the additional c.£7bn of reserved spending that currently takes place in Scotland [e.g. Network Rail costs, subsidies for Scotland's renewables industry, R&D tax credits, research grants, civil servants employed in Scotland, nuclear decommissioning costs, BBC spending in Scotland, defence spending in Scotland and much more]. That £7bn is before considering Scotland's share of Overseas Development Aid, UK's international diplomatic presence, debt interest costs and defence spending outside Scotland.

This isn't complicated: it's why her own government's national accounts show a (pre-pandemic) deficit of £15 billion, 8.6% of GDP. We know Sturgeon accepts that scale of underlying (pre-pandmic) deficit would be unsustainable, because the Growth Commission told us so.

These points were not put to Sturgeon, so she was able to move on.

When she dismissively observes that "most countries right now run a deficit" she ignores that the scale of Scotland's deficit is much, much larger than most countries and certainly incompatible with either the EU's Fiscal Compact or her stated aim of launching a Scottish currency. Peter Smith had highlighted that Scotland's deficit was the highest in Europe pre-pandemic and likely to be one of the biggest if not the biggest post pandemic, but she simply didn't address his point.

STV's Colin Mackay had a go, and this is the response he got:

"But let’s nail this point Colin. The money that we get is not given to Scotland as some kind of favour. It comes from taxes that we pay in Scotland that first send to the Treasury in London only to get back. Or it comes from the massive borrowing that the UK Government is quite rightly taking to help us get through the pandemic." 

An almost identical (clearly rehearsed) formulation was used when ITV's Robert Peston pressed her on what would replace the Barnett Formula driven fiscal transfer were Scotland to become independent:

"and remember, the money that comes to Scotland is not some gift from the Westminster government, it comes either from the taxes people in Scotland pay which - we just happen to send them to the treasury first before we get them back - or it's Scotland's share of the UK's now, quite rightly, quite substantial borrowing" 

In both cases that response went unchallenged and the interviewers move on to their next questions. 

But "Scotland's share of the UK's borrowing" most certainly does not fill the gap between Scotland's spending and the taxes people in Scotland pay (unless she's arguing that Scotland's share of the UK's borrowing should be larger than Scotland's population share). The numbers aren't too complicated - let's take the most recent 2019/20 GERS figures;

• Scotland's deficit was £15.1bn
• That £15.1bn is the difference between Scotland's spending¹ and "taxes people in Scotland pay"
• The UK's deficit (funded by the UK's borrowing) was £55.4bn
• Scotland's 8.2% population share² of the UK's deficit was £4.5bn; that is "Scotland's share of the UK's borrowing"
• £15.1bn less £4.5bn = £10.6bn. This is what is commonly referred to as the "£10bn fiscal transfer" that Scotland benefits from by being in the UK. To use Sturgeon's chosen language: this is the scale of "favour" or "gift" that she is trying to pretend doesn't exist - £1,900 a year for every man, woman and child in Scotland

This point was not put to Sturgeon, so she was able to move on.

Although not strictly sophistry, it's worth highlighting what Sturgeon turns to as her last resort when all else fails. Asked by C4 News' Ciaran Jenkins whether her party had conducted an analysis of the economic consequences of independence:

" em ... when we put ... the choice of Scottish Independence before the people of Scotland in a referendum, we will do what we did in 2014 - we will set out a prospectus, we will do the analysis at that point and we let the people of Scotland decide" 

Similarly when rightly pressed by ITV News' Peter Smith on the inconsistencies between her aspirations to launch a Scottish currency / join the EU and her unwillingness to own up to the inevitable spending cuts that would be implied:

"When we are asking people to vote in an independence referendum, just as we did in 2014, we set all of that out in a prospectus and people will make their judgement - but you know, people are not daft ..."

Of course what was laid out in 2014 has famously been shown to have been a false prospectus, relying as it did on oil revenues of £6.8 - £7.9bn pa. Since then actual oil revenues have averaged about £0.6 billion pa. Hopefully she's right that people are not daft and will remember the SNP's track record when it comes to setting out a prospectus.

