tag:blogger.com,1999:blog-16034389964508176442024-03-06T12:00:57.281-08:00chokka blogthinking allowed: musings on business, the economy and scottish politics <a href="https://twitter.com/kevverage">@kevverage</a>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.comBlogger229125tag:blogger.com,1999:blog-1603438996450817644.post-59238420686874270822022-11-03T10:19:00.013-07:002022-11-04T07:14:14.398-07:00Scotland's Renewable Energy Statistics<h2 style="text-align: left;"><b>Summary</b></h2><p>Full Fact have concluded that senior SNP politicians have been guilty of making false statements to suggest that Scotland is close to self-sufficient in renewables (see <a href="https://fullfact.org/economy/snp-sturgeon-blackford-swinney-renewable-energy/" target="_blank">here</a> and <a href="https://fullfact.org/environment/scotland-renewable-energy/" target="_blank">here</a>).</p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqKxYvGTo8AMc7nAKEVmriFIUuUOfkH7p389mxMG2TdNPKZPsr-oasVdZKnSQJzkn1ZsA4p1QqgSTexQ1yeuOYW6sAY3K8pMPk1iB5XZk-HI2g-GHzkznq22_VijJPVilcJX-TFAW4FbfnUKDdKwJ6ZflmoQk34w2JFBtzYQmiYhPbKeVNRInuHi-j/s1973/IMG_5372.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1973" data-original-width="1170" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqKxYvGTo8AMc7nAKEVmriFIUuUOfkH7p389mxMG2TdNPKZPsr-oasVdZKnSQJzkn1ZsA4p1QqgSTexQ1yeuOYW6sAY3K8pMPk1iB5XZk-HI2g-GHzkznq22_VijJPVilcJX-TFAW4FbfnUKDdKwJ6ZflmoQk34w2JFBtzYQmiYhPbKeVNRInuHi-j/w238-h400/IMG_5372.jpg" width="238" /></a><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhASUUmPCDe3RP50l5HnqUshcAG7lGIurZ3HDTc4cqOakAtpl0YgxS9GgTm63DkAmtQz6CQ-xtCzF4lrEqnU-IllB_SAQ-jA0h79qnSKHOb1G9TW0b1ztWfHr36synBhxBE2GFDFLAxJXhzy_B3LnOSmaYYTNSHOr5ch4oF4FNFzc5VQx4wP1Mu_NR2/s1846/IMG_5371.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1846" data-original-width="1170" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhASUUmPCDe3RP50l5HnqUshcAG7lGIurZ3HDTc4cqOakAtpl0YgxS9GgTm63DkAmtQz6CQ-xtCzF4lrEqnU-IllB_SAQ-jA0h79qnSKHOb1G9TW0b1ztWfHr36synBhxBE2GFDFLAxJXhzy_B3LnOSmaYYTNSHOr5ch4oF4FNFzc5VQx4wP1Mu_NR2/w254-h400/IMG_5371.jpg" width="254" /></a></div></div><p>Nowadays - to avoid being accused of making blatantly false claims - the SNP are generally careful to include the qualifying phrase "the equivalent of" when making statements about the extent to which Scottish renewables meet Scotland's electricity demand. But as Full Fact have also made clear, this phraseology is still misleading:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYxACfh8ztKDkVegxOsQipv3ADbfX52pcJPMXp-CHudnRTeZRDfkYhHb-72jdMwoqqre3kQqek69bcpOJw83nqaw-1ahUWnuRw7fh_u791gQ_6c4yKM7PqNLtNpCfEsGlgl3MifaFjWkzNBgZCciFx06XFVUVF_jRz1xaq-oGODqS6UKBsljkVAZZC/s1952/IMG_5373%202.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1952" data-original-width="1170" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiYxACfh8ztKDkVegxOsQipv3ADbfX52pcJPMXp-CHudnRTeZRDfkYhHb-72jdMwoqqre3kQqek69bcpOJw83nqaw-1ahUWnuRw7fh_u791gQ_6c4yKM7PqNLtNpCfEsGlgl3MifaFjWkzNBgZCciFx06XFVUVF_jRz1xaq-oGODqS6UKBsljkVAZZC/w240-h400/IMG_5373%202.jpg" width="240" /></a></div><p>The SNP are clearly wedded to this misleading statistic - take just three recent examples:</p><p></p><ul style="text-align: left;"><li>Responding to <a href="https://fullfact.org/environment/scotland-renewable-energy/" target="_blank">Full Fact</a>: <i>"A Scottish Government Spokesperson said: Scotland has a hugely positive story to tell in renewables, which provided <b>the equivalent of</b> 96% of Scotland's gross electricity consumption in 2020"<br /><br /></i></li><li>Nicola Sturgeon <a href="https://www.parliament.scot/chamber-and-committees/official-report/search-what-was-said-in-parliament/meeting-of-parliament-29-09-2022?meeting=13909&iob=126299" target="_blank">correcting the record in Holyrood</a>:<i> "<u>Corrected text:</u> Under this Government, <b>the equivalent of</b> 98.8% of our gross electricity consumption is already provided by renewable energy sources."</i><br /><br /></li><li>Ian Blackford in <a href="https://twitter.com/staylorish/status/1587858353404911616" target="_blank">Parliamentary Debate</a>: <i>"and nearly 100% of <b>the equivalent of</b> our electricity consumption already comes from renewables <interruption> ... I ... you know I've said <b>equivalent</b> on many occasions but I thank the right honourable gentleman for that [...] I think if the honourable gentleman checks Hansard he'll find that I've said that on a number of occassions"<br /><br /></i></li></ul><div><hr />As an aside: it's easy to check Hansard and in fact Ian Blackford has never used the "equivalent" qualifier in this context (see <a href="https://hansard.parliament.uk/search?startDate=2017-11-03&endDate=2022-11-03&searchTerm=equivalent%20from%3Aian%20blackford&partial=False" target="_blank">here</a>) but he did make the false, unqualifed claim in September (see <a href="https://twitter.com/staylorish/status/1567899441306165248?s=46&t=NCDjH3y_-EPdooqC0SRO_w">here</a>); <i>"almost 100% of our entire electricity production comes from renewables. That is not attention-seeking, I would say to the Prime Minister; these are the facts."</i><hr /><p></p><p>To illustrate why quoting only the "<i>equivalent of</i> " statistic is highly misleading, the following figures all come from the same <a href="https://scotland.shinyapps.io/Energy/?Section=RenLowCarbon&Subsection=RenElec&Chart=RenElecTarget" target="_blank">Scottish Government source</a> for <b>2020</b> and are internally consistent:</p><ul style="text-align: left;"><li>Scotland was capable of meeting all of its electricity demand from renewable generation just <b>51.1%</b> of the time<br /><br /></li><li><b>55.7%</b> of electricity consumed in Scotland came from renewables<br /><br /></li><li>The <b><i>equivalent</i></b> of <b>98.8% </b>of Scotland's gross electricity consumption was generated by renewables [this is the figure the SNP keep quoting]</li></ul><p></p><p>Using the same source we also know the figures for <b>2021</b> (with one caveat) and in all cases the most recent year's figures are lower:</p><p></p><ul style="text-align: left;"><li>Scotland was capable of meeting all of its electricity demand from renewable generation just<b> 37.8% </b>of the time [this is the figure quoted by Full Fact above]<br /><br /></li><li><b>52.8%</b> of electricity consumed in Scotland came from renewables<br /><br /></li><li>The <b><i>equivalent</i></b> of <b>82.9%</b> of Scotland's gross electricity consumption was generated by renewables [a figure which was briefly published and subsequently deleted, see below]</li></ul><p></p><p>Looking at the figures above it's obvious why the SNP are so fond of the 2020 "equivalent of" figure. What is perhaps less obvious is how the first two measures above can be consistent with that figure. This blog seeks to clarify the confusion caused by these different measures and to explain why the first two measures give a clearer "real world" picture.</p><p>It should be clear from these figures that anybody with the impression that Scotland is close to being self-sufficient in renewables has been seriously misled. </p><p style="text-align: left;"><b><br /></b></p><h2 style="text-align: left;"><b>Explaining the Figures</b></h2><p>Scotland's First Minister was recently compelled to correct the official record following an FOI request from Sam Taylor of <a href="https://www.these-islands.co.uk/" target="_blank">These Islands</a>. The correction (found <a href="https://www.parliament.scot/chamber-and-committees/official-report/search-what-was-said-in-parliament/meeting-of-parliament-29-09-2022?meeting=13909&iob=126299" target="_blank">here</a>) was as follows:</p><p><u></u></p><blockquote><p><u>Original text:</u> Under this Government, we have a position where <b>our net energy consumption is already provided by renewable energy sources</b>.</p><p><u>Corrected text:</u> Under this Government, <b>the <u>equivalent</u> of 98.8% of our gross electricity consumption is already provided by renewable energy sources</b>.</p></blockquote><p></p><p>The introduction of <i>98.8%</i> and the switch from <i>net</i> to <i>gross </i>are distractions, the key amendment doing all the heavy lifting is the introduction of the words "the equivalent of".</p><p>To explain what's going on here we need to understand three different measures, each of which tells us something different about the extent to which Scotland's renewables energy generation matches Scotland's electricity demand</p><p></p><p></p><p></p><p></p><ol style="text-align: left;"><li><b>The <u>equivalent of</u> gross electricity consumption met from renewables:</b> this simply takes total renewables electricity produced through the year (including electricity exported) and divides it by total electricity consumed in Scotland in the same year; it takes no account of whether the electricity was being produced when it was needed in Scotland<br /><br /></li><li><b>Proportion of electricity consumed from renewables: </b>this shows how much electricity consumed in Scotland actually came from renewables. It's a far lower figure because it reflects the reality of demand vs supply variation; if Scotland needs more electricity than renewables can provide <i>at the time it's needed </i>then non-renewable generation is used <br /><br /></li><li><b>Proportion of time when Scotland is capable of meeting demand from renewables:</b> this is the harshest measure of "self-sufficiency" as it counts only those half-hour periods where Scotland's renewables generation exceeds demand.</li></ol><div>[If these measure still seem confusing, the appendix below provides some simple worked examples] </div><p>We can look at each of these measures as shown on the Scottish Government's "Energy Statistics Hub".</p><p><b><u>Measure 1:</u> in 2020 the <i>equivalent</i> of <i>98.8%</i> of gross electricity consumption came from renewable sources </b>[found <a href="https://scotland.shinyapps.io/Energy/?Section=RenLowCarbon&Subsection=RenElec&Chart=RenElecTarget" target="_blank">here</a>]</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQe2idqQOqBjOfEjME6NdvUnUodOaLp80OpXs8LJOC_R7gvJXkgSlnSx1utYPE1Nxwa2cTNks2TbwWon3EkH8Z4cVt2aP8daKgZ2LvF94Bi6oOYGnLUXYsSwp_swylQGciPLxP4NKCEGMsYgDYAX_GzTCx5zsJ3XAXCD2jjyOrFw09kua8jx-cL1Et/s1253/equivalent.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="851" data-original-width="1253" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQe2idqQOqBjOfEjME6NdvUnUodOaLp80OpXs8LJOC_R7gvJXkgSlnSx1utYPE1Nxwa2cTNks2TbwWon3EkH8Z4cVt2aP8daKgZ2LvF94Bi6oOYGnLUXYsSwp_swylQGciPLxP4NKCEGMsYgDYAX_GzTCx5zsJ3XAXCD2jjyOrFw09kua8jx-cL1Et/w640-h434/equivalent.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;">This is the figure relied upon by the First Minister's correction above. Note this figure is for 2020 despite it now being November 2022. Interestingly the figure for 2021 <i>was</i> briefly published but has since been deleted - credit to <a href="https://twitter.com/PantoPolitics22/status/1586346053477228545?s=20&t=nU9meWoLOhoKBpwyrhPkaQ" target="_blank">@PantoPolitics</a> for grabbing the screencap below before the 2021 data was removed</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTJnNnydR4-fZOHLD0z1LbXYofDG3qfWFM5FvguGR_gOYEvbGWMlIt2kWnHm5crYYv_5rJ1o-E6kpSTy2Nc2pLGmErbCIkXNRYFJkJlEMccXl1gPoG8S_RkbJ79tU24sOVbu3yA627cbMUR9QsOyYaZAiSEtj51pFKbJB64MQGVNYjg9cYiQKpzyDu/s1200/2021_data.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="675" data-original-width="1200" height="360" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTJnNnydR4-fZOHLD0z1LbXYofDG3qfWFM5FvguGR_gOYEvbGWMlIt2kWnHm5crYYv_5rJ1o-E6kpSTy2Nc2pLGmErbCIkXNRYFJkJlEMccXl1gPoG8S_RkbJ79tU24sOVbu3yA627cbMUR9QsOyYaZAiSEtj51pFKbJB64MQGVNYjg9cYiQKpzyDu/w640-h360/2021_data.jpeg" width="640" /></a></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">That this showed a material decline in 2021 is not a surprise: the <a href="https://scotland.shinyapps.io/Energy/?Section=RenLowCarbon&Subsection=RenElec&Chart=RenElecGen" target="_blank">same data source</a> shows us that significantly less electricity was generated from renewables in 2021 than in 2020 (it simply wasn't as windy).</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVK1sgZ-RqmLRwxyOpCUtimuix7reWBVJhQch2mJw4mmy3FhCc9NoqY6HSuDeb-n67oyn9NcXEEMVhFpoyoHheFiuimjFraShj9hCEh1QBb-uM38s9zAaHsFXl5DOtZEkSRjL0gkz8o962cB2uFsY8jAYjDWBIHO3XIHw7Y0lagoh4R7Tz6LV7Pcup/s1243/renewable_decline.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="967" data-original-width="1243" height="498" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVK1sgZ-RqmLRwxyOpCUtimuix7reWBVJhQch2mJw4mmy3FhCc9NoqY6HSuDeb-n67oyn9NcXEEMVhFpoyoHheFiuimjFraShj9hCEh1QBb-uM38s9zAaHsFXl5DOtZEkSRjL0gkz8o962cB2uFsY8jAYjDWBIHO3XIHw7Y0lagoh4R7Tz6LV7Pcup/w640-h498/renewable_decline.png" width="640" /></a></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">The decline in the headline "equivalent of" percentage is certainly politically unhelpful to the SNP, but as the figure remains unpublished, they are free to keep using the out-of-date 2020 figure. What is curious is that an initial view of the 2020 data (showing an increase on the prior year) was made available in March 2021:</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgojABTnsbtL94qMWh2oa01wQkWteuc1riCGLOZlVbmN6AFVcxz1H5b6QSiAVy5f5dDpfLk2yIO3fbkysMuPd0hLFDa_BtGO7l1RY1FXy3cqy0_vh3-dnNGU6rvJO6gtBaLMGnpRSeepgRlxWseQ9UxBnB_6LQCb4LVCPgoI3751BtwXjZYfH4WGdUY/s1170/IMG_5374.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="650" data-original-width="1170" height="357" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgojABTnsbtL94qMWh2oa01wQkWteuc1riCGLOZlVbmN6AFVcxz1H5b6QSiAVy5f5dDpfLk2yIO3fbkysMuPd0hLFDa_BtGO7l1RY1FXy3cqy0_vh3-dnNGU6rvJO6gtBaLMGnpRSeepgRlxWseQ9UxBnB_6LQCb4LVCPgoI3751BtwXjZYfH4WGdUY/w640-h357/IMG_5374.jpg" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both;">But in November 2022 the data for 2021 (which we know will show a <i>decrease</i> on the prior year) has not been published. Readers are free to draw their own inference from this observation.</div><div class="separator" style="clear: both;"><br /></div></div><p><b><u>Measure 2:</u> i</b><b>n the 12 months to September 2022<i>, </i></b><b><i>63.1%</i> of electricity that Scotland consumed came from renewable resources </b><i>[found <a href="https://scotland.shinyapps.io/Energy/?Section=RenLowCarbon&Subsection=RenElec&Chart=ElecConsumptionFuel" target="_blank">here</a>]</i></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCJZjEGC3XiFD2i2WpitvvchElSXaKi0fnJaacN9iqyyKQwBxQSJOyxklXytuVP4T010d4MN9hGTs4szI8Fvk9g7zCmPCVPr6iKZA3rG-s2IGed9NEEvgO6IP4SZEwNH60G7m229n_skQvLq_RU68EYUCRGOVzy-r1gNmjAHaqZIBNidXJ6EalwB5n/s1242/energy%20from%20stat.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="797" data-original-width="1242" height="410" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCJZjEGC3XiFD2i2WpitvvchElSXaKi0fnJaacN9iqyyKQwBxQSJOyxklXytuVP4T010d4MN9hGTs4szI8Fvk9g7zCmPCVPr6iKZA3rG-s2IGed9NEEvgO6IP4SZEwNH60G7m229n_skQvLq_RU68EYUCRGOVzy-r1gNmjAHaqZIBNidXJ6EalwB5n/w640-h410/energy%20from%20stat.png" width="640" /></a></div><p>That figure is also available for past calendar years so we can see that in<b> 2021</b> it was <b>52.8% </b>and in <b>2020</b> it was <b><i>55.7%</i></b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipXi8CkIPpoacOJbTia01dC0zb8_fTwX4MlacuGgXTSAF3oU2bn7WCF6zLXxPmhIeydXVVBA7cmD-R0XLIkff0dnft2EAhDaaLByQ5H7_ENiRNW5qB5JNfEqYSFrZZ29K45hhyx_wQ6AoarwU7BpFk70PZ_m9Jxw4tbOd70ZHrL2uz2oecwOZNnTXj/s1560/IMG_5375.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1560" data-original-width="1092" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipXi8CkIPpoacOJbTia01dC0zb8_fTwX4MlacuGgXTSAF3oU2bn7WCF6zLXxPmhIeydXVVBA7cmD-R0XLIkff0dnft2EAhDaaLByQ5H7_ENiRNW5qB5JNfEqYSFrZZ29K45hhyx_wQ6AoarwU7BpFk70PZ_m9Jxw4tbOd70ZHrL2uz2oecwOZNnTXj/w448-h640/IMG_5375.jpg" width="448" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><p><b><u>Measure 3:</u> in 2021 Scotland was capable of meeting demand from Scottish renewables generation 37.8% of the time </b>[found <a href="https://scotland.shinyapps.io/Energy/?Section=SystemSecurity&Chart=ScotGenDemand" target="_blank">here</a>]</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqNGcocBrKcpDICUYf4Wdfup14S1nSis-yKM8vXo153fYz4a5O-ZoY8kvAvEcah9Va0V2lcrzo-HWMEijWCBQ3RlkQun_aG3PEJaCX9yUi8zRD2jh45SAl4SrPec3l2uOJ5N1RVN-toQVg88crpSUWxATttISgtGJuWMF_ue-FpqjnX_TQ359VtQmK/s1237/energy%20from%20trend.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="607" data-original-width="1237" height="314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiqNGcocBrKcpDICUYf4Wdfup14S1nSis-yKM8vXo153fYz4a5O-ZoY8kvAvEcah9Va0V2lcrzo-HWMEijWCBQ3RlkQun_aG3PEJaCX9yUi8zRD2jh45SAl4SrPec3l2uOJ5N1RVN-toQVg88crpSUWxATttISgtGJuWMF_ue-FpqjnX_TQ359VtQmK/w640-h314/energy%20from%20trend.png" width="640" /></a></div><div><br /></div><div>As we can see from the green line on the graph above, that figure was down from 2020 (when it was <b>51.1%).</b></div><div><b><br /></b></div><div>For the avoidance of doubt: the light orange line shows that when Scotland's Nuclear and gas generation capacity is included, Scotland is effectively self-sufficient in electricity generation - but we are most definitely not close to self-sufficient when it comes to generation from <i>renewables</i>.</div><div><b><br /></b></div><div>It is perhaps also worth noting that the SNP are resolutely opposed to nuclear generation (nuclear being the gap between the green and blue lines above)<b>.</b></div><div><b><br /></b></div><div><b>So to summarise using the figures for 2021:</b></div><div><p></p><ul><li>Scotland was capable of meeting all its electricity demand from renewable generation just<b> 37.8% </b>of the time <br /><br /></li><li><b>52.8%</b> of electricity consumed in Scotland came from renewables<br /><br /></li><li>The <b><i>equivalent</i></b> of [roughly] <b>82.9%</b> of Scotland's gross electricity consumption was generated by renewables [a figure which was briefly published and subsequently deleted]</li></ul></div><div><b><br /></b></div><div><br /></div><h2 style="text-align: left;"><b>Appendix: Explaining how the measures differ</b></h2><p></p><p>Having discussed these measures with many smart and well-informed people, it's clear that it's easy to get confused about what the different measures mean. To explain how the three different measures vary, it's helpful to illustrate with some simple theoretical examples of supply/demand matching.</p><p>Let's start with a very simple extreme example where, over a 12-period timescale, renewables always meets 50% of demand:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgde8AvU0fnfyhoGPsQUpxwhnTpLUdsqqAZQyiuGJgJkh261AyBb1ZtJZ9zQnsRkoVI5suW1CvQ6O1rEU9DvdJpSVWY6e_z7_yKShGxe9K7l44ulKhfAmGgQw5KGRx_ZkBz0kXfqO_OqSDLowW8p144tcGiXVtIZ0_V4sl3qBd891IlsBSq-4QCdId3/s2028/Screenshot%202022-11-03%20at%2016.31.07.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1218" data-original-width="2028" height="384" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgde8AvU0fnfyhoGPsQUpxwhnTpLUdsqqAZQyiuGJgJkh261AyBb1ZtJZ9zQnsRkoVI5suW1CvQ6O1rEU9DvdJpSVWY6e_z7_yKShGxe9K7l44ulKhfAmGgQw5KGRx_ZkBz0kXfqO_OqSDLowW8p144tcGiXVtIZ0_V4sl3qBd891IlsBSq-4QCdId3/w640-h384/Screenshot%202022-11-03%20at%2016.31.07.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div>In this illustration:</div><div><ul style="text-align: left;"><li><u>Measure 1</u>: the equivalent of <b>50%</b> of electricity consumption is met by renewables</li><li><u>Measure 2</u>: <b>50%</b> of electricity consumed came from renewables</li><li><u>Measure 3</u>: renewables were capable of meeting demand <b>0% </b>of the time<br /><br /></li></ul><div>Now let's try another extreme example, where half the time renewables fully meet demand, half the time there is no renewables generation:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIPJQUWDi6FwfLSO9uewFIAIpet2iPI7ZlRV4HtwQRBHKUpPuw6U6kFgIy-zwgneVbWrZqqqBcw-4u4mtX1N0hNEOOC57FsI_HqCG7zv4D8oNROouPaHgqYUFtzMbf14H9PtqlJ90prG5ApdxgITPNcik8pZZXHMWg0BEpL8WcNg_wX6QrVHfulurj/s1015/Screenshot%202022-11-03%20at%2016.46.11.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="611" data-original-width="1015" height="386" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgIPJQUWDi6FwfLSO9uewFIAIpet2iPI7ZlRV4HtwQRBHKUpPuw6U6kFgIy-zwgneVbWrZqqqBcw-4u4mtX1N0hNEOOC57FsI_HqCG7zv4D8oNROouPaHgqYUFtzMbf14H9PtqlJ90prG5ApdxgITPNcik8pZZXHMWg0BEpL8WcNg_wX6QrVHfulurj/w640-h386/Screenshot%202022-11-03%20at%2016.46.11.png" width="640" /></a></div><br /><div><div>In this illustration:</div><div><ul><li><u>Measure </u>1: the equivalent of <b>50%</b> of electricity consumption is met by renewables</li><li><u>Measure 2</u>: <b>50%</b> of electricity consumed came from renewables</li><li><u>Measure 3</u>: renewables were capable of meeting demand <b>50% </b>of the time<br /><br /></li></ul><div>Now let's consider something a bit more variable (but with supply still never exceeding demand):</div></div></div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnpBWCbeDHF8ZRTcM-qAQzJOiNgf47LxEhZfJSB2CRndhdDmg5zhedoGB2v2PMWt5UwP2naa6R6TyXNARE7OfR5srgoPJSbgXvKiPPOtvjFeUKhYf-wcMFp0UgkaEybDHIEbSynBobDSgExwZ_2iD9yhCSGcT62rWXK7sD26aBOcUXsNCWUI5czHlb/s1014/Screenshot%202022-11-03%20at%2016.47.42.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="610" data-original-width="1014" height="386" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnpBWCbeDHF8ZRTcM-qAQzJOiNgf47LxEhZfJSB2CRndhdDmg5zhedoGB2v2PMWt5UwP2naa6R6TyXNARE7OfR5srgoPJSbgXvKiPPOtvjFeUKhYf-wcMFp0UgkaEybDHIEbSynBobDSgExwZ_2iD9yhCSGcT62rWXK7sD26aBOcUXsNCWUI5czHlb/w640-h386/Screenshot%202022-11-03%20at%2016.47.42.png" width="640" /></a></div><div>In this illustration, 73% of the graph is green so:</div><div><ul><li><u>Measure </u>1: the equivalent of <b>73%</b> of electricity consumption is met by renewables</li><li><u>Measure 2</u>: <b>73%</b> of electricity consumed came from renewables</li></ul>In 6 of the 12 periods renewables fully met demand so:<br /><ul><li><u>Measure 3</u>: renewables were capable of meeting demand <b>50% </b>of the time</li></ul></div><div>As a final illustration, lets consider the more realistic scenario where renewables generation exceeds demand in those periods where 100% of demand can be met from renewables:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHQg-1Ea6oqBkPdjIVSFWY3-ouGP3J20wiK1iDrarC9XAJRtSMqM_LmQhzfTSlQkSpSfLEbidEE-AHDuEPtKOG7CV3C57NW8zAEZbie5J3ZGPVrdGwAfZKZ9Fu8Ps5JZJ0-36p72jVOVQELIT1aOGCOqCKXdGdC8PGSF_ZmrG9XWyUUPLfPryWtjmU/s1007/Screenshot%202022-11-03%20at%2016.57.09.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="602" data-original-width="1007" height="382" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhHQg-1Ea6oqBkPdjIVSFWY3-ouGP3J20wiK1iDrarC9XAJRtSMqM_LmQhzfTSlQkSpSfLEbidEE-AHDuEPtKOG7CV3C57NW8zAEZbie5J3ZGPVrdGwAfZKZ9Fu8Ps5JZJ0-36p72jVOVQELIT1aOGCOqCKXdGdC8PGSF_ZmrG9XWyUUPLfPryWtjmU/w640-h382/Screenshot%202022-11-03%20at%2016.57.09.png" width="640" /></a></div><br /><div>In this illustration</div><ul><li><u>Measure </u>1: the equivalent of <b>83%</b> of electricity consumption is met by renewables (the total green area would fill in 83% of the area under the 100% of demand line)<br /><br /></li><li><u>Measure 2</u>: <b>73%</b> of electricity consumed came from renewables (this is the same as the previous illustration because renewables production which exceeds demand does not contribute to this figure)<br /><br /></li><li><u>Measure 3</u>: renewables were capable of meeting demand <b>50% </b>of the time (6 out of 12 periods)<br /><br /></li></ul><p></p><p>In reality, each time period would have a different absolute level of demand, so the maths gets a little more complicated - meeting demand when demand is low has less impact on measures 1 and 2 than meeting demand when demand is high (although measure 3 is unaffected by this issue). I could draw another graph, but I think we've probably gone far enough to explain the dynamics at play here.