GERS 2022 - Here we go again

Every year the Scottish Government's Chief Economist publishes the Government Revenue and Expenditure Scotland (GERS) report and every year the SNP's spin machine goes into over-drive. This year is no exception. 

In 2014 when looking back on years when oil revenues had been booming, the SNP summarised the GERS figures thus: 

"Scotland accounted for 9.3% of UK public spending between 2008-09 and 2012-13, while generating 9.5% of tax receipts - it put in more than it got out."

We can easily update the SNP's previously preferred formulation with the most recent GERS figures:

"Scotland accounted for 9.2% of UK public spending between 2017-18 and 2021-22, while generating 8.0% of tax receipts - it got out more than it put in."

So on the SNP's own terms, Scotland 'gets out more than it puts in' to the UK - and the amount it gets out now is far greater than the amount it used to put in.

This will come as no surprise to regular readers of chokkablog (eg. see last year's write-up as published by These Islands which I'll update in due course). 

Really all you need to know is this simple fact (as included in the Scottish Government's own GERS release summary):

"Total expenditure for the benefit of Scotland by the Scottish Government, UK Government, and all other parts of the public sector was £97.5 billion. [..] This is equivalent to 9.2% of total UK public sector expenditure, or £17,793 per person, which is £1,963 per person greater than the UK average."

So a fair summary would be as follows: Scotland's 8.1% of the UK population generates very close to its population share of revenue but benefits from a far higher share of spending. This is evidenced by the fact that Scotland enjoys £2k higher public spending per head than the UK average (something which by definition has nothing to do with expenditure items which are allocated across the UK on a per head basis). 

So let's look at how the SNP are trying to spin their way out of this on the day of publication.

Senior SNP politcians can't lower themselves to the level of GERS-denying cybernats because:

• The decision to publish the GERS report is the Scottish Government's alone [as confirmed by this FOI response]
  
• GERS is compiled by the Scottish Government's own team of statisticians and economists (in St Andrew's House, Edinburgh) using methodologies and assumptions they have chosen following years of extensive consultation 
• GERS is an accredited National Statistics publication and carries the quality mark to prove it 

So what do they do? Well this appears to be at least one of the preferred lines, as pushed by the Deputy First Minister and the SNP's "head of broadcast media" on Twitter:

This is not a new line - it was being pushed in a slightly different form by Andrew Wilson last year - but it is at best hugely misleading and at worst a downright lie.

First let's check the claim on its own terms.

• Revenues raised in Scotland (without North Sea receipts): £70,311m [Table S.3]
• Total devolved current expenditure: £53,546m [Table 3.8a]
• Total devolved capital expenditure: £8,035m [Table 3.8b]
• Total reserved social security expenditure (aka Social Protection): £16,730 [Table 3.8a]

Now you don't need to be a mathematical wizard to be able to calculate that the difference between the revenue and expenditure figures listed above is a deficit of £8,000m.

Both Swinney and Geddes are explicitly referring to all (or in Geddes' case "ALL") devolved expenditure and yet it's clear that, for their statement to make any sense at all, they have to exclude devolved capital expenditure.

A journalist friend has shared the contents of the SNP's press release which inlcudes a quote from Swinney making basically this same claim but using the term "day-to-day devolved spending". The press release is, in these narrow terms, technically correct (ie. where "day-to-day" implies current expenditure only) but the public claim made in these high profile tweets is unequivocally false.

But there's more: the claim is clearly intended to signal that 'the taxes we raise in Scotland cover our spending', but even with the "day-to-day spending" caveat this is egregiously misleading.

There are two ways to think about the reserved spending that (in addition to devolved capital spending) is not covered by taxes currently raised in Scotland.

1. We can look at what the Scottish Government's own economists think is our fairly attributed share of reserved expenditure (including defence, debt interest, overseas aid and shared machinery of state). This is precisely what GERS does and it shows this figure to be £19,180m (per Tables 3.8a and 3.8b) 
   
   
2. Alternatively we can look at how much of reserved expenditure which is excluded by the SNP's claim actually takes place in Scotland

The first of these is straightforward and is covered in part by this excellent Fraser of Allander blog:

"What this does not include is any capital investment, of course, including £8bn of devolved capital expenditure. More significantly, there are a number of reserved functions that are also funded outwith these 2 categories – including reserved economic development spending of £2.2bn (so on programmes like Innovate UK), public sector debt interest payments (£4.5bn), reserved transport spending (£988m), public and common services (£1.4bn – including running administrative services such as HMRC), defence (£3.9bn), International services (£659m – including foreign aid) etc."

GERS quite sensibly takes a 'for Scotland' approach when attributing expenditure, but this is often used by nationalists as a way of dismissing the numbers as 'mere allocations'. Suffice to say that to ignore those expenditure items is to assume an independent Scotland would have no expenditure on defence or international development aid, would take £2bn out of enterprise and economic development spending, would renege on all debt responsibility and be able to function without the basic machinery of state like HMRC, DWP, HMT, Home Office, overseas trade and diplomatic presence etc.

An alternative approach would be to look at what reserved expenditure takes place in Scotland (but that is completely ignored in the statements made by Swinney, Geddes et al). These are not the only other costs an independent Scotland would incur (think debt interest and overseas development aid for example) but they relate directly to employment, economic development, rail services and tax generated in Scotland today.

The detailed analyses which underpin the following conclusion have been shared with the Scottish Government economists and statisticians who are responsible for compiling GERS. They confirmed that the issue of spending in Scotland, as opposed to for Scotland, is an area of research that they had intended to take forward, as was set out in their Scottish Economic Statistics Work Plan; however, due to Covid-19 they have not been able to progress this work. In the absence of complete analysis of their own on this topic, they are understandably not able to comment on the accuracy of our final calculations – but having reviewed the analysis in this paper, they were able to confirm that the detail behind the starting point of spending for Scotland has been correctly interpreted.

The simple summary (full detail and sources are on Chokkablog here) is as follows:

In addition to social protection (inc pensions), there is a futher £7 billion of reserved spending that takes place directly in Scotland.

This is made up by c.£4.7 billion of non-defence related reserved spending incurred directly in Scotland;

• £1,012m - Civil service costs relating mainly to the 8,260 DWP and 7,850 HMRC employees who are based in Scotland, as well as other reserved departments where employees are located in Scotland
• £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 Incentive 
• £529m - R&D tax credits and other tax reliefs supporting economic activity in Scotland
• £273m - Nuclear decommissioning costs in Scotland
• £251m - BBC costs (in Scotland)
• £125m - Scottish Ferries costs and Creative/Historic Scotland costs recharged to the rest of the UK in GERS
• £70m - HMCTS central, British Transport Police, CICA Agency
• £36m - Environment Protection costs
• £118m - Other spending in Scotland, including elements of: Maritime and Coastguard Agency, UK Space Agency, Electricity Settlement Company, Broadband Voucher Scheme, CITB/ECITB; Lottery Grants; Medical Research Council; etc.

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

So the SNP's spin ignores £8bn of devolved capital expenditure and c£7bn of other reserved expenditure that takes place directly in Scotland as well as Scotland's £6.9bn share of debt interest and £0.7bn share of international expenditure. 

This is not the messaging of a party who are serious about making an honest economic case for independence.

* This figure understates the true scale of the effective transfer from rUK to Scotland, as explained here: "the annual net flow into Scotland has been growing steadily, and now totals at least £1.2bn per annum. In 2019/20, subsidies for generation accounted for £730m and support for transmission £469m."