Perhaps even more pertinently: how can Sturgeon be so sure separation from the UK is in the best interests of the people of Scotland when she admits she isn't currently able to answer the obvious economic questions that arise?

This simple truth is that for Nicola Sturgeon and her fellow separatists, independence is a matter of faith; they hide behind carefully crafted sophistry to avoid being honest with their supporters about the potentially ruinous economic consequences.

***

Notes

1/ Even if we only consider spending in Scotland  - ie. if we were to ignore Scotland's share of Overseas Development Aid and the UK's international diplomatic presence, overseas defence spending, debt interest costs and costs incurred in the rest of the UK but allocated to Scotland (e.g. some Westminster/Whitehall costs, some BBC costs, a small share of HS2 costs) then it is still the case that spending in Scotland is not funded by the combination of Scottish taxes and Scotland's population share of UK borrowing (as Sturgeon claims) - but why should we ignore all that stuff anyway? An independent Scotland would still need to spend money on those activities and services.

2/ That the SNP believe "Scotland's share of the UK's borrowing" is Scotland's population share is implied within GERS (where the cost of servicing that borrowing is allocated to Scotland on a population share basis) and was made explicit in both their 2014 independence White Paper and the more recent Growth Commission report, both of which accepted an independent Scotland's liability for a population share of the UK's borrowing. It would be quite a spectacular own goal if Sturgeon was to suggest that Scotland should be accruing a deficit share rather than a population share of the UK's debt liabilities

Analysing Sturgeon's STV Interview

I've just caught up with ITV News’s Peter Smith's interview with Nicola Sturgeon. It's worth watching the full 15 minutes here - it's a masterclass in deflection, evasion and misdirection.

The first question is about whether Scots would be as well vaccinated today if she succeeded in her manifesto pledge to take Scotland "out of the UK and into the EU". Sturgeon's response partially addresses the "into the EU" part of the question, pointing out that nothing about EU membership would have stopped the UK pursuing the procurement strategy it did. But she doesn't address why no other EU country has done so well, presumably because she'd have to congratulate the UK government on their procurement strategy - and that's never going to happen. 

When pressed to acknowledge how well the UK government had done on vaccination procurement it's notable that her favourite term for them ("Westminster") is replaced by her preferred term for the wider collective us ("all four nations in the UK"). This may seem a trivial observation, but the language used matters in framing the debate and she's a master of it. She will never directly acknowledge an achievement of "the UK" - and of course when she then talks of the NHS doing a sterling job it is qualified as "the NHS in Scotland".

It's notable that she singularly fails to address the "out of the UK" part of the question - the following discussion on economics perhaps explains why.

Things get really interesting when she's asked about her huge spending committments: "You can afford to commit to spending more than £17 billion while Scotland is in the UK [...] if Scotland were independent over the next five years, can you guarantee that every penny of that would still be spent?"

She doesn't miss a beat, responding without hesitation: "Yes - and let me tell you how it will be funded ..." before going on to give her rehearsed answer for how it would be afforded while Scotland is in the UK.  She answers the question she had expected to be asked, not the one she was actually asked.

The interviewer presses her on the scale of deficit an independent Scotland would start with on day one and the fact that her sterlingisation policy means no central bank (which means no ability to print money and higher borowing costs, necessitating greated fiscal prudence) .

Her response is a carefully rehearsed rhetorical sleight of hand which we've seen road-tested by Andrew Wilson and it really needs to be called out:

"If you look at taxes that people in Scotland pay, they fund all of the services like NHS and education they also fund the services that are currently reserved like pensions and social security ... most countries right now run a deficit [...]"

Did you spot it? Hats off to them - it's a good trick and you really have to be paying attention to notice how it's done.

"they also fund the services that are currently reserved like pensions and social security"

As this blog has pointed out before, taxes raised in Scotland categorically do not fund all services that that are currently reserved, but they do (give or take) fund reserved spending on pensions and social security.