</p><br /><p><b>ADDENDUM [added 04/11/2022]</b></p><p>The difference between "when the wind blows" and "when we need electricity" is clearly an important factor in this debate, so I went hunting for the data and found what I wanted on the <a href="https://demandforecast.nationalgrid.com/efs_demand_forecast/faces/DataExplorer" target="_blank">National Grid Data Explorer</a>.</p><p>The "Demand Data Update" provides actual half-hourly data for (amongst other things) National Demand and Embedded Wind Generation. That Embedded Wind Generation is not <i>all</i> wind generation*, but it provides us with data on variability of wind generation for the same half-hourly periods that we have data for National Demand. </p><p>Armed with this data we can create <i>indices</i> of electricity demand and wind generation where both average to 100. This gives us an illustrative graph where <b>the equivalent of </b>all<b> </b>demand is met by wind generation while reflecting the <i>actual</i> variability of that supply and demand during the month of October 2022:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtcD5UCvCBe7EuJbxqNc_3H3CTDE1rf9IWBMugfRB2h8irbaN7egAtcrLpSNrUHDx90DV9hhXQgr9UlPWHLevVbO78FhBwbTQLO0CMSRR-FkYtarwrEc0jIcckSA0wkeVeYkjyo3g_UnUwbS9BG3AloJtpjlmzN0SOtSOA-Frb0p7i78alvh9DB_8j/s1192/Screenshot%202022-11-04%20at%2014.13.45.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="774" data-original-width="1192" height="416" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgtcD5UCvCBe7EuJbxqNc_3H3CTDE1rf9IWBMugfRB2h8irbaN7egAtcrLpSNrUHDx90DV9hhXQgr9UlPWHLevVbO78FhBwbTQLO0CMSRR-FkYtarwrEc0jIcckSA0wkeVeYkjyo3g_UnUwbS9BG3AloJtpjlmzN0SOtSOA-Frb0p7i78alvh9DB_8j/w640-h416/Screenshot%202022-11-04%20at%2014.13.45.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div>So when the graph is <i>brown</i> demand is met by wind supply, when it's <i>green</i> wind supply exceeds demand, when it's <i>red</i> demand is not met by wind supply. Note: while this is based on real UK demand and wind supply profiles (on a half-hourly basis) it is indexed to illustrate a position where <b>the equivalent of</b> demand would be met by wind supply.</div><div><br /></div><div>The Graph illustrates quite neatly that electricity demand and wind energy supply are not correlated - having <b>the equivalent of</b> enough wind generation to meet demand is not the same as supply actually matching demand when it's needed.</div><div><br /></div><div>This is of course why developing economically viable and scaleable storage solutions for periods of excess reneweables generation is so important (e.g. pumped, battery or potentially Hydrogen storage - see <a href="https://www.nationalgrideso.com/electricity-explained/how-do-we-balance-grid/how-does-storage-help-us-balance-grid" target="_blank">here</a>). But it also shows why wind generators in Scotland benefit from direct access to the larger pool of demand that comes from being part of a fully-integrated GB energy market - placing a border between excess renewables supply and demand for that renewables capacity helps nobody (and can only hinder progress to Net Zero).<span style="text-align: center;"> </span><p style="text-align: center;">******<br /><br /></p><p>* <i>"This is an estimate of the GB wind generation from wind farms which do not have Transmission System metering installed. These wind farms are embedded in the distribution network and invisible to National Grid. Their effect is to suppress the electricity demand during periods of high wind. The true output of these generators is not known so an estimate is provided based on National Grid’s best model. Note that embedded wind farms which do have Transmission System metering are not included in this total."</i></p><p><br /></p><p><br /></p> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script></div><br />Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com4tag:blogger.com,1999:blog-1603438996450817644.post-92213276341007805072022-09-03T10:14:00.011-07:002022-09-06T00:37:43.919-07:00Ofgem Price Caps and ScotlandRecent actual and future forecast increases in Ofgem's default energy tariff cap levels are genuinely shocking and have rightly led to widespread calls for government action to deal with an impending national energy bills crisis. <div><br /></div><div>But in Scotland there is - of course - an inevitably parochial spin being placed on the issue, particularly by those who seek nationalist grievance at every turn. Take this headline in the independence-supporting newspaper The National:<div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiSlsU4da9ZNHVpYZQGJWGMgVaG8H4NUwAFbao_oyB8gstFpYa37y-KFmK8ZiLXL3WX_PKez3CrjnYKNWF1Xj2RoopybA8eiGbHn4Q3GMZ1XGpHLSfGkzzemYm4O6i9mVIUMCyL8uoKnMQQ_wGSo4lCrBQEBYwhZQBbL7SHUv3tKXw5Yv3yoUpYLVoC" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="1932" data-original-width="1170" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEiSlsU4da9ZNHVpYZQGJWGMgVaG8H4NUwAFbao_oyB8gstFpYa37y-KFmK8ZiLXL3WX_PKez3CrjnYKNWF1Xj2RoopybA8eiGbHn4Q3GMZ1XGpHLSfGkzzemYm4O6i9mVIUMCyL8uoKnMQQ_wGSo4lCrBQEBYwhZQBbL7SHUv3tKXw5Yv3yoUpYLVoC=w387-h640" width="387" /></a></div><br />Quite how they claim that they have an "exclusive" on Ofgem's latest published price caps I don't know. Read <a href="https://www.thenational.scot/news/20878565.scotland-pays-50-per-cent-london-electricity-standing-charges/" target="_blank">the article</a> itself and you'll find SNP international trade spokesperson Drew Hendry asserting that this standing charge difference is "plainly wrong" and this bizarre graph which is presumably intended to illustrate the issue:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVGXiIM8H26MYgB7N9iMxcg4emkbvIgEjMvL-AROyCe3WWNZwft9ahvRXqEnS37W0Ha2qHRogHkFXkvLI219PYXlQwgFqQvQQ9Hwsqrg5h5grPEAubnw4xN0F8vIXLXpM-BH4PyGlLn6sgvM5ScBHtRvu5y-tEy2Dh3WIZZEnw25J6Qpdo6PlwOZ0D/s622/Screenshot%202022-09-03%20at%2014.03.20.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="573" data-original-width="622" height="590" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiVGXiIM8H26MYgB7N9iMxcg4emkbvIgEjMvL-AROyCe3WWNZwft9ahvRXqEnS37W0Ha2qHRogHkFXkvLI219PYXlQwgFqQvQQ9Hwsqrg5h5grPEAubnw4xN0F8vIXLXpM-BH4PyGlLn6sgvM5ScBHtRvu5y-tEy2Dh3WIZZEnw25J6Qpdo6PlwOZ0D/w640-h590/Screenshot%202022-09-03%20at%2014.03.20.png" width="640" /></a></div>This graph commits so many crimes against good data presentation that it is worse than useless;<div><ul style="text-align: left;"><li>The bar chart is pretty much meaningless - it mixes a pence per day figure for the standing charge with a pence per kWh figure for the unit cost. You can't stack measures in two different units together; the left hand scale can't be two different things</li><li>The only way that bar chart <i>could</i> make sense would be if you wanted the left hand scale to be in pence per day, in which case the bar chart as drawn would be showing the cost per day for a household using one kWh per day - but the typical average consumption figure used by Ofgem works out at over eight kWh per day. So the bar chart implicitly shows the daily electricity costs for somebody with <b>1/8th</b> <b>of typical electricity consumption</b></li><li>The green 'typical consumption annual bill' line is hard to read and relates to a right hand scale which is not zero-based - this exaggerates the variance in 'typical consumption' annual bills which is in fact <b>just +/- 3% vs the national average</b></li><li>There is no logic I can see to the left-to-right ordering on this chart ... but squint and look closely at that green line and you'll see that, for typical consumption levels, <b>Northern Scotland's annual bills are marginally <i>lower </i>than London's and Southern Scotland's are almost identical</b>.<i> </i></li></ul><div>So let's unpick this.</div><div><br /></div><div>First of all the headline claim is technically correct: from October 2022 the standing charge cap [or to be precise, the "standard credit single-rate metering electricity nil consumption tariff cap"] for Northern and Southern Scotland will be £199 and £198 pa respectively vs London's £134 and a national average of £182. So it will (continue to be) roughly 50% higher than London's (by far the lowest in the UK) and 9% higher than the national average.</div></div><div><br /></div><div>But on what basis does Drew Hendry assert that this is "plainly wrong"?</div><div><br /></div><div>I imagine that before opining so robustly on the subject he will have looked at Ofgem's "default tariff cap model" (the second subsidiary document <a href="https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2022-31-december-2022" target="_blank">here</a>). This breaks down the components of the tariff cap by region and shows that the differences between Scotland and London are almost entirely explained by the component that relates to Network Costs</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGGJnTLrDUBcSS0W0KbY3LD70uSYiQkAEjJw0rrYLZCFDbFCe4lpGGvfN9ZGFnqSmAe0xQGuniZvqFnB7bEReHWhkQmg5kLNj1Xl9H_zBABgHIm8DXD2c1h3_5icELmAyajXCShEh1mYe8f44dyKh4K_nMviSXyDBI3x3T_Ot1DZBEMXCX7kZT_wRL/s623/Screenshot%202022-09-03%20at%2015.23.38.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="623" data-original-width="563" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhGGJnTLrDUBcSS0W0KbY3LD70uSYiQkAEjJw0rrYLZCFDbFCe4lpGGvfN9ZGFnqSmAe0xQGuniZvqFnB7bEReHWhkQmg5kLNj1Xl9H_zBABgHIm8DXD2c1h3_5icELmAyajXCShEh1mYe8f44dyKh4K_nMviSXyDBI3x3T_Ot1DZBEMXCX7kZT_wRL/w578-h640/Screenshot%202022-09-03%20at%2015.23.38.png" width="578" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>Presumably Hendry would then have looked at the analysis behind those Network Costs as explained by Annex 3 (the fourth subsidiary document <a href="https://www.ofgem.gov.uk/publications/default-tariff-cap-level-1-october-2022-31-december-2022" target="_blank">here</a>). He'd then have seen that (for the nil use case) this figure is made up entirely of a Distribution Use of System (DUoS) charge.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipwpOiJbBkGQGVpv7NoM5-kk_BMHRPZNg49JSCvfBCL8B4aU3KujEI4kINFb7ZYIzA6XqFSArZuvVqLvHD3ruvbx1AzEhA0Ime0n6C5HXVEWOTaefbu6_twnwoflTDTFVEJHaugan_RvCB2jTo30fCvp6btJ6VvDELoIbTaL-OX7coeAdpvj008Htx/s947/Screenshot%202022-09-03%20at%2015.32.39.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="337" data-original-width="947" height="228" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEipwpOiJbBkGQGVpv7NoM5-kk_BMHRPZNg49JSCvfBCL8B4aU3KujEI4kINFb7ZYIzA6XqFSArZuvVqLvHD3ruvbx1AzEhA0Ime0n6C5HXVEWOTaefbu6_twnwoflTDTFVEJHaugan_RvCB2jTo30fCvp6btJ6VvDELoIbTaL-OX7coeAdpvj008Htx/w640-h228/Screenshot%202022-09-03%20at%2015.32.39.png" width="640" /></a></div><br /><div>I haven't personally dug any deeper into these DUoS charges, but it seems pretty obvious that the costs of building and maintaining an electricity network to serve remote, low population density areas would be higher on a per customer basis than it would be for areas of higher population density (like London, for example).</div><div><br /></div><div>As it happens there is a <a href="https://www.ofgem.gov.uk/publications/consultation-our-proposal-take-forward-reform-distribution-use-system-charges-under-separate-significant-code-review-revised-timescales" target="_blank">consultation under-way into possible reform of the DUoS system charges</a>. Given that SNP spokeperson Drew Hendry seems so sure that the current charging system is "plainly wrong", I was disappointed (although unsurprised) not to find the Scottish Government among the 26 bodies who have bothered to respond to Ofgem's consultation request on this subject (see "Response Documents" <a href="https://www.ofgem.gov.uk/publications/consultation-our-proposal-take-forward-reform-distribution-use-system-charges-under-separate-significant-code-review-revised-timescales" target="_blank">here</a>).</div><div><br /></div><div>Perhaps it's easier to just assert something is "plainly wrong" than it is to engage with <i>why</i> the charging system is as it is and to actually get invoved in a constructive debate about how it might be changed. At the risk of stating the obvious: if the DUoS charging system reflects a fair allocation of true regional network costs-to-serve, Scotland becoming independent wouldn't magically change that.</div><div><br /></div><div>But why this obession with the electricity standing charge anyway? The latest price cap increase has seen the standing charge increase by just 2% whereas typical overall average annual bills are increasing by 70%.</div><div><br /></div><div>The obvious reality is that most people's energy bills, just as with their phone or water bills, are made up of a combination of standing and usage charges - and that usage charge price rises are the big issue here.</div><div><br /></div><div>So to decide if Scots are hard done by under of Ofgem's price cap regime, we need to look at <i>total</i> capped electricity costs per kWh for different usage levels. </div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja7rkO8DF_iNjLZU2oYaywUbxCC8h6fJ7rLJbAzvg87KknIYRgD3J6HKi4M4w2WsSIWlQiVptaUqzYuq5nKXwoCpWMtW0M_UNBEd6SXrHyBMQGklD8k64eTfruov7E9i924q8TYc4YKZMLCA2yM3coQeFZrlxNGY71YFDTYHZxZts_Y-Rwfvg3lTLB/s1308/Screenshot%202022-09-04%20at%2010.40.02.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="755" data-original-width="1308" height="370" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEja7rkO8DF_iNjLZU2oYaywUbxCC8h6fJ7rLJbAzvg87KknIYRgD3J6HKi4M4w2WsSIWlQiVptaUqzYuq5nKXwoCpWMtW0M_UNBEd6SXrHyBMQGklD8k64eTfruov7E9i924q8TYc4YKZMLCA2yM3coQeFZrlxNGY71YFDTYHZxZts_Y-Rwfvg3lTLB/w640-h370/Screenshot%202022-09-04%20at%2010.40.02.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div>This simple graph is hard to read because the differences in capped electricity charges between the Scottish regions, London and the GB average are in reality so small. The graph shows the standing charge differences (the very left-hand edge of this graph) in context, that at typical usage levels actual bills are almost identical and that at higher usage levels bill-payers in London pay more.</div><div><br /></div><div>The cost of energy crisis is very real and massively concerning - but only the most myopic of Scottish nationalists could make this about a grievance between bill payers in Scotland and those in London.</div><div><br /></div><div>For completeness, it's easy to repeat the same graph for Ofgem's gas bill price caps:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOE0WTb_eHN90tKPLuwgbH_lDPRzp7VDbnwB-iVY1ja2-ZSLNNwwJ3TG2dFncLopa8sR_-PYf9mv_KY4k6YYta-5NY5Tx25eIX4jgr1FmszSJVtUNbL5xLcWZhlpw2A1vXqRKVSJfH9VDNek3KCh75SDgxmsBuZO7F2RxyozAAKJ1hyOzbZe5Kf8oQ/s1308/Screenshot%202022-09-04%20at%2010.40.19.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="755" data-original-width="1308" height="370" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhOE0WTb_eHN90tKPLuwgbH_lDPRzp7VDbnwB-iVY1ja2-ZSLNNwwJ3TG2dFncLopa8sR_-PYf9mv_KY4k6YYta-5NY5Tx25eIX4jgr1FmszSJVtUNbL5xLcWZhlpw2A1vXqRKVSJfH9VDNek3KCh75SDgxmsBuZO7F2RxyozAAKJ1hyOzbZe5Kf8oQ/w640-h370/Screenshot%202022-09-04%20at%2010.40.19.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>The standing charge price cap for gas is the same for all regions (and has only risen by 1% at this latest review) - and for what it's worth Londoners pay ever so slightly more than Scotland or the GB average for the same usage.</div><div><br /></div><div><div>Anybody reacting to the current energy cost crisis by focusing on standing charges and/or trying to create grievance about the way Ogem is treating Scotland is very much missing the point. </div><div><br /></div><div><br /></div><div><br /></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com2tag:blogger.com,1999:blog-1603438996450817644.post-52991766313189107172022-08-24T05:38:00.006-07:002022-08-24T07:41:51.957-07:00GERS 2022 - Here we go againEvery 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. <div><br /></div><div>In 2014 when looking back on years when oil revenues had been booming, the SNP summarised the GERS figures thus: </div><blockquote><div><i>"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."</i></div></blockquote><p>We can easily update the SNP's previously preferred formulation with the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2021-22/" target="_blank">most recent GERS figures</a>:</p><blockquote><i><b>"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."</b></i></blockquote><p>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.</p><p>This will come as no surprise to regular readers of chokkablog (eg. see <a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">last year's write-up as published by These Islands</a> which I'll update in due course). </p><p>Really all you need to know is this simple fact (as included in the Scottish Government's own <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2021-22/" target="_blank">GERS release summary</a>):</p><p></p><blockquote><i>"<b>Total expenditure for the benefit of Scotland</b> 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 <b>is £1,963 per person greater than the UK average.</b>"</i></blockquote><p></p><p>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). </p><p>So let's look at how the SNP are trying to spin their way out of this on the day of publication.</p><p>Senior SNP politcians can't lower themselves to the level of GERS-denying cybernats because:</p><p></p><ul style="text-align: left;"><li>The decision to publish the GERS report is the Scottish Government's alone [as confirmed by this <a href="https://www.whatdotheyknow.com/request/531245/response/1275154/attach/4/FOI%2018%2003301%20response.pdf" target="_blank">FOI response</a>]<br /></li><li>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 </li><li>GERS is an accredited National Statistics publication and carries the quality mark to prove it </li></ul><p></p><p>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:</p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQixZae_kLoGENZcoql6mYXMrrhQ0_aJP9NJ1LQkOH-aKPWJs3EeYQ1mLojpkETO3m7DTuP6e8E2B7BT_dg0FoiELCEbyh-ZR8Bjh8f9u8IeJmAEdQ7YbRAM4dQjNTHKa00U4YZc7idAxRM4_8wwwaxc93QNpK77R49NchLd74O9BN77iTVVYUaQcs/s566/Screenshot%202022-08-24%20at%2011.50.15.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="289" data-original-width="566" height="204" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQixZae_kLoGENZcoql6mYXMrrhQ0_aJP9NJ1LQkOH-aKPWJs3EeYQ1mLojpkETO3m7DTuP6e8E2B7BT_dg0FoiELCEbyh-ZR8Bjh8f9u8IeJmAEdQ7YbRAM4dQjNTHKa00U4YZc7idAxRM4_8wwwaxc93QNpK77R49NchLd74O9BN77iTVVYUaQcs/w400-h204/Screenshot%202022-08-24%20at%2011.50.15.png" width="400" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP_MfmRfqk-vTcskw2z8-qdHL3uRv7h35Dzhmm4-zm5PS81bMg4eIGWFNWWyIyIUi9jK2GrYP62E-e3cg2dmGX5BmGHJ2I5OelqU78xVnu5mvKJfyn21GTKmODO2_PP51koYKFuLgD24breUqAQkq4JyS1a9Qw_so8ZGh4qS63uxYyfyTVMTVjvP1r/s566/Screenshot%202022-08-24%20at%2011.44.19.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="343" data-original-width="566" height="243" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP_MfmRfqk-vTcskw2z8-qdHL3uRv7h35Dzhmm4-zm5PS81bMg4eIGWFNWWyIyIUi9jK2GrYP62E-e3cg2dmGX5BmGHJ2I5OelqU78xVnu5mvKJfyn21GTKmODO2_PP51koYKFuLgD24breUqAQkq4JyS1a9Qw_so8ZGh4qS63uxYyfyTVMTVjvP1r/w400-h243/Screenshot%202022-08-24%20at%2011.44.19.png" width="400" /></a></div><p>This is not a new line - it was being pushed in <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">a slightly different form by Andrew Wilson last year</a> - but it is at best hugely misleading and at worst a downright lie.</p><p>First let's check the claim on its own terms.</p><p></p><ul style="text-align: left;"><li>Revenues raised in Scotland (without North Sea receipts): <b>£70,311m</b> [Table S.3]</li><li>Total devolved <b><i>current</i></b> expenditure: <b>£53,546m </b>[Table 3.8a]</li><li>Total devolved <i><b>capital</b> </i>expenditure: <b>£8,035m</b> [Table 3.8b]</li><li>Total reserved social security expenditure (aka Social Protection): <b>£16,730</b> [Table 3.8a]</li></ul><div>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 <b>deficit of £8,000m</b>.</div><div><br /></div><div>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 <i>exclude</i> devolved capital expenditure.</div><div><br /></div><div>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 <i>"<b>day-to-day</b> devolved spending"</i>. 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.</div><div><br /></div><div>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.</div><div><br /></div><div>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.</div><div><ol><li>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 <b>£19,180m </b>(per Tables 3.8a and 3.8b) <br /><br /></li><li>Alternatively we can look at how much of reserved expenditure which is excluded by the SNP's claim actually takes place <i>in</i> Scotland</li></ol><div>The first of these is straightforward and is covered in part by this excellent <a href="https://fraserofallander.org/gers-2022-the-main-headlines-and-what-does-it-really-tell-us/" target="_blank">Fraser of Allander blog</a>:</div></div><p></p><blockquote><div><i>"What this does not include is any capital investment, of course, including £8bn of devolved capital expenditure. </i><i>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."</i></div></blockquote><p>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.</p><p>An alternative approach would be to look at what reserved expenditure takes place <i>in </i>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.</p><p>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.</p><p>The simple summary (full detail and sources are on <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">Chokkablog here</a>) is as follows:</p><p><b>In addition to social protection (inc pensions), there is a futher £7 billion of reserved spending that takes place directly <i>in</i> Scotland.</b></p><p>This is made up by c.£4.7 billion of non-defence related reserved spending incurred directly in Scotland;</p><p></p><ul style="text-align: left;"><li>£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</li><li>£884m - Network Rail (maintaining and improving Scotland's rail infrastructure)</li><li>£726m - Renewable Obligation Certificates* (support for Scotland's renewable power industry)</li><li>£676m - Research Grants awarded to and spent in Scotland as well as the Renewable Heat Incentive </li><li>£529m - R&D tax credits and other tax reliefs supporting economic activity in Scotland</li><li>£273m - Nuclear decommissioning costs in Scotland</li><li>£251m - BBC costs (in Scotland)</li><li>£125m - Scottish Ferries costs and Creative/Historic Scotland costs recharged to the rest of the UK in GERS</li><li>£70m - HMCTS central, British Transport Police, CICA Agency</li><li>£36m - Environment Protection costs</li><li>£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.