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