So if one was prepared for the answer she gave (and journalists really should be) then the follow up would be:

Hold on - you say taxes paid by people in Scotland fund the services that are currently reserved like pensions and social security ... but isn't the truth that those are the only reserved services that taxes raised in Scotland would cover? What about international development aid, defence costs and debt interest payments; or indeed what about the other £7 billion of reserved expenditure that takes place in Scotland today?

That £7 billion supports over 15,000 DWP and HMRC employees based in Scotland, includes £900m on Network Rail in Scotland, £700m of Renewable Obligation Certificates supporting Scotland's renewables sector, over £1billion of research grants and R&D tax credits, 100's of £ millions on nuclear decommissioning costs in Scotland, BBC spending in Scotland, support for Scottish ferries and Creative & Historic Scotland, Maritime and Coastguard costs, Border Force, Broadband Voucher Schemes and so much more that is currently reserved spending in Scotland - and that is before considering the £2.5 billion of MoD spending in Scotland that directly funds over 13,000 military and civilan jobs here.

Too long? OK then:

But even before considering over £7 billion of overseas development aid, defence and debt interest costs that an independent Scotland's taxes would also have to fund, you've ignored another £7 billion of  reserved spending that taxes raised in Scotland don't cover. 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. Where will that money come from if you separate from the UK?

Still too long? OK then:

Why do you only mention reserved spending on pensions and benefits but ignore other reserved spending that directly funds over 33,000 jobs in Scotland¹, that is spent maintaining and improving Scotland's rail infrastructure, supports Scotland's renewables industry and environmental initiatives, funds R&D tax credits for businesses and critical research and innovation investment, supports our ferries and creative industries and pays for nuclear decommissioning? Even before considering overseas development aid, defence spending and debt interest, that's investment in Scotland's economy worth over £1,300 pa. for every man, woman and child in Scotland that you seem to be ignoring.

The only way out of this for the SNP is to suggest that somehow the scale of the deficit doesn't matter - which is what she basically goes on to attempt:

"most countries right now run a deficit, the UK carries a debt of more than £2 trillion, so it's not unusual for countries to be in a position of debt and deficit ..."

Notice how the scale of the deficit is ignored, as if running a deficit is just a binary consideration. For the avoidance of doubt: "most countries" most certainly do not run a deficit of the scale of that an independent Scotland would start life with, and "most countries" are not trying to launch a new currency or starting from scratch to build credibility on international capital markets. She's just ducked the question (again). 

As an aside: the reference to the UK's debt is a crude attempt at misdirection: Scotland will inherit a share of that debt and if anything recognising the scale of debt we will inherit as a result of the pandemic response merely exacerbates the challenge an independent Scotland would face.

She goes on:

"how you manage that [deficit and debt] is what determines your priorities and what determines the success of your economy.."

Well quite - and she's being asked how she proposes an independent Scotland would manage that. Just when you think she might be about to answer the question, she deflects:

"but the point - you started to ask me about the committments in this manifesto - and I set out for you exactly how they will be funded ..."

But "the point" she's been asked to address is how would those commitments be funded in an independent Scotland - and she has ducked the question (again) by instead answering how they propose those committments would be met while remaining in the UK. She's evading answering the actual question, because she has no answer. 

Rightly pressed on this, she resorts to just kicking the can down the road:

"When we are asking people to vote in an independence referendum, just as we did in 2014, we set all of that out in a prospectus and people will make their judgement - but you know, people are not daft ..."

Well now.

Some of us are indeed "not daft" and we recall what was set out in the prospectus she refers to: oil revenues of £6.8 - £7.9 billion pa². Since then actual oil revenues have averaged about £0.6 billion pa³. She might as well say "we nearly managed to fool people last time and we're confident we'll find a way to fool them next time - just don't expect any answers from me today."

Still: she's managed to evade the big economic question so she can be content that she's done her job. But she's clearly rattled, as evidenced by the condescending tone she then adopts

"Can I let you into a secret Peter? There are hard times ahead whatever happens right now because we're in a global pandemic [...] now I would rather have a situation where we could deal with that through proper investment, investing in the things that grow our economy rather than another period of austerity ..."

Wouldn't we all?