</li></ul><p></p><p>In addition to the above non-defence spending in Scotland, roughly £2.5 billion of defence spending takes place in Scotland.</p><p>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. </p><p>This is not the messaging of a party who are serious about making an honest economic case for independence.</p><p><br /></p><p><br /></p><p>* This figure understates the true scale of the effective transfer from rUK to Scotland, as explained <a href="https://www.these-islands.co.uk/publications/i378/scottish_renewables_a_united_kingdom_success_story.aspx" target="_blank">here</a>: <i>"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."</i></p><p><br /></p><p> </p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com5tag:blogger.com,1999:blog-1603438996450817644.post-61520920724399343942022-06-28T09:23:00.007-07:002022-06-29T00:52:20.006-07:00Why Not Scotland?<p>Despite the fact that recent opinion polls (eg. <a href="https://www.these-islands.co.uk/publications/i379/keeping_the_dream_alive.aspx" target="_blank">here</a> and <a href="https://www.scotlandinunion.co.uk/post/new-poll-only-29-support-indyref2-in-2023" target="_blank">here</a>) show that less than a third of Scots actually want it, Nicola Sturgeon has today announced that we are to be treated to a "pretendyref" on Scottish independence in October 2023. </p><p>Given that nobody expects the UK Government to grant a Section 30 order, this will become a glorified opinion poll which pro-union voters will be inclined to boycott, rendering it unrepresentative and therefore entirely pointless.</p><p>But having set a date, presumably the SNP believe that they can now articulate a credible case that will win round those indy-curious voters who worry about the economic consequences of breaking up the UK. </p><p>Which is curious, because just last week the Scottish Government published the first episode in their new and improved independence prospectus serialisation - and if this was intended to be a teaser for what is to come, it turned out to be a less than enticing flick of the Kimono. </p><p>The Scottish Government's "scene-setter" paper compares the UK to a hand-picked selection of European comparator countries. Unfortunately it doesn't include any data for Scotland and skirts around the question of how different countries approach the trade-off between tax and spend.</p><p>This blog post's appendix walks through the journey from the bar charts presented by the Scottish Government to a more complete and informative presentation of comparative country data. But you don't need to travel that full journey to appreciate the view we reach at the destination: this simple chart compares the fiscal position of Scotland (in the UK) with all European OECD countries:</p><p> <a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXQKSIVlJfVMn8Bg6FpGzrNT2wot4TuHbG4ISHL7Qh2xG-fKFEvNbeKWrNE485XdX0KUnEfqKS4JIGCjYmMq-q6ZkHvP6ZQs9uH0dY0_WBP1tMFg7-dA_wR74UNfHsRou970UuQncCKe84aPn7_xY6HYnpCLWAKuub82wypQyacDrteRmDcQPS2GU9/s1581/Screenshot%202022-06-23%20at%2011.40.59.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXQKSIVlJfVMn8Bg6FpGzrNT2wot4TuHbG4ISHL7Qh2xG-fKFEvNbeKWrNE485XdX0KUnEfqKS4JIGCjYmMq-q6ZkHvP6ZQs9uH0dY0_WBP1tMFg7-dA_wR74UNfHsRou970UuQncCKe84aPn7_xY6HYnpCLWAKuub82wypQyacDrteRmDcQPS2GU9/w640-h438/Screenshot%202022-06-23%20at%2011.40.59.png" width="640" /></a></p><p>This clearly shows what the Scottish Government's paper failed to address: some combination of higher taxes and/or lower spending would be required for an independent Scotland to achieve fiscal sustainability (ie. to move up and/or to the left on the graph and get within the EU's 3% excessive deficit threshold).</p><p>In fact these international comparisons neatly illustrate that the UK's pooling and sharing of tax revenues allows Scotland (in the UK) to benefit from levels of government spending that would otherwise be unsustainable without significantly higher taxes in Scotland. </p><p>Those who attempt to obfuscate this debate by questioning the validity of the data for Scotland are arguing with <a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">National Statistics published by the Scottish Government</a> and don't deserve to be taken seriously. </p><p>Those supporters of Scottish independence who do wish to be taken seriously need to explain how the revenues raised by the government of an independent Scotland could increase and/or how the cost of public services consumed could decrease relative to these "in the UK" figures. </p><p>We can immediately see from this chart that tax revenues would need to increase and/or public spending decrease by c.6% of GDP just to get within the EU's 3% excessive deficit threshold and achieve the SNP's stated aim of being, in fiscal terms, "just like a normal independent country" (of whatever size).</p><p>All the countries on that chart have established currencies (or did so as pre-conditions of joining the EU and/or the Eurozone). An independent Scotland would no longer be in a formal Sterling currency union and we are told a new Scottish currency would be created as soon as practicable. That realistically means some combination of fiscal and/or current account surplus would be required.</p><p>Even if we just look at the countries the Scottish Government hand-picked as comparators, plenty of them run a fiscal surplus in normal times so, to coin a phrase, why not Scotland? </p><p><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfNfwvrHRrnOeY-rr6crOGWQqEUIeR-GVeMaT7X6etA8pEn9sPJFZK6zvhjshRSaD8Ik5v2Wk9ndmNBPeBVLjqIBPcszpREPtGZ3IZj4Qu7JY2f9hUeGGxmcupvZ8N_yc9P9nXcPQUIdfRupHUk0eeyCM1ZnGOyHcv3g8qw93cxBCRDzur5lLguiwa/s1581/Screenshot%202022-06-23%20at%2011.38.22.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfNfwvrHRrnOeY-rr6crOGWQqEUIeR-GVeMaT7X6etA8pEn9sPJFZK6zvhjshRSaD8Ik5v2Wk9ndmNBPeBVLjqIBPcszpREPtGZ3IZj4Qu7JY2f9hUeGGxmcupvZ8N_yc9P9nXcPQUIdfRupHUk0eeyCM1ZnGOyHcv3g8qw93cxBCRDzur5lLguiwa/w640-h438/Screenshot%202022-06-23%20at%2011.38.22.png" width="640" /></a></p><p>To run a fiscal surplus would (on these pre-pandemic figures) require tax rises or costs savings of 9% of GDP. That is the equivalent of a 20% decrease in total government spending or a 24% increase in total government revenue.</p><div>To help those trying to make these numbers stack up, let's put 6 - 9% of GDP in the context of some existing Scottish revenue figures as % of GDP ...</div><div><ul><li>Income tax: 7.3%</li><li>National Insurance: 6.4%</li><li>VAT: 6.1%</li><li>Onshore Corporation Tax: 1.7%</li><li>Tobacco & Alcohol Duties: 1.3%</li></ul></div><div>... or specific Scottish spending figures:</div><div><ul><li>Social Protection (inc Pensions): 13.5%</li><li>Health: 7.7%</li><li>Education and Training: 5.2%</li><li>Public Sector Debt interest: 2.9%</li><li>Defence: 1.9%</li></ul></div><div>So the exam question for the SNP is a simple one: <b>with reference to these current tax and spend figures, how would you achieve fiscal sustainability let alone the surplus position most of your chosen comparator countries achieve?</b></div><div><br /></div><div style="text-align: center;">***</div><div><br /></div><div>None of this is to deny the fact that historical actual figures can only represent Scotland as an integral part of the UK - the question is what would those reserved policy decisions and reserved spending allocations be replaced by?</div><div><br /></div><div>The SNP's Sustainable <a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">Growth Commission suggested addressing the fiscal conundrum by simply reducing government spending as % of GDP</a> (a policy more commonly referred to as "austerity") - but in doing so they failed to address any of the following rather important questions:</div><p></p><ol style="text-align: left;"><li>Many significant tax and spend decisions are currently considered to be best made on a UK-wide basis and are therefore reserved to Westminster; what different decisions might an independent Scotland make in areas such as income tax, VAT, corporation tax, social welfare spending etc. and what would the realistic net fiscal result be?<br /><br /></li><li>In answering the above, what consideration has been given to the likelihood of capital and talent flight associated with higher tax-rates and currency uncertainty?<br /><br /></li><li>Some reserved UK spending is considered to be of equal value to all parts of the UK and so is allocated on a population basis. Compared to these allocated figures, what levels of expenditure would an independent Scotland commit to in areas such as defence and international development aid and what would it cost an independent Scotland to replicate and run what is currently the UK's shared machinery of state (e.g. HMRC, DWP, Home Office, Border Force, Treasury, etc.)<br /><br /></li><li>In answering the above, what consideration has been given to the defence spending requirements of NATO membership and the practical economies of scale when it comes to institution building (i.e. would stand-alone Scottish HMRC, DWP, Home Office, Border Force, Treasury etc. functions cost more or less than the 8.2% of the total UK cost of these institutions which is allocated to Scotland today?)<br /><br /></li><li>Scotland has 8.2% of the UK's population but 10.0% of the UK's civil service jobs are based in Scotland. Given that in reserved functions such as DWP, HMRC, MoD, DfID and OFGEM (costs of which are allocated on a population share basis) significantly more than Scotland's population share of staff are located in Scotland, what assumption is made about the future of those jobs and any related fiscal multiplier effects?<sup>1</sup><br /><br /></li><li>There are other costs incurred in Scotland which are not charged to Scotland in these spending figures - for example 29% of Scottish Government ferries costs are allocated to the rest of the UK and nuclear decommissioning costs in Scotland are shared with the rest of the UK on a population share basis - what assumption is made about who bears those costs in the future? <br /><br /></li><li>The Growth Commission and the Scottish Government both cite and therefore presumably accept analysis which suggests Brexit-related trade friction will harm UK GDP growth. Given that <a href="https://www.gov.scot/publications/export-statistics-scotland-2019/" target="_blank">60% of Scotland's exports</a> go to the rest of the UK, what assumptions are being made about the impact on Scottish GDP of trade friction resulting from the creation of a Scotland/rUK border? <br /><br /></li><li>Having answered all of the above, what is the realistic outlook for an independent Scotland's fiscal deficit over time - and with what implications for Scotland's cost of debt and ability to build currency reserves?</li></ol><p></p><p>Where the Sustainable Growth Commission suggested reducing spending as a % of GDP, this latest Scottish Government paper hints at increasing taxes<sup>2</sup>. Whichever approach would be taken - and the scale of the challenge points towards <i>both</i> spending reductions and tax increases being required - it is hard to avoid the conclusion that the real-world implications for the people of Scotland would be eye-wateringly painful. </p><p>The fiscal challenge an independent Scotland would face is the elephant in the room - if the SNP are serious about a referendum in 2023, they must address it.</p><p><br /></p><p style="text-align: center;"><b>***</b></p><p style="text-align: left;"><b><u>NOTES</u></b></p><p style="text-align: left;">1. See <a href="https://www.gov.uk/government/statistics/civil-service-statistics-2020" target="_blank">Civil Service Statistics</a>, all in the context of Scotland's 8.2% share of the UK population:</p><p style="text-align: left;">45,650 or 10.0% of the UK's 456,420 civil servants are based in Scotland, including in reserved functions:</p><p style="text-align: left;"></p><ul style="text-align: left;"><li><span>8,260 DWP employees, 10.5% of the UK total</span></li><li>7,800 HMRC employees, 12.2% of the UK total</li><li>3,600 MoD employees, 9.7% of the UK total</li><li>950 DfID employees, 36.0% of the UK total</li><li>370 OFGEM employees, 37.8% of the UK total</li></ul><p></p><p style="text-align: left;"><span><span> </span><br /></span></p><p style="text-align: left;">2. See <a href="Independence in the modern world. Wealthier, happier, fairer: why not Scotland?" target="_blank">Independence in the modern world. Wealthier, happier, fairer: why not Scotland?</a> Page 50:</p><blockquote><p><i>"Why are most of the comparator countries able to sustain relatively high spending over the long-term? Evidence suggests that higher confidence in government is correlated with higher levels of willingness to comply with taxes [...] relatively high government revenues are not – as is often claimed – a barrier to growth and economic dynamism [...] “Far from impeding prosperity, it is high-growth countries that tend to have a larger share of tax revenues in GDP."</i></p></blockquote><p style="text-align: center;"><b><span><i>***</i></span></b></p><p style="text-align: center;"><b><span style="font-size: medium;"><i><br /></i></span></b></p><p style="text-align: center;"><b><span style="font-size: medium;"><i>Appendix: The Journey</i></span></b></p><p style="text-align: center;"><b><span style="font-size: medium;"><br /></span></b></p><p><b>What the Scottish Government Paper Included </b></p><p>The Scottish Government's paper included two mislabelled (the data is for 2019) bar charts of government spending and revenue as a % of GDP for the UK and their chosen comparator countries </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiBBV42cBRTecweDQpsndil5vbLTY26bTIxdq7muC4c3BCjpSKwgVqiCTnohApncT7qm_KyqKKl-Nf3s5ZJ9gI6jtR6PkNvP_wSbIZ9C7lLColAoFK6Ma-7YV7J2s3KW0-tZaRr8OCreSgBD4Hpwy4rSVP_KRCQhdVnB-ePdMhbBViv0RKB_cQafO9/s770/SG_version.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="770" data-original-width="684" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgiBBV42cBRTecweDQpsndil5vbLTY26bTIxdq7muC4c3BCjpSKwgVqiCTnohApncT7qm_KyqKKl-Nf3s5ZJ9gI6jtR6PkNvP_wSbIZ9C7lLColAoFK6Ma-7YV7J2s3KW0-tZaRr8OCreSgBD4Hpwy4rSVP_KRCQhdVnB-ePdMhbBViv0RKB_cQafO9/w568-h640/SG_version.png" width="568" /></a></div><br /><p>As highlighted in my <a href="https://chokkablog.blogspot.com/2022/06/we-need-to-talk-about-scotland.html" target="_blank">previous blog</a>, the data exists to be able to include Scotland (as part of the UK) as well. So I recreated the charts with Scotland (as part of the UK) added:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA7SfbqRoOZOOzVcklt2WyttReTuX_Zznw3DDG0vQ5AUn-fy_YAylj9IObuad0cwBLhWMwJOJA6yCTi3clwOQdNCqAjcgAB15e1bnXS-wXXKvJo4msKrg2UsIWyyuG3jZU3qiILcakLbIqaT9iWT3YclYY_XMLAdURYIgx91-G2UakL1dnvt19T2Qg/s942/inc_Scotland.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="942" data-original-width="901" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA7SfbqRoOZOOzVcklt2WyttReTuX_Zznw3DDG0vQ5AUn-fy_YAylj9IObuad0cwBLhWMwJOJA6yCTi3clwOQdNCqAjcgAB15e1bnXS-wXXKvJo4msKrg2UsIWyyuG3jZU3qiILcakLbIqaT9iWT3YclYY_XMLAdURYIgx91-G2UakL1dnvt19T2Qg/w612-h640/inc_Scotland.png" width="612" /></a></div><p>It's immediately obvious that Scotland (as part of the UK) benefits from higher spending than the UK average despite bearing basically the same tax burden. We can also observe that countries with similar or higher levels of spending than Scotland (as part of the UK) all have far higher revenue (aka taxes) - although that's quite hard to read across these charts.</p><p><br /></p><p><b>Improving the Data presentation</b></p><p>The difference between a country's government revenue and government expenditure is of course its fiscal balance. So why not present the data on a single chart in a such a way as to show that relationship, use circle-sizes to indicate relative population sizes and indicate where the EU's Excessive Deficit Threshold sits?</p>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfNfwvrHRrnOeY-rr6crOGWQqEUIeR-GVeMaT7X6etA8pEn9sPJFZK6zvhjshRSaD8Ik5v2Wk9ndmNBPeBVLjqIBPcszpREPtGZ3IZj4Qu7JY2f9hUeGGxmcupvZ8N_yc9P9nXcPQUIdfRupHUk0eeyCM1ZnGOyHcv3g8qw93cxBCRDzur5lLguiwa/s1581/Screenshot%202022-06-23%20at%2011.38.22.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhfNfwvrHRrnOeY-rr6crOGWQqEUIeR-GVeMaT7X6etA8pEn9sPJFZK6zvhjshRSaD8Ik5v2Wk9ndmNBPeBVLjqIBPcszpREPtGZ3IZj4Qu7JY2f9hUeGGxmcupvZ8N_yc9P9nXcPQUIdfRupHUk0eeyCM1ZnGOyHcv3g8qw93cxBCRDzur5lLguiwa/w640-h438/Screenshot%202022-06-23%20at%2011.38.22.png" width="640" /></a></div>
<div><br /></div><b><div><b><br /></b></div>Taking a wider view</b><div><br /></div><div>Having pulled together the data in this format we can also add Greece, Portugal, Slovakia and the Czech Republic (the European small advanced economies the report chose to exclude) ...</div><div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjB_Pssj0ESD2Mp-92VHD6VCqpB5WJ0plMjksx9Zo0NG10JPkCPHSSy1_TLDBihAL2tHLvUdDVaDNlg0ag6FzT1ZqPPQnSSKZmJdiRRnyjd5fHcZB1z75ReJKCqt0FdC2yeSIi8oQUcIRaTu9kDy9-1QvPCeF3r0VcXW4JCSsvYHZ8mtS6nSrmwCwxE/s1581/Screenshot%202022-06-23%20at%2011.39.04.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjB_Pssj0ESD2Mp-92VHD6VCqpB5WJ0plMjksx9Zo0NG10JPkCPHSSy1_TLDBihAL2tHLvUdDVaDNlg0ag6FzT1ZqPPQnSSKZmJdiRRnyjd5fHcZB1z75ReJKCqt0FdC2yeSIi8oQUcIRaTu9kDy9-1QvPCeF3r0VcXW4JCSsvYHZ8mtS6nSrmwCwxE/w640-h438/Screenshot%202022-06-23%20at%2011.39.04.png" width="640" /></a></div><div><br /></div>... and there's no reason not to include the other European countries as well to give us a more complete picture and, while we're here, go back to 2017 and show how the picture has evolved up to and including the first pandemic-affected year of 2020.<div><br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjb2idV_BZLmwPWSfSXjr4WT4NQkl-7ceMgCsyUlw9TNDT3LbG1gg1wzJdZgg6PnuEo9te8qEszWnxc8QliDaBSabKcUyTRvnlheb-xryA9jqnyNVLdEIv_W_4Djv8KKfEduhPihvSCYWUsWGqPJzOiFKuCgZa_Vy8RLo2bZXgBUmT58LiaQme-cqsp/s1581/Screenshot%202022-06-24%20at%2010.07.28.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjb2idV_BZLmwPWSfSXjr4WT4NQkl-7ceMgCsyUlw9TNDT3LbG1gg1wzJdZgg6PnuEo9te8qEszWnxc8QliDaBSabKcUyTRvnlheb-xryA9jqnyNVLdEIv_W_4Djv8KKfEduhPihvSCYWUsWGqPJzOiFKuCgZa_Vy8RLo2bZXgBUmT58LiaQme-cqsp/w640-h438/Screenshot%202022-06-24%20at%2010.07.28.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_7K430VbTeT78QiFjGKdwr5RKuYDTnjD-GpzLizTZEOtp-VZcjFUzzmGw9oAzNNjCkzKpS_m2WXx8yALHoWKS91VnlJccy9WSFG_VagoyTEwUBDHME48EOq9-b7Hn0QKBWLtVCALNWDjWxBQYIgwP_hKiIibMZJ_MaAuCCKc7UcQvAAynX4LD87Gz/s1581/Screenshot%202022-06-24%20at%2010.07.45.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi_7K430VbTeT78QiFjGKdwr5RKuYDTnjD-GpzLizTZEOtp-VZcjFUzzmGw9oAzNNjCkzKpS_m2WXx8yALHoWKS91VnlJccy9WSFG_VagoyTEwUBDHME48EOq9-b7Hn0QKBWLtVCALNWDjWxBQYIgwP_hKiIibMZJ_MaAuCCKc7UcQvAAynX4LD87Gz/w640-h438/Screenshot%202022-06-24%20at%2010.07.45.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXQKSIVlJfVMn8Bg6FpGzrNT2wot4TuHbG4ISHL7Qh2xG-fKFEvNbeKWrNE485XdX0KUnEfqKS4JIGCjYmMq-q6ZkHvP6ZQs9uH0dY0_WBP1tMFg7-dA_wR74UNfHsRou970UuQncCKe84aPn7_xY6HYnpCLWAKuub82wypQyacDrteRmDcQPS2GU9/s1581/Screenshot%202022-06-23%20at%2011.40.59.png" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjXQKSIVlJfVMn8Bg6FpGzrNT2wot4TuHbG4ISHL7Qh2xG-fKFEvNbeKWrNE485XdX0KUnEfqKS4JIGCjYmMq-q6ZkHvP6ZQs9uH0dY0_WBP1tMFg7-dA_wR74UNfHsRou970UuQncCKe84aPn7_xY6HYnpCLWAKuub82wypQyacDrteRmDcQPS2GU9/w640-h438/Screenshot%202022-06-23%20at%2011.40.59.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7s4YVxqnB4N_QGsX8Io9vIAafz9lhiZsjLjRKQVqpW7PhjjZGY2UlxIzzZz3aBhmdMFwy52d2SgMSTA_1XYfF02qul5WXCsFmF3ExSfiO5a3rxd_aqOb3EiXbMaCXnB9zVdTBgfCWZNloBSCyopeRsTy18JviLwzHa82EoGI84CF-vKoxtaM_tVUm/s1581/Screenshot%202022-06-24%20at%2010.08.05.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1080" data-original-width="1581" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7s4YVxqnB4N_QGsX8Io9vIAafz9lhiZsjLjRKQVqpW7PhjjZGY2UlxIzzZz3aBhmdMFwy52d2SgMSTA_1XYfF02qul5WXCsFmF3ExSfiO5a3rxd_aqOb3EiXbMaCXnB9zVdTBgfCWZNloBSCyopeRsTy18JviLwzHa82EoGI84CF-vKoxtaM_tVUm/w640-h438/Screenshot%202022-06-24%20at%2010.08.05.png" width="640" /></a></div>
<br /><p>This wider view merely reinforces the observation that Scotland (in the UK) is an outlier: it consistently benefits from higher spend as % of GDP than any other country with similarly low levels of revenue as % of GDP.</p><p>There is also no obvious correlation between country size and fiscal strategy - all European countries are fiscally prudent during normal times and larger countries are equally capable of pursuing higher tax / higher spend fiscal models.</p><p>The data used for international comparison comes from ther <a href="https://data.oecd.org/gga/trust-in-government.htm" target="_blank">OECD</a>; the UK and Scotland data is taken from <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/" target="_blank">GERS</a> (the UK data in GERS reports to a slightly different year-end, but very closely matches that shown by the OECD)</p><p style="text-align: center;"><br /></p><p style="text-align: center;">**** ENDS ****</p><p><br /></p><p><br /><br /></p></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com9tag:blogger.com,1999:blog-1603438996450817644.post-76916266607962264972022-06-16T06:09:00.017-07:002022-06-17T03:50:18.295-07:00We Need to Talk About Scotland<p>The Scottish Government has just published (under the headline "First Paper in new independence prospectus") the remarkably verbosely titled "<a href="https://www.gov.scot/publications/independence-modern-world-wealthier-happier-fairer-not-scotland/" target="_blank">Building a New Scotland - Independence in the Modern World. Wealthier, Happier, Fairer: Why Not Scotland?</a>". </p><p>We've been here before of course, but such is the real-life Groundhog Day of Scottish Politics under an SNP government:</p><blockquote><p><i>"This guide to an independent Scotland will be the most comprehensive and detailed blueprint of its kind ever published [...] i</i><i>t is a landmark document which sets out the economic, social and democratic case for independence." </i>- <a href="https://www.bbc.co.uk/news/uk-scotland-scotland-politics-25070576" target="_blank">Nicola Sturgeon, 11/2013</a></p></blockquote><blockquote><p></p></blockquote><p></p><p></p><p></p><blockquote><i>“Two years on from the historic vote of 2014, the fundamental case for Scotland’s independence remains as it was." </i><i>- </i><a href="https://www.heraldscotland.com/news/14749853.nicola-sturgeon-independence-transcends-brexit-oil-economy/" target="_blank">Nicola Sturgeon, 11/2016</a></blockquote><p></p><blockquote><i>"The publication of the Sustainable Growth Commission’s report is an opportunity to begin a fresh debate in Scotland [...] this report sets out how much more could be achieved with independence" </i>- <a href="https://www.scotsman.com/news/politics/nicola-sturgeon-growth-commission-report-candid-about-indy-challenges-288085" target="_blank">Nicola Sturgeon, 05/2018</a></blockquote><p></p><blockquote><p> <i>"It is time for Scotland to become independent' </i>- <a href="https://www.euronews.com/2019/04/28/scottish-independence-it-s-time-says-snp-leader-nicola-sturgeon" target="_blank">Nicola Sturgeon<i>, </i>04/2019</a> </p></blockquote><p></p><p></p><p></p><p></p><blockquote style="-webkit-text-stroke-width: 0px;"><i>"Today, we publish the first in a series of papers [...] that will make afresh the case for Scotland becoming an independent country." </i>-<span> </span><a href="https://www.snp.org/nicola-sturgeons-speech-launching-the-case-for-independence/" target="_blank">Nicola Sturgeon, 06/2022</a><i> </i></blockquote><p>Still, Scottish Government resources have been diverted away from the tedious day-to-day business of running the country to write these papers and our First Minister has taken time out from her busy schedule of talking about independence to hold a press conference to announce that "<a href="https://www.heraldscotland.com/politics/20208290.nicola-sturgeon-launches-renewed-case-scottish-independence/" target="_blank">it is time to talk about independence</a>", so we ought to look at what they have to say.</p><p>I have read through the report in detail and <a href="https://twitter.com/i/timeline" target="_blank">tweeted about it</a> extensively. Going through it line-by-line would be too tedious even for Chokkablog, so what follows is my attempt to summarise the main take-aways.</p><p><br /></p><p><span style="font-size: medium;">1. <b>There is no data in the report relating to Scotland </b></span></p><p>There are 22 figures, 11 charts, 6 boxes and 1 table in the report and not a single one of them includes any data relating to Scotland<sup>1</sup>. This is an extraordinary state of affairs: a report written by the Scottish Government which we are told is <i>"designed to contribute to a full, frank and constructive debate on Scotland's future"</i> fails to include any data about Scotland.</p><p>The introduction offers a frankly feeble attempt to justify this approach (at least in relation to fiscal data) by blithely asserting that the fiscal position of Scotland within the United Kingdom <i>"tells us <b>nothing</b> about how Scotland would perform as an independent country and is, in any case, an argument for change, not against it."</i></p><p>I'm genuinely shocked that the civil servants involved could have allowed such a statement to be included. </p><p>To suggest that data about the scale of our existing tax base (the tax paying workers, consumers, households and businesses in Scotland today) and the cost of delivering the public services Scots currently receive (pensions, social welfare, healthcare, education, transport etc.) tells us <i>nothing</i> about how our economy would perform after independence is frankly insulting to the reader's intelligence. </p><p>That statement doesn't only ask the reader to ignore the economic reality of Scotland today, it also makes the nakedly political assertion that any data that does exist is <i>"an argument for change, not against it". </i>Unfortunately<i> </i>this is typical of the paper's use of lazy rhetorical assertion rather than robust analysis and sound reason - we can do better.</p><p>To illustrate why writing a report on Scotland's future without reference to data about Scotland is less than helpful, let's look as two related charts as they appear in the paper:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgogWI6vY-5QevJ_JoVKM4uxw9db7S67CnHj1wdzzpVHeZTOrbgiCn6cRUZa8b4A513HAHajfsR1l2ro5oFK9AYTFTj8-V5Yde-upYnJau878fTDYv-tDJJQkvCu6x_Ul9dlEzorrk6fr28OxaOMKgCmE4Z0gym0n4K318piTKNjjrw15_UZAVBcRxX/s770/Screenshot%202022-06-15%20at%2011.41.31.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="770" data-original-width="684" height="640" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgogWI6vY-5QevJ_JoVKM4uxw9db7S67CnHj1wdzzpVHeZTOrbgiCn6cRUZa8b4A513HAHajfsR1l2ro5oFK9AYTFTj8-V5Yde-upYnJau878fTDYv-tDJJQkvCu6x_Ul9dlEzorrk6fr28OxaOMKgCmE4Z0gym0n4K318piTKNjjrw15_UZAVBcRxX/w568-h640/Screenshot%202022-06-15%20at%2011.41.31.png" width="568" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><p>Let's put aside for now the question of how this sample was chosen and how meaningless it is to include Ireland on an unadjusted GDP basis (which the paper itself footnotes on page 9, before then proceeding to present charts like this<sup>2</sup>) and find out what happens if we include the data for Scotland.</p><p></p><hr /><i><b>An aside on the data audit trail:</b> following the link to <a href="https://data.oecd.org/gga/general-government-spending.htm#indicator-chart" target="_blank">the source data</a> shows us that these charts are mislabelled - the data being shown is for 2019 not "2020 or latest available". This makes sense as 2020 was of course a pandemic year (e.g. the UK's general government spending figure was over 51% of GDP in 2020) so we need to go back to 2019 to get sensible 'in normal times" data. One hopes this sloppy labelling of the charts is not indicative of the general attention to detail being paid by the report's authors<br /></i><hr /><br /><div>Having established which year the data actually refers to, we can recreate these charts and add Scotland (as part of the UK) to them<sup>3</sup><div><span style="font-size: 13.3333px;"><br /></span><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8b9xrga_RlTEsxiWwCFYRcLijpVPPYpx47PQtOwhAGGaTPnMaERb-Y7AEWWw27quhdYG47k4mNfYaoAQVj64BhOP8JuYd0oPculd24xfjMozgn1_97RsmgMakqMDwZENIXm3ykC3ECc0aVNKTXAqc4dHy_5sxBZbqQzV0ww5yG6jNFyaJB2CYKFys/s942/Screenshot%202022-06-15%20at%2013.49.52.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="942" data-original-width="901" height="576" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj8b9xrga_RlTEsxiWwCFYRcLijpVPPYpx47PQtOwhAGGaTPnMaERb-Y7AEWWw27quhdYG47k4mNfYaoAQVj64BhOP8JuYd0oPculd24xfjMozgn1_97RsmgMakqMDwZENIXm3ykC3ECc0aVNKTXAqc4dHy_5sxBZbqQzV0ww5yG6jNFyaJB2CYKFys/w612-h640/Screenshot%202022-06-15%20at%2013.49.52.png" width="551" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">The title of this Scottish Government paper asks "Why Not Scotland"? When it comes to the data being shown in the charts, we find ourselves asking the same question.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Had Scotland been included in these exhibits it would have been obvious that it enjoys far higher levels of public spending than the UK overall but bears basically the same tax burden.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">This will not be a surprise to regular readers of Chokkablog. What we are seeing here is simply an illustration of the fact that Scotland gets a higher share of spending than its share of revenue generated. To couch this in terms nationalists like to use: Scotland gets back more than it sends to Westminster. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">To put it another way: all of the comparator countries with similar or higher levels of public spending are only able to sustain that by having far higher government revenue (ie taxes) than Scotland pays within the United Kingdom. Scotland is able to sustain this level of public spending because of UK-wide pooling and sharing. This chart shows a material tangible advantage to Scotland of remaining part of the UK.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">This brings us to another frustration with this Scottish Government paper: why do they do such a bad job of presenting information? Having two charts with the countries in a different order makes it hard to see what's going on and we can't easily see the deficit levels implied (i.e the difference between Revenue and Spending figures).</div><div class="separator" style="clear: both; text-align: left;"><p>We could add another chart to show the difference between Government Revenue and Government Spending so that we can see the scale of each country's Surplus/(Deficit) ...</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimrT6mdx8va8kMPVdiXy-ORdPTF9BzHDClhIoTCsPWNFUrLKNKpV_2x-uKexXHU-NDz4Zb1qp8EzMCEBwIQqqEzFGqVcvqUa6b0EVgwNsqnlPlG_8-PU6Dx9xAj3ywhdN6vd4tFJSVPZLDtGz_M2b7cfVD-Dj5wyjRxyYwxu4tQXZ4cUypwjhJP_7a/s1069/Screenshot%202022-06-15%20at%2015.24.13.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="522" data-original-width="1069" height="277" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEimrT6mdx8va8kMPVdiXy-ORdPTF9BzHDClhIoTCsPWNFUrLKNKpV_2x-uKexXHU-NDz4Zb1qp8EzMCEBwIQqqEzFGqVcvqUa6b0EVgwNsqnlPlG_8-PU6Dx9xAj3ywhdN6vd4tFJSVPZLDtGz_M2b7cfVD-Dj5wyjRxyYwxu4tQXZ4cUypwjhJP_7a/w640-h312/Screenshot%202022-06-15%20at%2015.24.13.png" width="568" /></a></div><div class="separator" style="clear: both;"><br /></div></div><div class="separator" style="clear: both; text-align: left;">... but why use three different bar charts to show this data when we can use one, far more informative chart?</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Using the same data I've produced the chart below while sitting on a train - it's really not that hard:</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCMUTyYoBOIWpY8a8UatAqOwCf8LXGvvoe1wMwNMirTuYD2M2WHPrGhCAzwVRs_NiS5qqKzA2a0qyfRO8EcitM-z-zEdroTfOWcA9fekc2-gl5CbjYaPotdzrd_ELTyaRphUK0e_mm-ATWXDQNkD6MLIY7wL3s0J8K7JvGPANlgtoOSk7_8rwu59hs/s1870/Screenshot%202022-06-16%20at%2011.20.05.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1266" data-original-width="1870" height="434" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgCMUTyYoBOIWpY8a8UatAqOwCf8LXGvvoe1wMwNMirTuYD2M2WHPrGhCAzwVRs_NiS5qqKzA2a0qyfRO8EcitM-z-zEdroTfOWcA9fekc2-gl5CbjYaPotdzrd_ELTyaRphUK0e_mm-ATWXDQNkD6MLIY7wL3s0J8K7JvGPANlgtoOSk7_8rwu59hs/w640-h434/Screenshot%202022-06-16%20at%2011.20.05.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;">All I've done is plotted the data as an x-y scatter, taken Ireland off (for the reasons explained in note 2) and added the context of the EU's Excessive Deficit Crieria. Now we can really see what's going on:</div><div class="separator" style="clear: both; text-align: left;"><ul style="text-align: left;"><li>Higher tax is obviously correlated with higher spend</li><li>The comparator countries (and the UK) were all above the EU's excessive deficit threshold in 2019</li><li>Scotland is an obvious outlier: it enjoys mid-table levels of public spending despite being a relatively low tax economy - this is a tangible benefit Scotland sees from UK-wide pooling and sharing of taxes</li></ul></div><div class="separator" style="clear: both; text-align: left;">Remember: without including any fiscal data for Scotland, this Scottish Government paper asked us to take on trust the assertion that the fiscal data is "<i>in any case,</i> <i>an argument for change, not against it".</i></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><i></i>Moving beyond ideologically motivated assertion and looking at the actual data - which one might have hoped the authors of this report would have done - it becomes clear that the fiscal data can be used to make a compelling, economically rational argument for Scotland remaining in the UK.</div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;"><span style="font-size: medium;"><br /></span></div><div class="separator" style="clear: both; text-align: left;"><span style="font-size: medium;"><b>2. There is a clear indication that the SNP is now looking to make the economic case for independence based on moving Scotland to being a high tax country</b></span></div><div class="separator" style="clear: both; text-align: left;"><span style="font-size: medium;"><b><br /></b></span></div><div class="separator" style="clear: both; text-align: left;">In the context of the charts above, the paper asks:</div><blockquote><div class="separator" style="clear: both; text-align: left;"><i>"Why are most of the comparator countries able to sustain relatively high spending over </i><i>the long-term?"</i></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both;"></div></div></blockquote><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both;">The first thing to point out is that we have now seen what the paper chose not to show - that Scotland <i>already</i> enjoys "relatively high spending" (and <a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">it has done over the long-term</a>). That's a pretty big point for the paper to omit.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">The improved presentation of the data above also makes the answer to this question blindingly obvious: by having relatively high taxes.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">This is all just a very roundabout way of saying that deficits matter. The data provided (once we've put it into a more helpful format) just shows that the comparator countries are all fiscally prudent. In normal times they only allow spending to exceed revenue within the constraints of the EU's 3% Excessive Deficit threshold.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">So if an independent Scotland is to sustain current levels of public spending (let alone increase public spending as many independence supporters seem to believe would happen) then tax revenues would need to dramatically increase.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">The answer given by the Paper hints towards realising this, albeit indirectly:</div><div class="separator" style="clear: both;"><blockquote><i>"Evidence suggests that higher confidence in government is correlated with higher levels of willingness to comply with taxes ..."</i></blockquote><p>The paper goes on to reference an Economic Observatory article in support of higher tax economies:</p><p><i></i></p><blockquote><i>"Far from impeding prosperity, it is high-growth countries that tend to have a larger share of tax revenues in [sic] GDP"</i></blockquote><span>The SNP's own Sustainable Growth Commission previously recommended controlling the deficit through austerity (i.e. by <a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">cutting public spending as a share of GDP</a>.) This latest paper strongly hints towards an independent Scotland increasing tax revenues as a share of GDP.</span><p></p><p>This is not the place to re-run <a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">arguments about the GERS deficit</a> - but some of us have been saying for a long time that, were Scotland to become independent, a combination of tax rises <i>and </i>public spending cuts would be an inevitable consequence.</p><p>Although this paper doesn't address the issue head-on, buried within it is a tacit admission that only by generating higher taxes could Scotland sustain the higher spending <i>we already receive</i> as part of the UK.</p></div></div><div class="separator" style="clear: both; text-align: left;">How effective tax rate increases would be is a debate for another day. But if a lower tax regime is just across the mainland border and another even lower tax regime exists in neighbouring Ireland, it's not hard to see what would happen to the tax base in an independent Scotland if corporations and high-earners were squeezed with higher taxes.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">We wait with interest to see if future papers in this series address the fiscal deficit question using actual numbers for Scotland's economy and with realistic estimates for the scale of tax rises and spending cuts that an independent Scotland would have to bear to achieve a sustainable fiscal position.</div><div class="separator" style="clear: both; text-align: left;"> </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><b><span style="font-size: medium;">3. The Scottish Government's responsibilities are ignored</span></b></div><div class="separator" style="clear: both;"><br class="Apple-interchange-newline" />There are plenty of other charts and exhibits where we might have expected the Scottish Government to provide at least some contextual data to show how Scotland performs after 15 years under SNP control. I'm doing this in my spare time, so I'm not going to attempt to address them all.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">But given the devolved Economic Development, Income Tax and Benefit Top-up powers the SNP have, it seems extraordinary that no attention is given to what has been (or could be) achieved by the Scottish Government to support business investment or to address issues like poverty, income inequality and social mobility. </div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">Take this extract from Scotland's National Strategy for Economic Transformation which is quoted in the paper:</div><div class="separator" style="clear: both;"><div class="separator" style="clear: both;"><i><blockquote>“Despite our wealth, too many households continue to live in poverty as a result of structural inequalities. Healthy life expectancy is too low in the most deprived areas of our country. Tackling the underlying causes of inequality in our society and providing economic opportunity is vital in order to improve life chances. Scotland’s productivity lags behind that of many other advanced economies and whilst we continue to innovate too few of our ideas are turned into businesses and too few of our new businesses are scaling up successfully"</blockquote></i></div></div><div class="separator" style="clear: both;">The paper expects the reader to accept as read that this sorry state of affairs exists simply because Scotland is not independent. Yet we've seen - by looking at data the paper itself didn't see fit to include - that levels of Scottish public spending are higher than Scotland's tax base could sustain without the benefit of pooling and sharing taxes across the UK. </div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">Combine that economic reality with the devolved powers at the Scottish Government's disposal and an alternative hypothesis is surely worth exploring: maybe the party that has been in power in Scotland for the last 15 years should take some responsibility for these outcomes instead of writing papers like this that seek to pin all the blame on being "not independent".</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;">It seems this paper has been written as an exercise in talking down the UK whilst absolving the SNP Scottish Government of any responsibility.</div><div class="separator" style="clear: both;"><br /></div><div class="separator" style="clear: both;"> </div><div class="separator" style="clear: both; text-align: left;"><span style="font-size: medium;"><b>4. The report assumes independence must be the answer; it doesn't provide a meaningful argument for <i>why</i> it must be the answer</b></span></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">We've seen above how the fiscal data <i>for Scotland </i>provides one of the most powerful arguments against independence, yet the paper has simply ignored it. This is symptomatic of a wider problem with the paper, illustrated by the following extract:</div><p><i></i></p><blockquote><i>What do these other countries have that Scotland does not? They have significantly more economic policy autonomy and a much greater ability to tailor policies to their own specific circumstances. The evidence points to independence broadening the policy options available to address areas of relative under-performance and to make the most of Scotland’s potential. </i></blockquote><p></p><p>The first logical flaw here is that this paper doesn't compare Scotland with these countries - it compares them to the UK which obviously already has "policy autonomy".</p><p>But a more fundamental flaw is that there are obviously lots of possible answers to the question "What do these countries have that Scotland does not?". Each country has its own unique combination of history, trading relationships, natural resources, established industries, centres of excellence, skills, climate, geographic proximity to other markets, language, population density, political stability, cultural work-ethic and much more.</p><p>One could just as easily answer that question by saying those countries are not governed by a political party focused on fostering grievance and division, that they don't have a government that devotes energy to writing papers like this one.</p><p>If the logical flaw here isn't obvious, this exercise is no more meaningful than plotting the FIFA rankings for small countries who outperform Scotland and asserting that therefore the "evidence points to" their better footballing performance being because they are independent.</p><p>These are complex multi-variant questions, but a nationalist hammer will always see the nail of separatism.</p><p><b><span style="font-size: medium;"><br /></span></b></p><p><b><span style="font-size: medium;">5. Brexit Bad, Scexit Good?</span></b></p><p>The paper keeps reiterating that barriers to trade caused by Brexit will be economically damaging:</p><p></p><blockquote><i><b>"Brexit </b>[...] has set the UK on an economic path that imposes higher <b>barriers to trade</b> with Europe, and is likely to lead to slower growth .. " </i></blockquote><p></p><blockquote><p><i>"the particularly damaging form of <b>Brexit</b> chosen by the