The problem is she's blatantly failed to address the key question, despite being pressed several times in this interview. How does she propose we avoid another period of (deeper) austerity given her defining policy of separation would mean: the loss of c.£10bn pa of fiscal transfers from the rest of the UK; facing the challenges of creating a new currency (or the fiscal constraints inherent in Sterlingisation); the need to meet the deficit criteria laid out in the EU's fiscal compact (if she's serious about rejoining the EU); weathering the economic costs of border friction (which the LSE has argued would inevitably follow); funding the transition costs of unpicking and rebuilding what is currently deeply integrated machinery of state; coping with the (currency risk related) capital and talent flight that would likely ensue. 

These are questions which she will not answer for the simple reason that she has no answers.

***

The interview moves on to the SNP's failure on managing drug deaths. She's confronted with her admission that "we took our eye off the ball" and asked "where was your eye?". It's a rhetorical question of course, because we all know Sturgeon's eye is always first and foremost on independence - the politics of division will always come before the politics of compassion for the SNP. 

She is pressed not just on drugs deaths but on avoidable care home deaths through the pandemic and the best she can offer is basically "mistakes get made" and "let the people decide". 

Her response to the final question in the interview is revealing. When asked if she would use votes cast for Alex Salmond's Alba party to claim a mandate for a second independence referendum, she refuse to deny that she would.

It seems that if you're a separatist, whether evaluated in economic or moral terms, no price is too great to pay for breaking up the UK.

***

NOTES

1. 20,000 civil service personnel (mainly DWP and HMRC, also Home Office, DfID, OFGEM, CICA, HMCTS, HSE, Maritime and Coastguard Agency, DBEIS, ACAS, Met Office and other) and 13,000 military and civilian personnel directly employed by the MoD:
https://www.gov.uk/government/statistics/civil-service-statistics-2020
https://www.gov.uk/government/statistics/location-of-uk-regular-service-and-civilian-personnel-annual-statistics-2019

2. "Scotland's Future" p.75

3. Average North Sea revenues between 2015-16 and 2019-20 were £614m pa (per Scottish Government GERS figures)

 

Mind The Gap: Critiquing the FT's Fiscal Gap Analysis

---

tl;dr
The FT recently published a figure of £1.8k per person pa. as the tax rises or spending cuts an independent Scotland would need to achieve sustainable deficit levels. By failing to quantify the impact of border friction and Scotland's need to create its own currency, this figure drastically understates the true scale of the longer-term economic challenge an independent Scotland would face - taking into account those factors, a longer-term figure of £4k per person would be more realistic

---

The Financial Times recently published an analysis ["Independent Scotland would face a large hole in its public finances"] which  summarised the implications of how Scotland's fiscal position has deteriorated since 2014:

"Based on the pro-independence Scottish National party’s previous assumptions, this would mean Scotland needed to raise taxes or cut public spending annually¹ by the equivalent of £1,765 per person in the period after exiting the UK so as to narrow the deficit to sustainable levels."

Anybody thinking £1.8k per person appropriately scales the economic challenge represented by separation has failed to realise the significance of that opening caveat: "Based on the pro-independence Scottish National party’s previous assumptions ...". 

The FT's headline figure significantly under-sells the scale of the fiscal challenge separation would cause; that caveat is akin to prefacing an analysis of the economic implications of Brexit by saying "Based on what the Leave campaign wrote on the side of a bus ...".

To help explain why the true challenge is so much greater than this analysis suggests, here's the FT's own summary chart

Let's first look at what has been included before considering the more important issue of what has not been included.

What has been included are "proposed spending cuts" of 1.2% of GDP². This figure is sourced from the SNP's Sustainable Growth Commission and - having spent more time than is healthy with that report [see Growth Commission Response: A Reality Check] - I am familiar with what lies behind the 1.2% saving and 5.9% "2018 financing gap"³ deficit assumption:

The 1.2% saving assumption is made up of 0.4% on defence spending, 0.4% on debt servicing and 0.8% on "UK Government spending allocated to Scotland", offset by 0.4% from oil revenues being diverted to a proposed "Fund for Future Generations".