UK Government has increased <b>barriers</b> both to freedom of movement and <b>to trade</b> with Europe"</i></p></blockquote><p></p><blockquote><i><b>"Brexit </b>will almost certainly exacerbate at least some of the UK’s longstanding structural problems by, for example, further reducing the scope for productivity growth by establishing <b>barriers to trade</b>."</i></blockquote><p></p><p>I happen to agree with that conclusion, but given the Scottish Government's argument for independence is predicated on re-joining the EU, the logical inconsistency here is obvious.</p><p>After decades of unfettered access to both the EU and the UK single markets, <a href="https://www.gov.scot/publications/export-statistics-scotland-2019/#:~:text=Scotland's%20Exports%20in%202019&text=Since%202010%2C%20Scotland's%20international%20exports,%C2%A318.7%20billion%20in%202019." target="_blank">Scotland still exports more than three times as much to the rest of the UK than it does to the EU</a>. If an independent Scotland were to join the EU, those barriers to trade would shift from affecting the 19% of Scotland's exports that go to the EU and instead impact the 60% of exports that go to the rest of the UK.</p><p>The evidence of economic damage being caused by EU/UK trade friction is an argument against independence, not for it.</p><p><span style="font-size: medium;"><b><br /></b></span></p><p><span style="font-size: medium;"><b>6. I could go on ...</b></span></p><p>This blog post is already too long, so let me just make a last few random observations:</p><p><b>Statistical Gerrymandering: </b>as with the SNP's previous Sustainable Growth Commission report, the countries chosen as comparator countries are pre-selected based on being "better performing" on the measures chosen. Portugal and Greece are absent, as are the Czech and Slovak Republics. Compared to the SNP's Growth Commission report, Iceland has been added but Hong Kong, Singapore and New Zealand have been excluded. This "pick and mix" approach to choosing comparator countries may be reasonable when looking to learn lessons from "successful" models, but it means <i>general</i> conclusions about the performance of small countries can't be drawn. This approach also suggests that nothing can be learned from those countries which have been excluded from the comparator set - if they share some of the characteristics of the "successful" countries, can we really conclude that those characteristics are determinants of "success"?</p><p><b>Data conspicuous by its absence:</b> there is nothing in the Paper about educational achievement or health outcomes (or indeed drug deaths). Why would the report exclude comparison of performance in areas of devolved competence?. </p><div><b>Currency</b> <b>is not discussed:</b> suffice to say none of the comparator countries studied are using the currency of another country (so obviously none of the EU members among the comparator countries are using the currency of a non-EU member). There will no doubt be a paper to come on currency - it will make for fascinating reading. </div><p><b>Covid</b> is referred to in the paper as a source of economic damage and disruption - but at no point is the UK's role in sourcing vaccines or providing financial support (eg. through the furlough scheme) mentioned. No consideration is given to the wider question of how an independent Scotland could handle another economic shock of that kind while simultaneously addressing its fiscal challenges, establishing its own currency and central bank, dealing with capital and talent flight, building the required machinery of state to function as an independent nation, etc.</p><p>The instability caused by the <b>war in Ukraine </b>is referred to only in the passing. The value of combined UK defence and security apparatus is not mentioned, <b>NATO</b> is not referred to at all and no consideration is given to the geopolitcal implications of breaking up and potentially destabilising one of NATO's three nuclear weapons states.</p><p><b>Nation Building: </b>it is hard not to raise a quizzical eyebrow when the Scottish National Investment Bank (SNIB) is cited as an example of "institutional infrastructure that an independent country would need". For the avoidance of doubt, it is <a href="https://www.thebank.scot/" target="_blank">a development finance company, not a banking institution</a>. </p><p style="text-align: center;">***</p><p style="text-align: left;">So there we have it. The first paper in a series intended to form "a new independence prospectus" focuses on comparative data but ignores data for Scotland, presupposes independence must be the answer and then - using logic that even a child could see is flawed - tries to suggest that independence is a logical conclusion. It doesn't bode well for what is to follow, but we await the next papers with bated breath.</p><p style="text-align: left;"><b><u><span style="font-size: x-small;"><br /></span></u></b></p><p style="text-align: left;"><b><u><span style="font-size: x-small;">Notes</span></u></b></p><p><span style="font-size: x-small;">1. For the pedants out there: one of the boxes lists reserved powers - but I don't think that really counts </span></p><p><span style="font-size: x-small;"><br /></span></p><p><span style="font-size: x-small;">2. Footnote 2 on page 9 ...</span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_Zj56BnHVbJhsXDbMj3F7vU8jz2OiX-kn44JcvSMD4lyQXoB6TRLF8tXHCeJmhpOXJ7QGT4moW9obVLbn7izLImuXVSx8rAY41D8IJVzUv99CYiWfLt2ucwIX5WN49wFWWH_8axWPwu_d2ydUQo8b_VsZQlQbGHFighhMl-88cdBBSxPtizaZsPQy/s1389/Screenshot%202022-06-15%20at%2013.54.28.png" style="margin-left: 1em; margin-right: 1em;"><span style="font-size: x-small;"><img border="0" data-original-height="121" data-original-width="1389" height="56" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_Zj56BnHVbJhsXDbMj3F7vU8jz2OiX-kn44JcvSMD4lyQXoB6TRLF8tXHCeJmhpOXJ7QGT4moW9obVLbn7izLImuXVSx8rAY41D8IJVzUv99CYiWfLt2ucwIX5WN49wFWWH_8axWPwu_d2ydUQo8b_VsZQlQbGHFighhMl-88cdBBSxPtizaZsPQy/w640-h56/Screenshot%202022-06-15%20at%2013.54.28.png" width="640" /></span></a></div><div class="separator" style="clear: both; text-align: center;"><span style="font-size: x-small;"><br /></span></div><span style="font-size: x-small;">which <a href="https://www.centralbank.ie/docs/default-source/publications/quarterly-bulletins/boxes/qb4-2021/box-c-the-disconnection-of-gdp-from-economic-activity-carried-out-in-ireland.pdf?sfvrsn=2" target="_blank">links</a> to this: "<i>The unsuitability of GDP as a measure of both the size of the Irish economy and its rate of growth has been well documented for over 20 years. The problems with using GDP in an Irish context were brought into sharp focus in 2016, when CSO National Accounts data recorded an increase in GDP for 2015 of just under 26 per cent, a year in which employment grew by 3.4 per cent. Since 2015, there is evidence of a widening gap between measured GDP, in the official National Accounts published by the CSO, and what could be considered as underlying domestic economic activity – i.e. economic activity conducted in Ireland that affects the employment and incomes of Irish residents. In 2021, GDP is likely to overstate the underlying rate of growth in the Irish economy by around threefold</i></span><div><i><span style="font-size: x-small;"><br /></span></i><p></p><div><span style="font-size: x-small;">3. These figures come from the Scottish Government's own National Statistics Publication: Government Expenditure and Revenue Scotland 2020-21. This includes data for 2019-20 which closely matches the UK data shown on these exhibits. [I've left Ireland on there to confirm that the data is consistently sourced.]</span></div></div></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com13tag:blogger.com,1999:blog-1603438996450817644.post-57697855333562277342022-02-27T00:46:00.015-08:002022-02-27T01:01:54.289-08:00Scotland's NI Contributions and the State Pension<p><b><span style="font-size: large;">Summary</span></b></p><p>Some Scottish nationalists correctly recognise that an independent Scotland would have to fund its own State Pension ... but then incorrectly claim that Scotland's National Insurance contributions are greater than the spending they fund.</p><p>The truth is that Scotland accounts for 8.0% of payments into the UK's National Insurance system but receives 8.6% of the spending that system distributes. That translates into a c.£750 million annual benefit to Scotland from pooling and sharing National Insurance contributions with the rest of the UK - a benefit which would be lost were Scotland to separate.</p><p><b><span style="font-size: large;">Context</span></b></p><p><i>[If you're only interested in understanding how the UK's system of pooling National Insurance works, you can skip this section]</i></p><p>On February 20th in the <a href="https://www.thenational.scot/politics/19937608.ruth-wishart-pensions-row-shows-unionists-singing-hymn-sheet/" target="_blank">Sunday National</a>, Scottish nationalist commentator Ruth Wishart berated Ian Blackford MP (the SNP's leader in Westminster) for claiming that, if Scotland became independent, the <i>"commitment to continue to pay [state] pensions rests with the UK Government". </i>The confusion caused by Blackford's intervention has been covered in detail elsewhere on this blog [see <a href="https://chokkablog.blogspot.com/2019/02/independence-by-gaslight-pensions.html" target="_blank">Independence by Gaslight: Pensions</a>] but Wishart offers a fair summary when she asserts that Blackford<i> </i><i>"either hadn't read the rules on pensions or didn't understand them"</i>.</p><p>If you dip your toes into the turbulent waters of Scottish political Twitter now, you'll find one cohort of nationalists passionately arguing that the UK Government (ie. UK taxpayers) would pay the state pension in an independent Scotland, while another argues with equal passion that "nothing has changed" since 2014 and the Scottish Government (ie. Scottish taxpayers) would foot the bill.</p><p>Ruth Wishart is firmly in the latter camp and, after consulting "pensions guru (sic)" Tim Rideout, she offered the following (correct) summary: </p><blockquote><p><i>"The short-form version is that, as before, the National Insurance (NI) contributions of today’s workforce pay today’s pensioners."</i></p></blockquote><p> Unfortunately she then went on to muddy the waters by adding:</p><blockquote><p><i> In order to calculate what an independent Scotland could afford, Mr Rideout turned to the GERS figures [..] </i><i>This, he says, shows that we would collect almost £3 billion more in NI than we would pay out in pensions. Most of the surplus would be used to pay other entitlements derived from national insurance."</i></p></blockquote><p></p><p>We will come on to detail the manifold problems with this claim, but the most obvious is that you can't define "what an independent Scotland could afford" by comparing a single revenue item with a single cost line. The only way to answer that question is to work out what the <i>overall</i> balance of revenue and expenditure would be and take a view as to what level of deficit would be sustainable. We won't go down that particular rabbit-hole here, but in simple summary: the total view of tax and spend as described in GERS reveals Scotland receiving a £12bn annual fiscal transfer from the rest of the UK [see <a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">GERS 2021: A Deep Dive</a>]. This means that - before factoring in the other myriad possible economic impacts of independence - Scotland would have to find £12bn of cost savings or tax increases vs the GERS figures and/or be able to sustain a far higher fiscal deficit/GDP ratio than that currently shared with the UK (or than required to comply with the EU's Fiscal Compact). </p><div>That said, because National Insurance (NI) is as close as we get in the UK to a truly hypothecated tax (ie. NI revenue is ring-fenced to be used only for specific spending purposes), this does give us an opportunity to see how pooling and sharing works <i>for this sub-set of total tax and spend.</i></div><div><br /></div><div>So let's take a closer look at Rideout's claim, which he first made in tweet form:</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi-TgjSJ6n91ASWJ3CFCnsW_pNo5k0cjcvabdI5GeuyiLVwPzGcpEexEPSNdZmApntu2lT1dc1i7TXKvGFKZ1I_Apeo0qJu459cuEpLC0SdHo6XkHMfn4R7gSLSLoNJLGC2j8a3xdtJrJGSmJllZdec6VniHuq7csejY2y_8k3tPBM-qzJSNSfjC3Qp=s1332" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1332" data-original-width="1170" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEi-TgjSJ6n91ASWJ3CFCnsW_pNo5k0cjcvabdI5GeuyiLVwPzGcpEexEPSNdZmApntu2lT1dc1i7TXKvGFKZ1I_Apeo0qJu459cuEpLC0SdHo6XkHMfn4R7gSLSLoNJLGC2j8a3xdtJrJGSmJllZdec6VniHuq7csejY2y_8k3tPBM-qzJSNSfjC3Qp=w351-h400" width="351" /></a></div><br /><div>This is a textbook example of a common nationalist trope: take two vaguely related numbers, draw a superficial conclusion that makes it seem like they show everything would be fine if Scotland was fiscally autonomous and move on.</div><div><div><br /></div><div>Rideout went further <a href="https://twitter.com/staylorish/status/1497208186058719236" target="_blank">on a recent Zoom call</a> with fellow nationalists. After hilariously describing the Scottish Government's GERS figures as <i>"the unionists' numbers"</i> he rattled off a few figures before concluding - quite wrongly - that <i>"there was actually £500 million or so left over from the National Insurance that we paid". </i>This blog explains in detail why he's wrong (see footnote 14), but the short version is this: he completely missed the £2.5 billion a year Scotland gets back as a direct result of National Insurance Contributions being allocated to the NHS.</div><div><div><br /></div></div><div>To answer the question Rideout is claiming to address we need to put in some proper analytical effort - but Chokkablog has never been shy of doing the hard yards when it comes to the numbers, so let's dive in.</div><div><b><span style="font-size: large;"><br /></span></b></div><div><b><span style="font-size: large;">Where National Insurance Contributions Go</span></b></div><div><br /></div><div>We don't have strictly hypothecated taxes in the UK. In layman's terms that means you can't say "this tax pays for this service" because the Treasury has considerable freedom to take money and deploy it where they see fit. National Insurance contributions are, however, a special case where a significant degree of hypothecation is enforced. This allows us to look at National Insurance funds flows as a "closed system" sub-set of the wider fiscal picture.</div><div><br /></div><div>The chart below is derived from studying the last five years' <a href="https://www.gov.uk/government/publications/national-insurance-fund-accounts" target="_blank">National Insurance Fund accounts</a>, mapping the cumulative flows over that period and calculating the related Barnett consequentials. As ever, it takes a lot more effort to understand complex reality than it does to take comfort in a misleading simplification:</div><div><br /></div><div class="separator" style="clear: both; text-align: left;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiyfvtCDTaLICcWYkLMmYbn_D4KVo0Ask84m2oV97utdgPiSzdqL3XUYt3XDB1FhddXyV5tR-X6mAVhecS1Yo5pyZfBc2spmNx_mceCyWAFIJFJUMgnrd22qgsYyozAZsYVTEi0JzMHH8Or0ByMYDFgKhRPTRq0KFx-GCnvmTQ8GuC1rycbiuPmPea8=s835" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="835" height="548" src="https://blogger.googleusercontent.com/img/a/AVvXsEiyfvtCDTaLICcWYkLMmYbn_D4KVo0Ask84m2oV97utdgPiSzdqL3XUYt3XDB1FhddXyV5tR-X6mAVhecS1Yo5pyZfBc2spmNx_mceCyWAFIJFJUMgnrd22qgsYyozAZsYVTEi0JzMHH8Or0ByMYDFgKhRPTRq0KFx-GCnvmTQ8GuC1rycbiuPmPea8=w640-h548" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">This diagram shows that for the five-year period 2017 - 2021:</div><div><ul style="text-align: left;"><li>Total UK National Insurance (NI) receipts were £678bn<sup>1</sup><br /><br /></li><li><u>19.0%</u> of those receipts (£129bn) never reached the National Insurance Funds because they were <b>allocated directly to NHS England</b>. This is a formulaic allocation defined in the <a href="https://www.legislation.gov.uk/ukpga/1992/5/section/162/enacted" target="_blank">Social Security Administration Act 1992</a> - the percentage is effectively constant year-on-year<sup>2</sup><br /><br /></li><li>The funds allocated to the English NHS <b>drove increases in the devolved Nations' Block Grants</b> of £24bn (through the application of the Barnett Formula). This means the UK system of pooling National Insurance contributions (in combination with the Barnett Formula) controls the allocation of more than just National Insurance receipts. <br /><br /></li><li>There are separate NI Funds for GB and Northern Ireland. Transfers are made from the GB to the NI Fund <i>"in order to maintain parity of balances"</i> (ie. to keep the Northern Ireland NI Fund solvent). This is a direct and explicit fiscal transfer from GB to Northern Ireland of c.£0.6 billion each year.<br /><br /></li><li>A mechanism exists whereby the Treasury can take funds from elsewhere and inject them into the NI Funds by way of Treasury Grants, but his has not been used in the last five years and is not forecast to be required in the foreseeable future<sup>3</sup>.<br /><br /></li><li><u>72.5%</u> of UK NI receipts were used to pay <b>State Pensions</b><br /> </li><li><u>5.6%</u> of UK NI receipts were used to fund a limited subset of other welfare payments and to cover the costs of administering the system</li><ul><li><b>Other contributory benefits:</b> the contributory components of Employment Support<sup>4</sup> and Jobseekers' Allowances, Bereavement Benefits, Christmas Bonus<sup>5</sup>, Guardians' Allowance</li><li><b>Other Payments:</b> primarily redundancy costs (ie. making statutory redundancy payments when employers are unable to, normally due to insolvency)<br /></li><li><b>Administrative Costs:</b> Mainly services provided by DWP and HMRC<br /><br /></li></ul><li>The remaining <u>2.9%</u> of UK NI receipts were <b>retained as a surplus</b>, adding to the closing National Insurance Fund balances. Over the last 5 years the NI Funds have operated as a closed system (ie. no Treasury Grants have been required) and NI receipts being retained has led to a £20bn increase in the NI Fund balances. To put that another way: NI receipts <i>into</i> the Funds (net of the NHS allocation) have been greater than NI payments <i>out</i> by c.£20bn over the last five years.</li></ul><div><br /></div><div><span style="font-size: large;"><b>How UK National Insurance Pooling Benefits Scotland</b></span></div><div><br /></div><div>Armed with the above understanding we can immediately see why Rideout's "Our NI Contributions more than fund our State Pension" formulation is, at best, misleading. Apart from anything else, he's completely ignored the sums of money which flow via the allocation of NI receipts to the NHS.</div><div><br /></div><div>Because we've put in the hard miles to map all this out, it's easy to look at the figures for 2021 alone. So we can see that in the most recent year (the one Rideout uses) 72% of UK NI receipts were needed to fund the State Pension.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh9YDgVmxG-_KDRlTvkrbHsnmMufvlTUfSmH0XlMPHnNcM0PoXsgSNwd4HVOQv5DdqS4tvN0lXfLgY4p1rTTgbg6b9fGvwo0Cidocz1c6w4i3XDifXdQ2c_iv-RLH_sBStF10miHIp_ZvKQhzWeIXbvDr-ekBy0IOj4NHscUZqNMCVFyXMBfx3sJW-i=s835" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="715" data-original-width="835" height="548" src="https://blogger.googleusercontent.com/img/a/AVvXsEh9YDgVmxG-_KDRlTvkrbHsnmMufvlTUfSmH0XlMPHnNcM0PoXsgSNwd4HVOQv5DdqS4tvN0lXfLgY4p1rTTgbg6b9fGvwo0Cidocz1c6w4i3XDifXdQ2c_iv-RLH_sBStF10miHIp_ZvKQhzWeIXbvDr-ekBy0IOj4NHscUZqNMCVFyXMBfx3sJW-i=w640-h548" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;">The figure Rideout quotes for Scotland's 2021 State Pension costs accounts for 74% of Scottish NI receipts ... but he has omitted Scotland's population share of overseas pensions. Include Scotland's share of overseas pensions payments (as we need to for a like-for-like comparison, see below) and we discover that 77% of Scotland's NI receipts are required to pay Scotland's State Pension compared to 72% for the UK overall.</div></div><div><br /><div>It's not hard to see where this is leading - but let's not get ahead of ourselves. We need to do some more leg-work to compare what Scotland "puts in" to the UK's pooled NI system with what Scotland <i>actually</i> "gets out".</div><div><br /></div><div><br /></div><div><b><u>What Scotland Puts in</u></b></div><div><b><br /></b></div><div><u>National Insurance</u></div><div><u><br /></u></div><div>This is an easy number - so easy in fact that even Rideout got it right. The UK National Insurance figures in GERS reconcile very closely with those we get from aggregating the GB and Northern Irish NI Funds and with those available <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk" target="_blank">directly from HMRC</a>. So we can state with confidence that over this period Scotland's NI contributions accounted for<b> 8.0% of the UK total.</b> </div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiSdheYcIp72sCQqaIcJ4DiveBRcPzBuREUb1sPxVZe679W9TqkMxTBdXM4W46kAYNAMH3i6wjT7Gb0eHwA9UBIGxv_STtz56oMYroBvQdnlFM4VfdbuIETir-k_y7ypiYZ6Uz3Uy5ftb0XbrI1MAmLhXYjDPzRpxH2_QkfO9MUu-LyGeTn8y00oHIz=s840" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="228" data-original-width="840" height="174" src="https://blogger.googleusercontent.com/img/a/AVvXsEiSdheYcIp72sCQqaIcJ4DiveBRcPzBuREUb1sPxVZe679W9TqkMxTBdXM4W46kAYNAMH3i6wjT7Gb0eHwA9UBIGxv_STtz56oMYroBvQdnlFM4VfdbuIETir-k_y7ypiYZ6Uz3Uy5ftb0XbrI1MAmLhXYjDPzRpxH2_QkfO9MUu-LyGeTn8y00oHIz=w640-h174" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div><u>Other Taxes</u></div><div><u><br /></u></div><div>This is a bit trickier to follow and frankly would be quite easy to miss - but this is Chokkablog; we do analysis properly here. </div><div><br /></div><div>When the devolved nations get their NI-allocation driven Barnett consequentials, that money doesn't come from NI contributions but from other taxes (check the flow charts above). Of course Scotland (and the other devolved nations) contribute to that pool of taxes, so we need to take that into account.</div><div> </div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjLSo_o9HKqamRTp6ca9fTKoaHCZnYOBGA9qkahR6nWfEnzHjnUHAX7-wfDyiZHWuE1oT3ecv_9bdJV01qU0l1J3p6hjyTUWkJ88Z5qMXL1SEA1ebO6ZLH8w5tsGSdUliz3C9SDM1_QnUmM64LgqThOWP0YZfzyyJ8PS-LzTAY732ysAdLCBsmQM0YT=s839" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="144" data-original-width="839" height="110" src="https://blogger.googleusercontent.com/img/a/AVvXsEjLSo_o9HKqamRTp6ca9fTKoaHCZnYOBGA9qkahR6nWfEnzHjnUHAX7-wfDyiZHWuE1oT3ecv_9bdJV01qU0l1J3p6hjyTUWkJ88Z5qMXL1SEA1ebO6ZLH8w5tsGSdUliz3C9SDM1_QnUmM64LgqThOWP0YZfzyyJ8PS-LzTAY732ysAdLCBsmQM0YT=w640-h110" width="640" /></a></div><div><br /></div><div><br /></div><div><b><u>What Scotland Gets Out</u></b></div><div><br /></div><div><u>NHS Funding</u>: </div><div><br /></div><div>The question of how much of the allocated NHS funding goes to Scotland is not as easy to answer as one might expect. The <a href="https://www.legislation.gov.uk/ukpga/1992/5/section/162/enacted" target="_blank">relevant legislation</a> merely states that amounts <i>"shall be taken as paid towards the costs of </i>[the English, Scottish and Welsh NHS] <i>in such shares as the Treasury may determine"</i>.<sup>6</sup>.</div><div><br /></div><div>Whilst one might assume this would be pro-rata to the NI contributions made by each nation, according to <a href="https://fraserofallander.org/funding-a-rise-in-social-care-spending-england-implications-for-the-scottish-budget/" target="_blank">this Fraser of Allander blog</a>, <a href="https://www.economicsobservatory.com/how-will-uk-tax-rises-to-fund-social-care-affect-the-devolved-nations" target="_blank">this Economics Observatory blog</a> and <a href="https://www.instituteforgovernment.org.uk/explainers/health-social-care-levy" target="_blank">this Institute for Government Explainer</a>, NHS-allocated NI funds all go to the English NHS, with Scotland, Wales & Northern Ireland each then seeing funding increases via the <a href="https://www.these-islands.co.uk/publications/i265/how_does_the_barnett_formula_actually_work.aspx" target="_blank">Barnett Formula</a>. This means that Scotland gets back a "Scotland vs England" population share of those NHS-allocated National Insurance funds. This is to Scotland's net benefit, as both the Fraser Allander commentary<sup>7</sup> and the Institute for Government analysis<sup>8</sup> confirm.</div></div><div><br /></div><div>This means that Scotland effectively <b>"gets out" 8.2% of the NHS-allocation driven Funds</b></div><div><b><br /></b></div><div>It's worth keeping a tally here: 22.2% of the Scotland's "money in"<sup>9</sup> to the UK's NI system comes back via the Block Grant.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh3JwN3dJVtHtkp7OpD5iU2FLLswTQJF2L-3qGawglLDy7dmJoQX1dbCMOZhKLMYjvEcItuAH3SVCjEVfZJC1ErTbSEqrr6kznZd-kl9cqS8icguS2lxe6qBHYkDP89PMEPy7EnvhDcFsmRfS5x7s9nmYsbAdhNmBxmrfF7pv4odlcfDq_jmYwIkJI1=s842" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="207" data-original-width="842" height="158" src="https://blogger.googleusercontent.com/img/a/AVvXsEh3JwN3dJVtHtkp7OpD5iU2FLLswTQJF2L-3qGawglLDy7dmJoQX1dbCMOZhKLMYjvEcItuAH3SVCjEVfZJC1ErTbSEqrr6kznZd-kl9cqS8icguS2lxe6qBHYkDP89PMEPy7EnvhDcFsmRfS5x7s9nmYsbAdhNmBxmrfF7pv4odlcfDq_jmYwIkJI1=w640-h158" width="640" /></a></div><br /><div><div class="separator" style="clear: both; text-align: left;"><u><br /></u></div><div class="separator" style="clear: both; text-align: left;"><u>State Pension</u></div><p>The State Pension figures we get from the GB NI Fund<sup>10</sup> reconcile well with the figures that come <a href="https://www.gov.uk/government/publications/benefit-expenditure-and-caseload-tables-2021" target="_blank">directly from the DWP</a>. These show us that Scotland (including a population share of overseas pensions) <b>receives 8.6%<sup>11</sup> of State Pension payments out of the NI Funds</b>.</p><p>For our running tally:<b> </b>75.2% of Scotland's "money in" to the UK's NI system comes back via State Pension payments</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEj0485I4NF1BugpTf9X6kk6y-mefh5DnE8uVpAAEVOoAIdMwpb5isA2_WD9S-PRH3S6a48dNgaHz3xUbYUH2GlHE0WXsIqiBRW0kIl5umAz6NKT0i1un-6m14dz37EDR2lj_SaXQWSN_mCx5rwtrXTa8xhp_uiwaL1teFqxaKj_ha9o1W9ghWyx8Wxf=s839" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="186" data-original-width="839" height="142" src="https://blogger.googleusercontent.com/img/a/AVvXsEj0485I4NF1BugpTf9X6kk6y-mefh5DnE8uVpAAEVOoAIdMwpb5isA2_WD9S-PRH3S6a48dNgaHz3xUbYUH2GlHE0WXsIqiBRW0kIl5umAz6NKT0i1un-6m14dz37EDR2lj_SaXQWSN_mCx5rwtrXTa8xhp_uiwaL1teFqxaKj_ha9o1W9ghWyx8Wxf=w640-h142" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;"><hr />Important aside: the "Spending <i>in</i> Scotland: State Pension" line of Box 3.2 in the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/" target="_blank">latest GERS report</a> mistakenly includes Scotland's population share of overseas pensions in the the first two years (but correctly excludes them in the last three). I have checked directly with the office of the Chief Economic Advisor to the Scottish Government and they have confirmed this presentational inconsistency. I share this here partly because it validates the robust audit-trail we're creating here - it's only by continually reconciling between the NI Fund accounts, DWP Data, HMRC data and the GERS report that this issue was spotted. To be absolutely clear: the <i>Total </i>Social Protection in Box 3.2 is correct and the integrity of the overall GERS figures is not being questioned; this is a relatively trivial issue with the breakdown of 2017 and 2018 data in that "for information" box. Caused me quite the headache though, I have to admit<sup>12</sup>.</div></div><hr /><div><br /></div><div>*PAUSE*</div><div><br /></div><div>So through NHS-related Barnett consequentials and direct State Pension Payments, Scotland receives back 22.2% + 75.2% = 97.4% of the funds it contributes into the UK's pooled National Insurance system - and we've yet to cover other contributory benefits, operational costs and Scotland's share of any retained balance.</div><div><br /></div><div>We're nearly there: one last push ...</div><div><br /></div><div><u>Employment Support Allowance (Contributory) [ESAc]</u></div><div><br /></div><div>Unfortunately the DWP data we have doesn't split Employment Support Allowance (ESA) between contributory and non-contributory benefits, but we can range the figures. The default assumption we're using is that Scotland's share of <i>contributory</i> ESA is the same as its <b>10.6% share of <i>overall</i> ESA </b>(as per the DWP data)<b>.</b> As a sensitivity, we can assume Scotland merely gets its 8.0% NI contribution share.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiVZikyyDsDwDR-qIhynKSGEcMVR7qxMEqVfaNdEc2yzZfxaRSMOujBhx9NUUwvwlBEcKhCbwKfMGwAyaCs-Y_F2BbwAE1_EIZwUyyQxIH2A5Bdi1oknIPml40Z6R8op9_DUxi_CxKtTID2vYq6nh6tq33w_YNw9yX2cM7vuJi0XyVmy8WWfv_tJuVv=s839" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="219" data-original-width="839" height="168" src="https://blogger.googleusercontent.com/img/a/AVvXsEiVZikyyDsDwDR-qIhynKSGEcMVR7qxMEqVfaNdEc2yzZfxaRSMOujBhx9NUUwvwlBEcKhCbwKfMGwAyaCs-Y_F2BbwAE1_EIZwUyyQxIH2A5Bdi1oknIPml40Z6R8op9_DUxi_CxKtTID2vYq6nh6tq33w_YNw9yX2cM7vuJi0XyVmy8WWfv_tJuVv=w640-h168" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;"><u>Job Seekers' Allowance (Contributory) [JSAc]</u></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div><div>The DWP data doesn't split Job Seekers' Allowance (JSA) between contributory and non-contributory benefits either, but again we can range the figures. The default assumption we're using is that Scotland's share of <i>contributory</i> JSA is the same as its <b>9.8% share of <i>overall</i> JSA </b>(as per the DWP data). As a sensitivity, we can assume Scotland merely gets its 8.0% NI contribution share.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiJjOWA6w9K8G2F6IFwcL7KGCTyCysELLdcT89myoogmyJCJ6UOkMmH2URnmJI7M3QiP2xDKY_606ypJdg3GjZ_DcKz__dTkFCXrPae1uC01nJPPDvPXjYLNekiG3lO2W87BvYIlFx-ERwpzbk-0OuVgp3OKGBuSJ1cjIC43qdqkOP6YQDc7iLdOJbc=s839" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="219" data-original-width="839" height="168" src="https://blogger.googleusercontent.com/img/a/AVvXsEiJjOWA6w9K8G2F6IFwcL7KGCTyCysELLdcT89myoogmyJCJ6UOkMmH2URnmJI7M3QiP2xDKY_606ypJdg3GjZ_DcKz__dTkFCXrPae1uC01nJPPDvPXjYLNekiG3lO2W87BvYIlFx-ERwpzbk-0OuVgp3OKGBuSJ1cjIC43qdqkOP6YQDc7iLdOJbc=w640-h168" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div><u>Bereavement Benefits (contributory) [BBc]</u></div></div><div><u><br /></u></div><div>The DWP data matches the NI Fund data very closely until the introduction of Statutory Parental Bereavement Pay (which by inference is not paid out of the NI Fund and accounts for less than 15% of the total). We assume that Scotland receives a <b>9.0% share of NI funded Bereavement Payments </b>(as per the DWP data). </div><div><u><br /></u></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi6BjOuAj5lIvpGjwXO5oN4PNZftyg3ZKZlHCJ54V6L7-mKhnp8Rtsn4xFFWJFqgUv79Ghb37yhHB9uuANOJWEb1Fq4O0cnsO_gdKWJH-75ZYk4yvmvP2kIz-UQ0RX8x6JgaCsuP1-DJdDtTvubWdu3zzZMZtOflL8tPd979eyrMOktTVlXyxNN5xDj=s839" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="219" data-original-width="839" height="168" src="https://blogger.googleusercontent.com/img/a/AVvXsEi6BjOuAj5lIvpGjwXO5oN4PNZftyg3ZKZlHCJ54V6L7-mKhnp8Rtsn4xFFWJFqgUv79Ghb37yhHB9uuANOJWEb1Fq4O0cnsO_gdKWJH-75ZYk4yvmvP2kIz-UQ0RX8x6JgaCsuP1-DJdDtTvubWdu3zzZMZtOflL8tPd979eyrMOktTVlXyxNN5xDj=w640-h168" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><u>Maternity Allowance [MA]</u></div><div><u><br /></u></div><div>The DWP data matches the NI Fund data, so we can use it directly. Although the numbers are relatively small, what leaps out here is that Scotland's 8.2% of the population receives <b>only 6.4% of Maternity Allowance payments </b>(as per the DWP data).<div><br /></div></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhPzj6cDoSqr4x0FarARGfYbmteZc5zEIEvNscBYmRUV5Jn9VwWr0cZtcs_Xl6jElR5KU0BiC7VMIhvaMX1p57pxUWRGYt6FoY_4wlJxuV-0Q-EOXU38XuaW7fiQngTFj5wG-_ybCJM5FBKIpPcAKCDktVxTzbk-T0c598H48ic7LU052U5bSnxoLd_=s837" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="189" data-original-width="837" height="144" src="https://blogger.googleusercontent.com/img/a/AVvXsEhPzj6cDoSqr4x0FarARGfYbmteZc5zEIEvNscBYmRUV5Jn9VwWr0cZtcs_Xl6jElR5KU0BiC7VMIhvaMX1p57pxUWRGYt6FoY_4wlJxuV-0Q-EOXU38XuaW7fiQngTFj5wG-_ybCJM5FBKIpPcAKCDktVxTzbk-T0c598H48ic7LU052U5bSnxoLd_=w640-h144" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;">A quick <a href="https://www.nrscotland.gov.uk/files//statistics/vital-events-ref-tables/2020/vital-events-ref-tables-20-publication.pdf" target="_blank">check of relative fertility rates</a> explains this apparent discrepancy: Scotland's latest recorded fertility rate was 1.29 compared to England's 1.66. Take the relative fertility rate of 1.29/1.66 and apply it to Scotland's 8.2% population share and you get <b>6.4%</b>, exactly the same as the observed share of Maternity Allowance payments. If you've read this far, you're probably the sort of person who will appreciate the little buzz I got when I realised how neatly that explains what's going on here. </div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">[I often wonder how many people get this deep into these blogs - if you're one of them, please tweet me <a href="https://twitter.com/kevverage" target="_blank">@kevverage</a> with "I got the buzz" so I know I'm not wasting my time!] </div><div><br /></div><div>*PAUSE*</div><div><br /></div><div>These four benefits above account for 5.6% of the funds Scotland contributes into the UK's pooled National Insurance system. Add that to the 97.4% we covered with NHS-related Barnett consequentials and direct State Pension Payments and <b>Scotland has received back 103% of what it's paid into the UK's pooled National Insurance System</b>. </div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgGXmx3ERZvSNexGzHS-3TsrTyx_lWm33KgawJF16QRm7ia63Sx8CYuArLUArBhCCMhoV4yPBStKwLHF936M2liC49SfP6aI2ufzvTW2oeDZbGVyNGsRXSFBv4uJjx9ddEG4F24nqD965R30cY3Uby1HuBYwVhoQ-vBqt-_Kz-K2P-KHxgK4MeuzFKt=s826" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="216" data-original-width="826" height="168" src="https://blogger.googleusercontent.com/img/a/AVvXsEgGXmx3ERZvSNexGzHS-3TsrTyx_lWm33KgawJF16QRm7ia63Sx8CYuArLUArBhCCMhoV4yPBStKwLHF936M2liC49SfP6aI2ufzvTW2oeDZbGVyNGsRXSFBv4uJjx9ddEG4F24nqD965R30cY3Uby1HuBYwVhoQ-vBqt-_Kz-K2P-KHxgK4MeuzFKt=w640-h168" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: left;">Even if we take the low-case sensitivity (ie. assume Scotland only receives an 8.0% share of UK payments for these benefits), Scotland would still have received back 102% of what it's paid into the UK's pooled National Insurance System.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><b>Scotland is getting out more than it puts in, and we've still to cover the other NI funded costs and Scotland's share of the retained balance. </b></div><div><br /></div><div>So let's tidy up those loose ends now ...</div><div><br /></div><div><u>Other NI Funded Costs</u></div><div><br /></div><div>The remaining NI funded costs account for just 1.2% of the total, split as follows </div><div><ul style="text-align: left;"><li>58%: Administration (primarily DWP and HMRC)</li><li>29%: Redundancy (ie. making statutory redundancy payments when employers are unable to, normally due to insolvency)</li><li>13%: Other</li></ul><div>Frankly the assumption used here doesn't really matter, but it seems reasonable to allocate a simple population share of these costs to Scotland:</div></div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEisEoukQNSlTV2gU_NkBD04yZ4mfhcTCn5Fp4wNorl-Go9Uo0isgMTXb_DL3Nzo4-e-L5pmmjFNBJ5apPOp_9I9GVkScQ8DGQRuU3mh8KvPknMJUPAWXjgRoPbNcZw_AL0MFb74hYhYl2ghANjf55Nj0zysAtJJv1X3LhbF8u3utj9oeqojG8Aycez-=s826" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="174" data-original-width="826" height="134" src="https://blogger.googleusercontent.com/img/a/AVvXsEisEoukQNSlTV2gU_NkBD04yZ4mfhcTCn5Fp4wNorl-Go9Uo0isgMTXb_DL3Nzo4-e-L5pmmjFNBJ5apPOp_9I9GVkScQ8DGQRuU3mh8KvPknMJUPAWXjgRoPbNcZw_AL0MFb74hYhYl2ghANjf55Nj0zysAtJJv1X3LhbF8u3utj9oeqojG8Aycez-=w640-h134" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;">****</div><div><br /></div><div>So now all that remains for us to do is add all of that up and allocate Scotland a share of the retained NI Fund balances:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEibzkrz4T2I6pSk_hnvs9Z3yk8-vIWA1lB7RdmyUe8VC_fUfkTZYi2RTNnl_sZLOlgEx4US2sclLowpRThFoCEVZ8gwjDCu4ZCDpaYj_aCISc_4bZq_xJH1_Q1zcJHPmLaBE3Lft3V_qVdXGBCNVBP_9NCu7SPidyBz9cg2jPPiprP5ulOVW2TACn4h=s842" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="612" data-original-width="842" height="466" src="https://blogger.googleusercontent.com/img/a/AVvXsEibzkrz4T2I6pSk_hnvs9Z3yk8-vIWA1lB7RdmyUe8VC_fUfkTZYi2RTNnl_sZLOlgEx4US2sclLowpRThFoCEVZ8gwjDCu4ZCDpaYj_aCISc_4bZq_xJH1_Q1zcJHPmLaBE3Lft3V_qVdXGBCNVBP_9NCu7SPidyBz9cg2jPPiprP5ulOVW2TACn4h=w640-h466" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>And there you have it: </div><div><ul style="text-align: left;"><li><b>Scotland pays in 8.0% to the UK's pooled National Insurance system and gets back 8.6% of the spending that pooled system drives.<sup>13</sup><br /> </b></li><li><b>Scotland net benefits by over £750m a year</b><sup>14</sup> (assuming Scotland lays claim to a population share of the NI Funds' retained balances<sup>15</sup>) </li></ul></div><div><br /></div><div>Now. I recognise this has taken a bit more work than the "pick two numbers and pretend it proves your point" method beloved of Scottish nationalists - but isn't it a tad more satisfying to understand the complex reality?</div><div><br /></div><div><br /></div><div style="text-align: center;">****************</div><div style="text-align: center;"><br /></div><div><p><b>Footnotes</b></p><p></p><ol style="text-align: left;"><li>This figure (reverse engineered from the GB and NI National Insurance Fund accounts) reconciles very closely with <a href="https://www.gov.uk/government/statistics/hmrc-tax-and-nics-receipts-for-the-uk" target="_blank">HMRC's published data</a> as we show later in the blog. The Total NI figure from the NI Fund accounts is 98% accounted for by direct NI Contributions, the balance being "compensation for statutory recoveries" and a few other bits and bobs - the assumption here is that the components used to calculate Total NI Fund Receipts are the same as those included within HMRC's definition of National Insurance Contributions - the reconciliation would suggest this assumption is sound.<br /><br /></li><li>To be absolutely correct: different percentages are applied to different classes of contribution (see <a href="https://www.legislation.gov.uk/ukpga/1992/5/section/162/enacted" target="_blank">Social Security Administration Act 1992</a>), so changes in the contribution mix can lead to slight changes in the overall average contribution percentage. There is also a mechanism contained within that Act which would allow this allocation to be varied at the whim of the Treasury: <i>"The Secretary of State may, with the consent of the Treasury, by order amend any of [the allocation percentages] in relation to any tax year, by substituting for the percentage for the time being specified in that paragraph a different percentage".<br /><br /></i></li><li>As the NI Fund accounts explain: <i>"the Social Security Act 1993 allows for money provided by Parliament to be paid into the NIF via a Treasury Grant if HM Treasury considers it expedient to do so". <br /></i><br />The accounts go on to explain: <i>"The report on the Up-rating Order published by the Government Actuary in January 2021 projected an increase in the balance of the Fund in the year ended 31 March 2022, and also projected that no Treasury Grant is likely to be required in that year in order to maintain the Fund above the targeted minimum balance of 16.7% of benefit expenditure. However, as a contingency, under section 2(2) of the Social Security Act 1993 (c.3), HM Treasury Ministers have made provision for a Treasury Grant of up to 17% of estimated benefit payments. This equates to a provisional facility of £17.5 billion."</i><br /><br />The last Treasury Grant was <a href="https://webarchive.nationalarchives.gov.uk/ukgwa/20180911065125/https://www.gov.uk/government/publications/national-insurance-fund-accounts" target="_blank">in 2016</a>, when £9.6bn was used to top-up the GB Fund balance<br /><br /></li><li>Previously Incapacity Benefit<br /><br /></li><li><i>"Christmas Bonus is a tax-free payment of £10 paid to people in receipt of a qualifying benefit during the relevant week, normally the first full week in December"<br /><br /></i></li><li>From the <a href="https://www.legislation.gov.uk/ukpga/1992/5/section/162/enacted" target="_blank">Social Security Administration Act 1992</a>:<br /><br />"<i>From the national health service allocation in respect of contributions of any class there shall be deducted such amount as the Secretary of State may estimate to be the portion of the total expenses incurred by him or any other government department in collecting contributions of that class which is fairly attributable to that allocation, and the remainder shall, in the hands of the Secretary of State, be taken as paid towards the cost—<br />(a)of the national health service in England;<br /></i><i>(b)of that service in Wales; and<br /></i><i>(c)of that service in Scotland,</i><i>in such shares as the Treasury may determine.<br /><br /></i></li><li><a href="https://fraserofallander.org/funding-a-rise-in-social-care-spending-england-implications-for-the-scottish-budget/" target="_blank">Fraser of Allander Blog</a>: <i>"If the UK Government funded its social care plans by increasing NICs, the funding implications are quite straightforward. The tax increase (whether to employee or employer contributions, or to the self-employed) would apply in Scotland. The Scottish budget would benefit from a Barnett consequential as a result of the increased spending in England. A £10bn increase to spending on social care in England would result in approximately a £1bn increase to the Scottish block grant.<br /></i><i><br />As is the case with income tax, the NICs raised in Scotland from an increase in NICs may not fully cover the sum of the additional Barnett consequential that flows to Scotland. This is seen as ‘fair’ in the context of a tax that is ‘pooled and shared’ across the UK."<br /><br /></i></li><li>This <a href="https://www.instituteforgovernment.org.uk/printpdf/10782" target="_blank">Institute for Government example </a>shows £12bn of additional NIC allocation would result in a £1.1bn increase in Scotland's Barnett consequentials, £0.7bn for the Wales and £0.4bn for NI - a rounded total of £2.2bn.<br /><br />Applying the relevant population share figures to the £12.0bn we get £1.16bn, £0.67bn and £0.40bn respectively - a total of £2.2bn. I think we can safely assume that the minor difference in the presented figure for Scotland is merely a function of rounding by the IoG (this often happens - to keep the total right, people sometimes use a bit of poetic licence when it comes to rounding).<br /><br /></li><li>Scotland's "money in" = £54,401m of National Insurance payments and £1,906m of contribution to the Barnett consequential (via other taxes) = £56,307. <br /><br /></li><li>Confusion can arise from the fact that the DWP figures cover GB only (because the Northern Ireland Executive administer and report pensions separately) and also because the NI Funds report the (State pension) Christmas Bonus as a separate line-item. Note also the DWP figures and the National Insurance Fund figures <i>do</i> include overseas pension payments.<br /><br /></li><li>The 8.6% figure is sometimes (including by me in the past) mistakenly quoted as 8.8%. This is because when filtering the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/documents/" target="_blank">supplementary-expenditure-database</a> which accompanies GERS for "State pension", the figures that appear in the "UK" column relate to GB only, they do not include Northern Ireland (it appears the Northern Ireland State Pension figures are not split out from other Northern Ireland welfare payments)<br /><br /><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgGOLwEGQ7dYO20DOA92p7tTWwBWysMZhDrrBsWGpFDJF8SIXb_sM8UWLsuUwhlAN-jGxRiYbXqQ5NJXJ5KQFOfEw3g6ip_tcri2D8QPKKCZ1INCsJjfdOfAHnNlkRHRnERrPI-JHq0IM3RDqkySzQ-st35jsZqUP7mNiHKbCPfxnfMEyFrOfPQkoT7=s875" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="176" data-original-width="875" height="128" src="https://blogger.googleusercontent.com/img/a/AVvXsEgGOLwEGQ7dYO20DOA92p7tTWwBWysMZhDrrBsWGpFDJF8SIXb_sM8UWLsuUwhlAN-jGxRiYbXqQ5NJXJ5KQFOfEw3g6ip_tcri2D8QPKKCZ1INCsJjfdOfAHnNlkRHRnERrPI-JHq0IM3RDqkySzQ-st35jsZqUP7mNiHKbCPfxnfMEyFrOfPQkoT7=w640-h128" width="640" /></a><br /><br /></li><li>The supplementary-expenditure-database provided with GERS (which reconciles with the overall GERS figures) <i>does</i> include a consistent population share of overseas pensions, so this issue is limited to the "for information" Box 3.2 within the GERS report (ie. it doesn't affect the integrity of the total government spending figure used in the GERS deficit calculation). I have contacted the office of the Scottish Government's Chief Economist and they have confirmed that Box 3.2 does include this error (the State Pension line is intended to be just the "in Scotland" figure, so Scotland's share of overseas pension payments should not be included). For our purposes, we are interested in Scotland's total pension payments which should include a population share of overseas payments, as included within the "Share of benefit spending outside UK and corporate spend" line in that table. The fact the State Pension figure <i>drops</i> between 2018 and 2019 really should have been a warning that something was up:<br /><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEinp3cFtz8AMZTvPV_xRtPvfUzYhKhv-d8YfsvhoRamSvmQmVRYrd6ERW9UTHH5N6OgF-_AQ5-jAn7phKt7eBL6OqGUQhF3JI6rJPz_z2by76fgwiQGtM5dtprEvgyrYV8_Fr2iDm6D7NT2pZPcC-8D-25QqJAptVm7HPZRbusRv_P2PGH3HRUMM0B_=s1151" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="639" data-original-width="1151" height="356" src="https://blogger.googleusercontent.com/img/a/AVvXsEinp3cFtz8AMZTvPV_xRtPvfUzYhKhv-d8YfsvhoRamSvmQmVRYrd6ERW9UTHH5N6OgF-_AQ5-jAn7phKt7eBL6OqGUQhF3JI6rJPz_z2by76fgwiQGtM5dtprEvgyrYV8_Fr2iDm6D7NT2pZPcC-8D-25QqJAptVm7HPZRbusRv_P2PGH3HRUMM0B_=w640-h356" width="640" /></a><br /><br /><div style="text-align: left;">Our reconcilaitions also highlight a couple of relatively small differences in stated NI figures - but these are not material to our conclusions</div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgh1JeqxHBGg9rM6fmEnmC0zIA7xG5gRX_vtRbw-m3x4FlnZ98VENbvZd7zMaQN5E9Aggnu1vVZM2f55tz10xkuovjSmq-_d8WeZEd9qx0h6XlurSQ7n6pOWUUU3VRWqAsKyZ2A1kkoICm3rHiXMUYHytvo33ZudlljbxgqVOSr4sVQWz_y3jVXve-u=s769" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="566" data-original-width="769" height="472" src="https://blogger.googleusercontent.com/img/a/AVvXsEgh1JeqxHBGg9rM6fmEnmC0zIA7xG5gRX_vtRbw-m3x4FlnZ98VENbvZd7zMaQN5E9Aggnu1vVZM2f55tz10xkuovjSmq-_d8WeZEd9qx0h6XlurSQ7n6pOWUUU3VRWqAsKyZ2A1kkoICm3rHiXMUYHytvo33ZudlljbxgqVOSr4sVQWz_y3jVXve-u=w640-h472" width="640" /></a></div><br /><br /></li><li><div class="separator" style="clear: both;">This is not a surprising finding. By looking at a ring-fenced sub-set of tax and spend (covering c.15% of Scotland's total Public Sector Expenditure) we are seeing a similar picture to that we see when we look at the <i>total</i> tax and spend numbers: Scotland benefits directly from the UK's system of pooling and sharing because Scotland receives a higher percentage of spending than its contribution to revenue.</div><div><p>Over the last five years: </p><p></p><ul><li>This analysis shows Scotland accounted for 8.6% of UK public spending <i>driven by the pooling of National insurance</i> while generating just 8.0% of <i>National Insurance receipts</i> <i>(and related other tax contributions)</i> - it put in less than it got out.<br /><br /></li><li><a href="https://www.these-islands.co.uk/publications/i377/gers_2021_a_deep_dive.aspx" target="_blank">GERS figures show</a> Scotland accounted for 9.2% of UK public spending while generating just 7.9% of tax receipts - it put in less than it got out.