The FT rightly notes "Although there were many assumptions made by Wilson that would likely be questioned by the UK government, his report was described as “not implausible” by the Institute for Fiscal Studies, an influential think-tank". 

As it happens, I am confident that I have carried out deeper analysis on "UK Government spending allocated to Scotland" than the IFS have. On that basis I have no hesitation in asserting that the 0.8% of GDP saving assumption is, in fact, deeply implausible. There are three reasons for this;

1. For an independent Scotland to make savings versus these reserved cost allocations, we would need to believe that standalone Scottish Treasury, Home Office (including Border Force), Cabinet Office, DCMS, DBEIS and National Crime Agency functions would cost less than 8.2% of the amount the UK currently spends on these departments (i.e. than the population share of these departments' costs allocated to Scotland in GERS). The empirical evidence shows that, far from proportionately costing less, government functions devolved to Holyrood require roughly twice as many civil servants per head of population than when those departments benefit from operating at the scale of the UK⁴.
2. The larger part of the SGC's "saving" comes from assuming that £2.4 billion of "spending that is allocated to Scotland but takes place elsewhere" could be "transferred to Scotland " and generate "revenue benefits of £0.6 billion"⁵ This assumption is based on a fundamental misunderstanding of the reserved spending allocations in GERS. I have checked my understanding directly with the Scottish Government economists responsible and am confident that £2.4 billion of transferrable spending simply does not exist⁶. If £2.4 billion of transferrable spending did exist, the SGC would be able to detail it with reference to reserved expenditure line items in the “Detailed Expenditure Database” which accompanies GERS. They won't, because they can't.
3. The SGC ignore the fact that GERS allocates to the rest of the UK nearly £200m of Scottish ferries costs, costs associated with Creative/Historic Scotland and nuclear decommissioning costs which take place in Scotland, all of which would be the responsibility of an independent Scotland
4. Although it's a somewhat theoretical figure at this stage: were Scotland to rejoin the EU, the GERS figures show that Scotland's EU contribution (without the advantage of the UK's abatement) would be £0.7bn

Accepting the SNP's assertion that an independent Scotland would see these net cost savings from UK Government spending allocated to Scotland (outside of defence and debt interest) is akin to accepting the £350m a week written on the side of a bus by the Leave campaign. The true figure in that case was nearer £180m a week (see Thoughts on EU Referendum) - but of course to focus on that figure alone would be to miss the real costs of Brexit.

Similarly if we focus only on the SNP's cost saving assumptions, we miss the true costs of Scexit. So while we could certainly debate the debt interest saving assumptions they make, let's instead consider what is not included in the FT's quantitative analysis.

The FT's assumption of a 9.9% deficit for 2025-26 is broadly in line with IFS projections (graph below) - but these are figures which assume Scotland remains within the UK and the UK single-market

This means that when the FT quantifies the fiscal gap (with spurious precision) at £1,756 per person, they are both taking at face value the SNP's wholly unrealistic "proposed spending cuts" and ignoring the other effects of separation (effects which the article goes on to mention in commentary only).

The article notes "A research paper by the LSE published in February said border problems stemming from Scotland leaving the UK would compound losses from Brexit, and estimated these were likely to result in Scottish incomes being between 6.3 per cent and 8.7 per cent lower in the long term compared with neither event happening."

The full research paper is worth reading [here > Disunited Kingdom? Brexit, trade and Scottish independence]. The figures quoted relate to income per capita and come with these caveats:

• "These numbers likely underestimate the losses caused by higher trade costs, as we do not account for any dynamic effects of trade on productivity"
• "Our estimates should be interpreted as the long-run effects of Brexit and independence after the economy has adjusted to changes in trade costs. Brexit studies typically argue that it will take 10-15 years for the full effects to materialise"

This means translating the LSE's assumptions into 2025-26 deficit gap terms is not straight-forward, but longer term this scale of decline in GDP would lead to a c.3.5% increase in the deficit gap (adding a further c.£1,100 to the per-head figure).