<br /></li><br /></ul><div>The fact that the relative scale of Scotland's benefit is lower for this ring-fenced sub-set of all tax and spend is not surprising. The majority of spending considered here relates to the state pension and other contributory benefits where the same policy is applied UK-wide - Scotland's greater share of spending is therefore entirely explained by greater like-for-like need; there is no policy difference driving the higher spend (as there will be in devolved expenditure areas). </div></div><div><br /></div><br /></li><li>We can now fully explain why Rideout's interpretation of the 2021 figures he's used is just wrong:<br /><br />He is correct to use £11.5bn for Scotland's NI contributions, but he missed £1.3bn of benefits Scotland gets back - so rather than the £0.5bn surplus he claims, Scotland benefitted from sharing in the UK's pooled NI system by £0.9bn in 2021 alone:<br /><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgXdyhjwGngLlr-ZTdRtEyKk5PjEObPK0G3vkYL_QoO4hXFEiWv-Zsbh6E0CbYZCn4mh0YeKggbm_e89GYdxemwlbFbql5XewlWyXKvL095DkM_1jbOrkru5sddjwONAcPDwNDn6_n4izOwn-JCFl-w4E3ryYQWZMbPl4IOZVpBDlx1yG-DqruygUFO=s572" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="565" data-original-width="572" height="632" src="https://blogger.googleusercontent.com/img/a/AVvXsEgXdyhjwGngLlr-ZTdRtEyKk5PjEObPK0G3vkYL_QoO4hXFEiWv-Zsbh6E0CbYZCn4mh0YeKggbm_e89GYdxemwlbFbql5XewlWyXKvL095DkM_1jbOrkru5sddjwONAcPDwNDn6_n4izOwn-JCFl-w4E3ryYQWZMbPl4IOZVpBDlx1yG-DqruygUFO=w640-h632" width="640" /></a></div><br /></li><ol><li>When he quotes £8.5bn for State Pensions he is only quoting the <i>in</i> Scotland figure, so <b>he's</b> <b>missing £0.3bn for Scotland's population share</b> <b>of overseas pensions</b> (see table in note 12).<br /><br /></li><li>What he claims on the Zoom call is £2.5bn of "other benefits" is in fact £3.0bn, so <b>he's missing £0.5bn of benefits</b>. I honestly have no idea where he gets his £2.5bn from: the lowest figure I can imagine him getting would be if he took a population share of all non State Pension NI fund payouts, but that would be only £0.7bn -- then even assuming he made the "low-side" mistake of taking the same share of Scotland's NI payments to NHS Scotland as for the GB NI fund, that would be £2.2bn, giving an "explainable mistake" total of £2.9bn<br /><br /></li><li>I imagine he has not noticed the £5.7bn surplus retained in the NI Funds in 2021, so <b>he will have missed Scotland's £0.5bn population share of the movement in the NI Funds<br /><br /><br /></b></li></ol><li>This analysis suggests that Scotland might struggle to justify that claim given it has historically been a consistent net beneficiary of the system - but there would be a lot of noise if we ever came to splitting the UK's assets on separation, and a blanket "population share" assumption seems likely</li></ol></div><div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com12tag:blogger.com,1999:blog-1603438996450817644.post-14617386601746793292022-02-12T08:29:00.006-08:002022-02-15T14:26:28.040-08:00Independence by Gaslight: Pensions<p>The SNP appear to have decided they would try to use the payment of state pensions in an independent Scotland as a bargaining chip in negotiations with the rest of the UK if Scotland were to secede.</p><p>Perhaps now realising how calamitous this strategy would be, senior SNP figures are already trying to deny their own on-the-record comments and suggesting that this is all some concocted unionist scare tactic - so part 1 of this blog offers a summary timeline of exactly how the SNP have communicated on this topic in recent weeks. </p><p>Part 2 uses the full transcripts of each of the SNP statements referred to in part 1 to a/ allow people to challenge the summary interpretation if they so wish and b/ to allow us to detail precisely where and why those statements were misleading, confused or simply wrong.</p><p>Some of the more common myths and misdirections not covered elsewhere in the blog are dealt with in the Appendix.</p><p><br /></p><p><b><span style="font-size: large;">Part 1: The SNP's State Pension U-turn</span></b></p><p>There is a lot of SNP verbiage to be processed here and recently some nationalists have started claiming "that's not what was said" - so the below timeline summarises what <i>was</i> said. I provide links and fully annotated transcriptions of each interview in Part 2.</p><p><u>14/12/2021</u>: Ian Blackford (leader of the SNP in the House of commons) was asked during a podcast what would happen to State Pensions post independence and his response was unequivocal: </p><div><i><blockquote>"Absolutely nothing! [...] that committment to continue to pay pensions rests with the UK Government"</blockquote></i></div><div><u>18/01/2022:</u> Asked during the same podcast series whether she agrees with Blackford's statement on pensions, Kate Forbes (Scotland's Cabinet Secretary for Finance and the Economy) replied:</div><div><i><blockquote>"Well I wouldn't dare disagree with Ian Blackford, the expert on all things pension, so I would agree with him."</blockquote></i></div><div><u><br /></u></div><div><u>02/02/2022:</u> Peter MacMahon of ITV News sought to confirm Blackford's position by asking him:</div><blockquote><div><i>"You've said the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the SNP policy in the 2014 referendum."</i></div></blockquote><p>Blackford was customarily long-winded in his response, but he did not challenge MacMahon's interpretation, he merely sought to justify it.</p><div><u>03/02/2022:</u> During FMQs, Conservative MSP Murdo Fraser asked the First Minister a similarly direct question:</div><div><blockquote><i>"Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?"</i></blockquote></div><div>Rather than take the opportunity to deny that this was now the SNP's position, Sturgeon appeared to confirm it. In the process, she misrepresented evidence given by former Pensions Minister Steve Webb in 2014 and made a sweeping observation that "<span style="font-style: italic;">UK liabilities and assets including those related to pensions will be subject to negotiation."</span></div><div><br /></div><div><div><u>06/02/2022:</u> Requests from the press for comment were responded to by Sturgeon's offical spokesman (extracts were quoted by the press eg. <a href="https://twitter.com/kevverage/status/1490605414374940672?s=20&t=O1IqHqI1ZTjxC0z0T-lyUA" target="_blank">here</a> and <a href="https://twitter.com/petermacmahon/status/1489278274152935429?s=20&t=O1IqHqI1ZTjxC0z0T-lyUA" target="_blank">here</a>);</div></div><div><i><blockquote>"Pensions in an independent Scotland will be paid by the Government of an independent Scotland, but the contribution towards that, the cost of meeting that, will be partly met by people paying into <u>the UK pensions pot</u> pre-independence ... That money doesn't get lost, it gets paid back or <u>paid out of the pot</u>. Pensions will be delivered in an independent Scotland by the Government of an independent Scotland but there will be <u>historic contributions made into the UK pot that are owed from that UK side as part of what is paid out</u>"</blockquote></i></div><div>So by this point Blackford has said that the committment to pay state pensions in an independent Scotland "rests with the UK government", Sturgeon at FMQ's has declined the opportunity to deny that this is now the SNP's policy (instead choosing to make sweeping statements about negotiations around "assets and liabilities" and to misrepresent former Pensions Minister Steve Webb's on-the-record views); Sturgeon's official spokesman has stated that the cost of meeting the state pension in an independent Scotland will be met partly by historical NI contributions, based on what he repeatedly refers to as a UK "pensions pot".</div><div><br /></div><div>As we will come on to explain in Part 2: the state pension is managed on a pay-as-we-go basis, today's taxes pay today's pensions (and it was ever thus) and so there is no state pension pot worthy of the name; both Steve Webb and (more importantly) the current pensions minister Guy Opperman are on the record confirming that the state pension in an independent Scotland would not be funded by UK tax payers; the statements made by Blackford, Sturgeon and her spokesman are, to be generous, equivocal in a way the 2014 White Paper and the SNP's 2018 Growth Commission were not (both assumed taxes raised in an independent Scotland would fully fund the Scottish state pension); there is no "historic liability" to negotiate about, the only question is how <i>future </i>pensions liabilities will be funded.</div><div> </div><div><u>09/02/2022:</u> Given the widespread confusion and bemusement about the SNP's apparent new policy, the <a href="https://twitter.com/GlennBBC/status/1491514432626823176" target="_blank">BBC's Glenn Campbell</a> offered Sturgeon the opportunity to "<i>clarify the SNP's position on the state pension if Scotland were to become an independent country". </i></div><div><div><br /></div><div>A visibly rattled First Minister huffily suggested that <i>"I don't need to clarify" </i>before (eventually) conceding that <i>"On an ongoing basis it would be for the Scottish Government to fund Scottish pensions" </i>only to immediately muddy the waters again by adding <i>"but<b> </b></i><i>in terms of how we take account of historic assets and liabilities </i>[related to pensions and NI contributions] <i>that would be a matter of negotiation".</i></div><div><br /></div><div>So Sturgeon conceded that an independent Scotland would fund the Scottish state pension (appearing to directly contradict Blackford's earlier remarks) but then went on to imply that a material contribution to that cost would come from negotiations around "historic assets and liabilities" related to past National Insurance contributions. When she was offered the opportunity in that same interview to confirm that she knew there was "no pension pot to be carved up", she didn't take it.</div></div><div><br /></div><div>The First Minister's "matter of negotiation" caveat here is very significant. The only way that the Scottish Government could use the funding of the state pension in an independent Scotland as a lever in negotiation would be to threaten not to pay it (or to make the payment of it conditional on some other asset ot liability concession, which is effectively the same thing). </div><div><br /></div><div>So at the time of writing that's where we are, which is frankly a remarkable place to be.</div><div><br /></div><div>Part 2 deals with the myriad arguments, misdirections, red-herrings and confused terminology deployed in this debate and explains why both practically and morally there really shouldn't be any debate about this: if a chunk of the UK's tax base secedes, it takes with it the obligation to continue to fund the state pension that tax base supports; any "negotiation around assets and liabilities" (beyond a share of the relatively trivial National Insurance fund) would be a non-starter.</div><div><br /></div><div>That said: if you can't be bothered to trawl through all the SNP's claims and the related counter-arguments, all you really need to do is read what the current Pensions Minister Guy Opperman has said in response to those claims:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh3Qdt6rYtc82-stSwUGA-R36J5HukyMWNNHbB4Pdo10mHkqGjfX_5cER995R6_sBMuuU1k6t0IwkGx3Ji5dkILsb8ZuCn4fhjjit6oslYU9U6CiWOz-BAr_dUxEGQmW7nuutvh6ikXKAPOuyXp7xbUSSEZKZJy-1_662i93VNVUnbv-w26LhOMlgF0=s828" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="597" data-original-width="828" height="289" src="https://blogger.googleusercontent.com/img/a/AVvXsEh3Qdt6rYtc82-stSwUGA-R36J5HukyMWNNHbB4Pdo10mHkqGjfX_5cER995R6_sBMuuU1k6t0IwkGx3Ji5dkILsb8ZuCn4fhjjit6oslYU9U6CiWOz-BAr_dUxEGQmW7nuutvh6ikXKAPOuyXp7xbUSSEZKZJy-1_662i93VNVUnbv-w26LhOMlgF0=w400-h289" width="400" /></a></div><br /><div><br /></div><div> </div><div><b><span style="font-size: large;">Part 2: The detailed arguments, within the context of the SNP's verbatim claims</span></b></div><div><br /></div><div><b>14/12/2021: Blackford's Initial Claim</b></div><p>This all started with comments made by Ian Blackford in a <a href="https://scotlandschoice.scot/podcast/episode-33-scotlands-pensions/" rel="nofollow" target="_blank">Scotland's Choice Podcast</a>. The ever-diligent Sam Taylor [<a href="https://twitter.com/staylorish?ref_src=twsrc%5Egoogle%7Ctwcamp%5Eserp%7Ctwgr%5Eauthor" target="_blank">@staylorish</a>] listened to the podcast a few weeks later and <a href="https://twitter.com/staylorish/status/1488453889087184901?s=20&t=nxr8XN35zV0JTdNoS0ouVw" target="_blank">tweeted about a remarkable claim that Blackford made</a>. When asked what would happen to State Pensions post independence, Blackford asserted the following:</p><p></p><blockquote><i>"<b>Absolutely nothing! </b>So, the important point is that those that have contributed while we have been part of the UK have an entitlement for a pension. Indeed that was made - um - that was made clear by the Chief Secretary to the Treasury at the time of the independence referendum in 2014. So <b>that commitment to continue to pay pensions rests with the UK Government</b>. That's no different to a UK citizen that chooses for example to live in Canada or Spain or France or anywhere else - that commitment to receive your pension remains in place, that's an obligation of the UK Government and what will happen going forward it will be the obligation of the Scottish Government to look after pension entitlement from the period for those that are working and making pension contributions in the period post independence."</i></blockquote><blockquote>[This is almost entirely nonsense, but he repeats these claims in his interview below, so we'll address them there]</blockquote><p><b>18/01/2022: Kate Forbes Backs Blackford's Claim</b></p><p>Asked in a <a href="https://twitter.com/staylorish/status/1488455567614136320?s=20&t=V9p8tUXybbM6SBxiJxHeGw" target="_blank">subsequent edition of the same podcast series</a> whether she agrees with Ian Blackford's comments, Scotland's Cabinet Secretary for Finance and the Economy replied:</p><blockquote><p><i>"Well I wouldn't dare disagree with Ian Blackford, the expert on all things pension, so I would agree with him."</i></p></blockquote><p></p><p><b>02/02/2022: Blackford Doubles Down</b></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiVGEW39WH21ZpcEhlUpMESLjJLMzlRovNIRxFt5_Irl8P1AO8gkq6KuPfDApXSo0PvifEYE8TQbzZZS4viRMgwlaSIfqwbk6EPhJ38JN4NKRlAorHu8choJoeynXw-Jht916PqGeO5msf15yP-GB1U2yIcRULwmgFhFuueUcETVW4FAHXw-h7YW2hj=s757" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="410" data-original-width="757" height="216" src="https://blogger.googleusercontent.com/img/a/AVvXsEiVGEW39WH21ZpcEhlUpMESLjJLMzlRovNIRxFt5_Irl8P1AO8gkq6KuPfDApXSo0PvifEYE8TQbzZZS4viRMgwlaSIfqwbk6EPhJ38JN4NKRlAorHu8choJoeynXw-Jht916PqGeO5msf15yP-GB1U2yIcRULwmgFhFuueUcETVW4FAHXw-h7YW2hj=w400-h216" width="400" /></a></div><p>Blackford was pressed on this claim by <a href="https://www.itv.com/news/border/2022-02-02/catch-up-on-representing-border-2nd-february-2022" target="_blank">Peter MacMahon of ITV News</a> [at 13 mins in]: <i>"You've said that the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the previous SNP policy in the 2014 referendum."</i>:</p><p></p><blockquote><p><i>"This was an issue that was discussed in 2014 ... let's be clear on this, because the Chief Secretary to the Treasury made it clear at that point that the UK retained an obligation to pay pensions to those that had paid National insurance ..."</i></p></blockquote><blockquote><p>[This <i>repeated </i>assertion is simply untrue. The Chief Secretary to the Treasury at the Time was Danny Alexander and he made no such statement. I will, as ever, happily correct this blog if anybody can provide evidence that he did.]</p></blockquote><blockquote><p><i>"... that's a, a matter of precedence .. <</i>interviewer interjects to remind Blackford '<i>and the Scottish Government's White Paper said the Scottish Government, on independence, would take responsibility for pensions, and you're saying they won't anymore'> ... the Scottish Government will take responsibility to look after its pensioners, let's not forget <</i>interviewer interjects<i> 'but not pay them' - </i>Blackford ignores that statement<i>> ... let's not forget we have the lowest state pension in Western Europe at the moment, our pensioners are being short changed ..."</i></p></blockquote><blockquote><p>[Blackford's use of the phrase "short-changed" is particularly disingenuous, as it implies that somehow people are not getting their dues, which is patently not the case. His "lowest state pension in Western Europe" claim is false and one that the SNP have a track-record of repeating. When asked to back it up they always point to an out-of-date OECD report (or a parliamentary briefing which referenced the same report) rather than the <a href="https://www.oecd.org/publications/oecd-pensions-at-a-glance-19991363.htm" target="_blank">latest OECD report </a>which could not be clearer in showing the UK ranking above (amongst others) Norway, Sweden, Germany and Ireland<sup>1</sup>]</p><blockquote class="twitter-tweet"><p dir="ltr" lang="en">Across the OECD, an average earner will take home<br />6⃣2⃣% of their previous income when they hit <a href="https://twitter.com/hashtag/retirement?src=hash&ref_src=twsrc%5Etfw">#retirement</a>. <br /><br />Compare your country & learn+ with OECD’s <a href="https://twitter.com/hashtag/Pensions?src=hash&ref_src=twsrc%5Etfw">#Pensions</a> at a Glance 👉 <a href="https://t.co/thcVGpMH0I">https://t.co/thcVGpMH0I</a> <a href="https://t.co/PS6KSlmKoY">pic.twitter.com/PS6KSlmKoY</a></p>— OECD Social (@OECD_Social) <a href="https://twitter.com/OECD_Social/status/1468908008214257665?ref_src=twsrc%5Etfw">December 9, 2021</a></blockquote> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script></blockquote><blockquote><p><i>" ... it's Westminster that's removed the triple lock"</i></p></blockquote><blockquote><p>[It's true that the triple-lock has been suspended - but the SNP's own Sustainable Growth Commission abandoned the SNP's commitment to the triple-lock after independence as long ago as 2018, as pointed out by Sam Taylor <a href="https://twitter.com/staylorish/status/1489982151475044352?s=20&t=GoofZ9Q1-SEpbw8L7x44zA" target="_blank">here</a>]</p></blockquote><blockquote><p><i>"The point is that it's an obligation on the UK Government to meet the committment to pensioners that have paid National Insurance contributions; they have paid for the right to receive that pension ... "</i></p></blockquote><blockquote><p>[The wording here is highly misleading. The state pension is technically a welfare payment funded by current taxes. The <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/902427/WGA_2018-19_Final_signed_21-07-20_for_APS.pdf" target="_blank">UK's Whole of Government Accounts (WoGA)</a> are very clear about this: <i>"the state pension paid to the general public [..] is included within overall expenditure and recorded as welfare spend". </i>This means people have no more "paid for the right" to receive a future pension than they have "paid for the right" to receive future social security payments or healthcare. <i> </i>Nobody would seriously suggest that the UK Government's obligation to provide future welfare support in Scotland would survive secession, and yet that is effectively what Blackford appears to be arguing for. It's a risible idea; rUK tax payers would obviously not accept continuing to fund an independent Scotland's welfare state.]</p></blockquote><blockquote><p><i>"Now you can argue about the mechanism as to how that's transferred and that will be debated, but it's right that the UK Government meets its committment to pensions regardless where they are."</i></p></blockquote><blockquote><p>[It's not clear what the "that" is Blackford wants transferred here. If it's past NI contributions, "that" is just Scotland's share of the NI fund (which we'll come on to show is a relatively trivial matter). If "that" is the obligation to look after the future welfare of Scottish citizens, it is extraordinary that Blackford could be suggesting that would be the responsibility of anybody other than the government of an independent Scotland. Healthcare is also funded out of current taxes; having paid taxes all my working life, I expect free healthcare in my dotage - but I don't <i>think </i>anybody's arguing that the UK Government would be expected to fund an independent Scotland's health service?]</p></blockquote><blockquote><p>"<span style="font-style: italic;">If you or I as UK citizens go and live in another European country, then our right to that UK pension remains; Scottish pensioners have that right ..."</span></p></blockquote><blockquote>[This is simply a repetition of the ex-pat fallacy. Put simply, you can't take away 8% of the UK's tax base and not expect to take with it an equivalent share of the pensions obligations that tax base funds. It is true that UK state pension entitlement is currently based on past NI contributions (not nationality), but if the constituent part of the UK where those NI contributions were made is no longer part of the UK, it would be logically inconsistent for the remaining UK to still honour that commitment.</blockquote><blockquote>To help understand why people in a seceded Scotland would not be the same as UK expats, consider that expats have the right to vote in UK elections. Again, I don't <i>think</i> anybody is suggesting that independent Scots habitually resident in Scotland would get to vote in UK elections; they wouldn't because they would not be the same as expats. Or alternatively try the following thought experiment: if England's 84% of the UK's population seceded, it would be patently absurd and impractical for the remaining 16% of UK tax payers to fund an independent England's state pension - and yet that would be to apply the same expat fallacy logic, just at a larger scale.]</blockquote><blockquote><span style="font-style: italic;">"they have paid National Insurance over a long period to get that; that will remain."</span> </blockquote><blockquote>[His wording about paying NI contributions over a long time and "that will remain" seems to imply that money has gone into a pot. As we've already covered: it hasn't, it's been used to pay current pensions.]</blockquote><blockquote>The interviewer rightly picks him up on this: <i>I'm sorry, but you know <span>National Insurance</span> only covers current pensions... </i></blockquote><p><span><i></i></span></p><blockquote><i><span>"No ... it's .. you're paying National Insurance as an entitlement to a future pension, that's the whole point of the principle</span> - you pay into a National Insurance Fund - OK the UK is then responsible for the disbursements of that and it covers cashflow for a certain period - but that's a right to a UK pension, there's no ifs, there's no buts about that."