At the risk of labouring the point: the fiscal gap the FT have quantified ignores the economic impact of putting a border between Scotland and the rest of the UK. If you can't see how potentialy misleading that is, imagine an analysis of Brexit which both overstated the saving from stopping the UK's EU contribution and ignored the impact of trade friction from leaving the EU single-market and customs union!

The FT article goes on to mention "A further complication around borrowing relates to Scotland’s future currency arrangements". The genius of the SNP's currency plan is that it is so vague as to be impossible to robustly critique, so the FT is reduced to making the following general observation about borrowing: "With persistently high borrowing unlikely to succeed, an independent Scotland would need greatly improved economic performance to avoid tight spending control or higher taxes."

This massively understates the scale of the currency challenge. As explained in this These Islands paper [Choose Your Poison: The SNP's Currency Headache], the SNP's official strategy of indefinite Sterlingisation is unsustainable, meaning a new Scottish currency would have to be launched sooner rather than later. That means that rather than targeting a 3% deficit, a newly independent Scotland trying to support it's own currency and build credibility on the international capital markets would more realistically be striving to deliver a surplus. Indeed the Sustainable Growth Commission itself observed that “Small advanced economies have made fiscal prudence a strategic priority”, none of their chosen comparison "Small Advanced Economies" runs a deficit as large as 3% and in fact most run a surplus. Add to that the fact that the EU's Fiscal Compact specifies a target 0.5% deficit as measured across the cycle, and it's reasonable to assume an independent Scotland would be seeking to eliminate it's fiscal deficit - that would add another £900 to the fiscal gap.

If we add back the rather speculative 1.2% cost-savings, we increase the gap by a further £400 per head. 

Were we to add to that the currency associated risk (near certainty) of capital and talent flight, the scale of the fiscal gap would widen yet further. 

By now the point is hopefully well made: the FT's headline figure of £1.8k per person for the "fiscal gap" independence would create seriously under-states the true longer-term economic cost of Scexit - just adding together our figures here we can easily see a longer-term fiscal gap of £4.2k per head.

*****

Notes

1. Pedantic point: they mean "cut annual public spending" not "cut public spending annually"

2. [7.1% - 5.9%] = 1.2%; [9.9% - 8.7%] = 1.2%

3. The terminology is a little confusing: the "2018 financing gap" refers to the fiscal position that the Growth Commission (published in 2018) assumed an indy Scotland would inherit in 2021

4. See Civil Service Statistic 2020: I have completed detailed department by department analysis, but the simple sense-check here is that, despite the weight of central government departments in Westminster, it is still currently the case that on a per head of population basis there are currently 27% more civil servants employed in Scotland than in the rest of the UK. This is a reflection of the fact that there are more than twice as many civil servants per head of population in devolved functions and only c.7% fewer in reserved functions (primarily because of the large number of DWP and HMRC employees based in Scotland)

5. Sustainable Growth Commission B4.58

6. The Sustainable Growth Commission appear to have assumed that reserved spending (outside of defence, debt interest, accounting adjustments and international affairs) treated in GERS as "Non-Identifiable" can be relocated to Scotland. Drawing on line-level analysis of the GERS “Supplementary data - Detailed Expenditure Database” [summarised here > What's £7 billion between friends], we can see that this is clearly wrong: specific examples of spending (using 2018-19 figures) captured by this definition which clearly cannot be relocated include:

• Civil Service costs which already take place in Scotland (e.g. DWP & HMRC): £569m
• Overseas Pensions for ex-pat Scots: £336m
• EU transactions (cost of EU membership): £270m
• BBC costs which are already in Scotland: £251m
• Nuclear decommissioning costs which already take place in Scotland: £222m
• Other pensions responsibilities: £90m
• EEA Medical costs: £59m
• Financial Services Compensation Scheme Costs: £41m
• Maritime & Coastguard Agency costs: £26m

The above add up to £1.9 billion of costs which could not be relocated to Scotland and so could not deliver a fiscal multiplier effect - the true figure which could in theory be relocated is just £0.5bn (but these costs can't be both saved and transferred, which is what the SGC assume)