</i></blockquote><blockquote>[Blackford surely knows the interviewer is correct, so his knee-jerk "No" is revealing. I suspect he realises he's getting into trouble at this point and perhaps that's why he goes on to correctly describe the National Insurance fund. That "certain period" he refers to is a minimum of 2 months and typically 4 - 5 months, so the only asset that would be included in any negotiation is a few months of NI funded welfare payments<sup>2</sup>.]</blockquote><p></p><p>Give him his due, Blackford is an olympic-standard bloviator and his overall response above is an effective way of avoiding actually answering the question - so it's worth reminding ourselves of the question put to him at the outset by the interviewer: "<i>you've said the UK Government will have to pay pensions in Scotland on independence - that's a complete reversal of the SNP policy in the 2014 referendum." </i>Judge for yourself, but in all of the word-salad he's dished up here I can't find anything that sounds like "No, that's not what I meant".</p><b><div><b><br /></b></div>03/02/2022: Sturgeon Backs Blackford</b><div><b><br /></b><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhniHRTjVq4aWOUXI_pHk0cRo3fPpggjMw4HH9Wk02faLaWNVT1iTk_0hQVqvyzZbZf13PfSA5dIX1VNojU-W0BzuXrB438pnjGEnN8HEEqRvErkPi7-KeYu7iMusLDjFpaCt9j0wOMUewfmPOG85XK_NdR1taMGqVNCrsPc93_CqcXYynCARnr84c_=s1694" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1169" data-original-width="1694" height="276" src="https://blogger.googleusercontent.com/img/a/AVvXsEhniHRTjVq4aWOUXI_pHk0cRo3fPpggjMw4HH9Wk02faLaWNVT1iTk_0hQVqvyzZbZf13PfSA5dIX1VNojU-W0BzuXrB438pnjGEnN8HEEqRvErkPi7-KeYu7iMusLDjFpaCt9j0wOMUewfmPOG85XK_NdR1taMGqVNCrsPc93_CqcXYynCARnr84c_=w400-h276" width="400" /></a></div><br /><div>During FMQs, Murdo Fraser MSP asked the First Minister: <i>"Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?"</i></div><div><div> </div><div>Her <a href="https://twitter.com/staylorish/status/1489224674991091717?ref_src=twsrc%5Etfw" target="_blank">response, in full</a>:</div><div><br /></div><div><blockquote><span style="font-style: italic;">"I think he should pay more attention to the UK Government's position on this, he might find it gives him a bit of a shock - let me set out, let me set out the position ..</span>. <playing to the gallery><i> the Tories are really really nervous about this argument, you can feel the discomfort coming from them because they know, when the people of Scotland get the chance to escape Westminster governments and take our future into our own hands they are going to say Yes to independence </i></playing to the gallery><i> ... "</i></blockquote><blockquote>[Although Sturgeon has essentially said nothing by this point, note that she is not denying Fraser's interpretation of the SNP's position, she has merely hinted that the UK Government agrees with it] </blockquote><blockquote style="font-style: italic;">"... when, when Scotland votes for independence, as was the case in 2014, the distribution of existing UK liabilities and assets including those related to pensions will be subject to negotiation and Scotland will fully pay its way in that, but the key point here is ..."</blockquote><blockquote><p>[So we get some platitudes about everything being a negotiation and a reference to assets and liabilities related to pensions more broadly, before she finally makes her substantive point ...] </p></blockquote><blockquote style="font-style: italic;">"... for those in receipt of pensions and it is what the Minister for Pensions at the time in the UK Government Steve Webb confirmed, that people with accumulated rights would continue to receive the current levels of State Pension in an independent Scotland ..."</blockquote><blockquote>[Sturgeon is misrepresenting Steve Webb's stated position here by quoting an out-of-context snippet from a lengthy and frankly rather muddled oral submission Webb gave to the "Scottish Analysis: Work and Pensions" committee in 2014. Clearly aware that his remarks had been potentially misleading, Webb subsequently <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/scottish-affairs-committee/the-referendum-on-separation-for-scotland/written/10449.html" target="_blank">wrote to the committee</a> to clarify his position and ensure that the written record correctly reflected his view. That is why the words Sturgeon quotes do not appear in <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/306086/scotland-analysis-work-and-pensions.pdf" target="_blank">the committee's report</a> (or in any other written government record I can find) - but the relevant words from Webb's letter do: <b>"<i>While there are to be no pre-negotiations, I would think the Scottish people would expect their Government to take on full responsibility for paying pensions to people in Scotland including where liabilities had arisen before independence. Similarly people in the rest of the UK would not be expecting to guarantee or underwrite the pensions of those living in what would then have become a separate country. The security and sustainability of pensions being paid to people in Scotland would, therefore, depend on the ability of Scottish tax payers to fund them</i></b><i>."</i>]</blockquote><blockquote style="font-style: italic;">"- people will notice no difference,..."</blockquote><blockquote>[Decide for yourself if she is denying Murdo Fraser's suggestion by this point - while she has not actually said who would be funding the state pension, I think it's fair to say she has strongly implied that it would at least in part continue to be the UK Government]</blockquote><blockquote><span style="font-style: italic;">"... well perhaps the difference they might notice is that an independent Scotland might be able to improve the level of pensions, rather than have, as the UK does, one of the lowest pension levels in the whole of the developed world"</span></blockquote><blockquote><p>This finishing flourish simply repeats Blackford's false claim about the level of the UK state pension (although it's expanded now to "in the whole of the developed world" rather than just Western Europe) while making a completely unsupported assertion that an independent Scotland would somehow be able to <i>increase </i>the state pension. This claim flies in the face of her own <a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">Sustainable Growth Commission's recommendation of fiscal austerity</a> and is surely incompatible with an independent Scotland's putative ambition to satisfy the EU's fiscal rules as outlined in <a href="https://ec.europa.eu/neighbourhood-enlargement/enlargement-policy/conditions-membership/chapters-acquis_en" target="_blank">Chapter 17 of the Acquis Communautaire</a>]</p></blockquote><p>As with Blackford's rhetoric, its worth pausing to remember the question asked: <i>"Is it really now the SNP position that pensions in an independent Scotland would be paid by tax payers in England?". </i>Again you can judge for yourself, but at no point does she come close to saying "No, that's not our position".</p><p><b>06/02/2022: Sturgeon's official spokesman cites the mythical "pension pot"</b></p><p>Sturgeon's official spokesman subsequently made the following statement in response to press enquiries:</p><blockquote><p><i>"Pensions in an independent Scotland will be paid by the Government of an independent Scotland, but the contribution towards that, the cost of meeting that, will be partly met by people paying into <b>the UK pensions pot</b> pre-independence ... That money doesn't get lost, it gets paid back or <b>paid out of the pot</b>. Pensions will be delivered in an independent Scotland by the Government of an independent Scotland but there will be <b>historic contributions made into the UK pot</b> that are owed from that UK side as part of what is paid out"</i></p></blockquote><blockquote><p>[As we have already discussed, there is no state "pension pot". An NI fund exists which holds a few months' working balance of NI funded welfare payments, but nobody could seriously suggest that could be described a state "pension pot".]</p></blockquote><p> </p><p><b>09/02/2022: Sturgeon starts to row back, but further muddies the water</b> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhoBj2Mml77fHnRkjmnrE84DxCCQXdMgob-WSB9aCZKj70ryAWGFErh1GKOqBJ8n0Zi35HtsmFug3_eh0WBZ9617tnTEJHXndrBHSSFYc4xuMbnAyfOmsYzKmSH3qMK0Oi-1oJTU3gQWODFN5mERPJw2C4vr0G3rc4c_kdTbFISCy1gkwc4Ktx7cQn3=s1387" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1070" data-original-width="1387" height="309" src="https://blogger.googleusercontent.com/img/a/AVvXsEhoBj2Mml77fHnRkjmnrE84DxCCQXdMgob-WSB9aCZKj70ryAWGFErh1GKOqBJ8n0Zi35HtsmFug3_eh0WBZ9617tnTEJHXndrBHSSFYc4xuMbnAyfOmsYzKmSH3qMK0Oi-1oJTU3gQWODFN5mERPJw2C4vr0G3rc4c_kdTbFISCy1gkwc4Ktx7cQn3=w400-h309" width="400" /></a></div><p>Asked by <a href="https://twitter.com/GlennBBC/status/1491514432626823176" target="_blank">the BBC's Glenn Campbell</a> <i>"Do you want to take the opportunity to clarify the SNP's position on the state pension if Scotland were to become an independent country: who would pay for those pensions on day one?" </i>a clearly grumpy Sturgeon responded:</p><p></p><blockquote><i>"<b>I don't need to clarify,</b> the position is as it was set out in the 2014 White paper, there would be a negotiation on all sorts of things when Scotland becomes independent about assets and liabilities and that would include the historical position in terms of, you know, National Insurance contributions paid by Scots and that would all be taken account of and that would influence the starting position of an independent Scotland, thereafter </i><interviewer tries to clarify that there isn't a pension pot><i> ... you might, you might get the answer if you didn't interrupt me in the throes of giving the answer eh after that of course it's for a Scottish Government to be responsible for the payment of pensions but the historic liabilities and assets around pensions as around other things will be a matter of negotiation at the point of independence."</i></blockquote><blockquote>[So her main point appears to be "there will be negotiations around" "historic assets and liabilities" and she references "National Insurance Contributions paid by Scots"] </blockquote><p></p><p>The interviewer presses her: <i>but do you accept there isn't a pension pot to be carved up?</i></p><p></p><blockquote><i>"em - there are assets and liabilities including pensions that of course will be the subject of negotiation when Scotland becomes independent, you might want to </i><interviewer points out pensions are paid out of current taxes><i> that is the case .. but the i mean you might want to look at the Fraser of Allander - er - comments on this just recently when they talk about the fact that if ... access to pensions in the UK is not based on citizenship it is based on National Insurance contributions eh so there will be a negotiation around all assets and liabilities."</i></blockquote><blockquote>[So rather than accept that there is no "pension pot" she repeats her reference to "negotiation around all assets and liabilities" and "National Insurance contributions". She references <a href="https://fraserofallander.org/who-pays-the-state-pension-in-an-independent-scotland/" target="_blank">this Fraser of Allander paper</a> which talks about the need for negotiations, without drawing any conclusion as to whether the UK Government would allow UK tax payers to fund an independent Scotland's pensions or whether appeals to the expat fallacy would carry any weight.] </blockquote><p></p><p>The interviewer tries again: <i>So how much of the £8.5 billion - at day one of independence, how much of the £8.5 billion do you think the UK Government should or would pay?</i></p><p><i></i></p><blockquote><p><i>"On an ongoing basis it would be for the Scottish Government to fund Scottish pensions ..."</i></p></blockquote><blockquote><p>[This seems like a breakthrough: the Scottish Government is to fund Scottish pensions, which would appear to directly contradict Blackford's earlier assertions. Except then there's a "but" ...] </p></blockquote><blockquote><p><i>.".. <b>but</b> in terms of how we take account of historic assets and liabilities that would be a matter of negotiation. I would encourage you to go back and look at the 2014 White Paper that set this out and, the point I'm making is that <</i>interviewer:<i> it didn't mention the UK paying> the 2014 White Paper set out the position of the Scottish Government and what I'm saying to you is that position hasn't changed"</i></p><div>[So here we are again with the "historic assets and liabilities" and perhaps now is the time to pin down what these actually are. The meaning of words matters, so I make no excuses for the accounting pedantry that follows.</div></blockquote><blockquote><div>There is no "<i>historical</i> liability" associated with the state pension, there are only <i>future</i> liabilities; pensions in the past have already been paid, we are concerned here with paying pensions in the future. We've seen that the way the UK's pay-as-we-go state pension system works is that <i>future </i>pensions are paid out of future taxes, so it seems obvious that a future independent Scotland's pension liabilities would be met out of a future independent Scotland's taxes (assuming sufficient taxes were available). </div></blockquote><blockquote><div>When it comes to "historical assets" (aka "assets") there is just one related to past NI contributions, and that's the previously discussed National Insurance Fund. Scotland would of course expect a share of the NI Fund in any separation negotiation, but as we've already seen this represents just a few months' worth of payments because it is merely a working capital account, not a "pension pot"<sup>3</sup>. </div></blockquote><p>Sturgeon's suggestion that "nothing has changed" does not bear scrutiny. As Blair McDougall has rightly highlighted, it's informative to contrast her answer above with <a href="https://twitter.com/blairmcdougall/status/1491670369211723777?s=20&t=KXVHoqqOrcUnKxA2NXgoNA" target="_blank">how she answered questions on this topic in 2014</a>:</p><p></p><blockquote><i>"The quick answer to your question is yes, we would guarantee all of the accrued pension rights for people in Scotland [..] we currently pay for state pensions, there's no money fairy sits in Westminster [..] our taxes, out National Insurance contributions fund these things already"</i></blockquote><p></p><p>Or read what the <a href="https://www.gov.scot/binaries/content/documents/govscot/publications/strategy-plan/2013/11/scotlands-future/documents/scotlands-future-guide-independent-scotland/scotlands-future-guide-independent-scotland/govscot%3Adocument/00439021.pdf?forceDownload=true" target="_blank">2014 White Paper</a> had to say on the topic:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEijqxBoJvTh5KIOCxRHsF19bH_MhAGiQ0yp1RgDtvYcg6A-BdXglAqZ1NvoBOk8EvY4pB9KCcdWarFTbeJ1oB5JYLDNJVYrVkboE4x2EOwN5zTSd1r6YO_KxPvfdc2J0JkBhtkdH3SgybyMMEkBouzDjKpgJdoABIs_MaMIyEqnd7F6NOzCD1ArAZgf=s535" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="161" data-original-width="535" height="120" src="https://blogger.googleusercontent.com/img/a/AVvXsEijqxBoJvTh5KIOCxRHsF19bH_MhAGiQ0yp1RgDtvYcg6A-BdXglAqZ1NvoBOk8EvY4pB9KCcdWarFTbeJ1oB5JYLDNJVYrVkboE4x2EOwN5zTSd1r6YO_KxPvfdc2J0JkBhtkdH3SgybyMMEkBouzDjKpgJdoABIs_MaMIyEqnd7F6NOzCD1ArAZgf=w400-h120" width="400" /></a></div><blockquote><div class="separator" style="clear: both; text-align: left;"><i>"<span style="text-align: left;">for those people living in Scotland in receipt of the UK State
Pension at the time of independence, the responsibility for
the payment of that pension will transfer to the Scottish
Government"</span></i></div></blockquote>Hilariously, there is at least one nationalist blog who claims the wording above refers to administration of the State Pension but not the actual funding of it. The ridiculousness of this interpretation is quickly exposed by observing that no saving (versus the £8.5 billion state pension cost in GERS) was included in either the 2014 White Paper or the SNP's 2018 Sustainable Growth Commission report. </div><div><br /></div><div><br /></div><div><br /></div><div><b><span style="font-size: large;">Appendix: Some Common Confusions and Misdirections</span></b><br /><p><b>1. But the state pension is a legal entitlement; if you've built an entitlement by making historical NI contributions, it doesn't matter where you live </b></p><p>Somebody better qualified than me should write this up, but I'm pretty confident that we can say "it's more complicated than that". </p><p>Take for example the failed legal challenges launched by the WASPI women (women born in the 1950s whose pension age has been raised to 66) - they have learned the hard way that they don't have a legal entitlement to a state pension at the age of 60. The <a href="https://ukhumanrightsblog.com/2020/10/09/court-of-appeal-dismisses-challenge-to-increase-in-state-pension-age/" target="_blank">court of appeal concluded</a>:</p><blockquote><p>"<i>The relevant test was whether the measures were “manifestly without reasonable foundation”. The Court of Appeal held that the Divisional Court had been correct to approach the issue on the basis that this legislation operated in a field of macro-economic policy where the decision-making power of Parliament was “very great”</i>"</p></blockquote><p>I think it is reasonable to suggest that 8% of the tax base which funds the state pension seceding from the UK would very obviously count as "reasonable foundation" to not keep paying the state pension to that seceded nation's pensioners.</p><p><br /></p><p><b>2. Steve Webb, the then UK pensions minister, told a Westminster committee in 2014 that anyone who “accumulated rights” for pension cash would be entitled to the money after independence. There was absolutely no risk to the money.</b></p><p>The statement above is taken <a href="https://www.thenational.scot/news/19158208.open-minds-9-pensions-will-protected-independent-scotland/" target="_blank">directly from the the National newspaper</a> and is egregiously misrepresentative of Steve Webb's evidence to that committee. They appear to be making reference to Webb's lengthy and frankly rather muddled oral submission given to the "Scottish Analysis: Work and Pensions" committee in 2014 (although even then, he certainly didn't say there was "absolutely no risk to the money"). Aware that his oral remarks could be misconstrued, Webb subsequently <a href="http://data.parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/scottish-affairs-committee/the-referendum-on-separation-for-scotland/written/10449.html" target="_blank">wrote to the committee</a> to clarify his position and ensure that the written record correctly reflected his view. The <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/306086/scotland-analysis-work-and-pensions.pdf" target="_blank">committee's report</a> includes the following relevant words from Webb's letter:</p><p></p><blockquote><p>"<i>While there are to be no pre-negotiations, I would think the Scottish people would expect their Government to take on full responsibility for paying pensions to people in Scotland including where liabilities had arisen before independence. Similarly people in the rest of the UK would not be expecting to guarantee or underwrite the pensions of those living in what would then have become a separate country. The security and sustainability of pensions being paid to people in Scotland would, therefore, depend on the ability of Scottish tax payers to fund them</i><i>."</i></p></blockquote><p>Any possible doubt as to the official UK Government position has been extinguished by recent statements made by the current Pensions Minister, Guy Opperman:</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiWSucjbBdtMt94aU9A_jj9f6YcjDynljpNHyijvFiSggJDXuGCKrG3cfoA9nENdCWVbdSPfi1v2vTVMAPHpIhfvVOLR0WmnV2PJWyXYwnu5vLTwu0PSO8hc3wvE6J5Dlmvju7WZvyG37xrZ4mlNX-UV8GHpp9ie2kt__KFUasJkV2UEdlFaOMH3WDM=s828" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="597" data-original-width="828" height="462" src="https://blogger.googleusercontent.com/img/a/AVvXsEiWSucjbBdtMt94aU9A_jj9f6YcjDynljpNHyijvFiSggJDXuGCKrG3cfoA9nENdCWVbdSPfi1v2vTVMAPHpIhfvVOLR0WmnV2PJWyXYwnu5vLTwu0PSO8hc3wvE6J5Dlmvju7WZvyG37xrZ4mlNX-UV8GHpp9ie2kt__KFUasJkV2UEdlFaOMH3WDM=w640-h462" width="640" /></a></div><br /> <p></p><p><b>3. But Alex Salmond had a letter sent to one of his constituents that said "If Scotland does become independent, this will have no effect on your state pension - you will continue to receive it just as you do at present."</b></p><p><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhOUXbxcA9HaJ19BAsBTN3hMZWPy_r6QRaXvlXVkrIrDkJesda4P29sv_Ae2ufvu4OyEbmwzXzn4sMEne_Ewh3Nzq2zbzKNjV94GiwGqpKeUt52Sle78-oJLoQLfM361xmFyqPEBgMgnCp5h-OWlmGJloexu_jTvw84t-6b2NXKBEUUcfefvu03Ytd9" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img alt="" data-original-height="549" data-original-width="976" height="360" src="https://blogger.googleusercontent.com/img/a/AVvXsEhOUXbxcA9HaJ19BAsBTN3hMZWPy_r6QRaXvlXVkrIrDkJesda4P29sv_Ae2ufvu4OyEbmwzXzn4sMEne_Ewh3Nzq2zbzKNjV94GiwGqpKeUt52Sle78-oJLoQLfM361xmFyqPEBgMgnCp5h-OWlmGJloexu_jTvw84t-6b2NXKBEUUcfefvu03Ytd9=w640-h360" width="640" /></a></p><br /><p>This letter was sent by some poor "pension service customer adviser" and was clearly wrong. A <a href="https://www.whatdotheyknow.com/request/385087/response/947100/attach/html/3/FOI%20660.pdf.html" target="_blank">Freedom of Information</a> request prompted the Department for Work and Pensions to confirm without equivocation that the letter in question was “misleading and factually incorrect”:</p><p><i></i></p><blockquote><p><i>I can confirm that an investigation was carried out and concluded that the statement ‘If Scotland does become Independent this will have no effect on your State Pension you will continue to receive it just as you do at present.’ was misleading and factually incorrect. </i></p><p><i>At the time of the letter the correct statement was ‘In the event of independence, State Pensions and benefits in Scotland for its citizens would be the responsibility of a Scottish Government. Therefore, any questions about entitlements in an independent Scottish state should be directed to the Scottish Government.’ </i></p></blockquote><p><i><b></b></i></p><p><b>4. But GERS shows Scotland's NI payments are greater than our State Pension costs, so there's no issue</b></p><p>This argument has been <a href="https://twitter.com/AngusMacNeilSNP/status/1491056952776216581?s=20&t=7rR2PhoX_RTbBYaSobDRtQ" target="_blank">promoted on Twitter</a> by the preternaturally obtuse SNP MP Angus MacNeill, endorsing this widely "liked" tweet by, Tim Rideout (Lothians Member of the SNP Policy Development Committee):</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgk39xgsmdh3N1qzJHLKVCZiK5eoIYgFKJoLvEsDWN5t_uw3jXF3zg6zawN9q_OKs-MQODti1sSoBVrJ25KO_V_gRnHIwuvgaWJV8urjb1NDM1qbiA8PhCrSVl9_OcaCpU_GlT_tRUO1t8ZgO_hW1LHo82LSYfdzz4f8z2ThZxZd5rohIAPWPPInzln=s1332" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1332" data-original-width="1170" height="400" src="https://blogger.googleusercontent.com/img/a/AVvXsEgk39xgsmdh3N1qzJHLKVCZiK5eoIYgFKJoLvEsDWN5t_uw3jXF3zg6zawN9q_OKs-MQODti1sSoBVrJ25KO_V_gRnHIwuvgaWJV8urjb1NDM1qbiA8PhCrSVl9_OcaCpU_GlT_tRUO1t8ZgO_hW1LHo82LSYfdzz4f8z2ThZxZd5rohIAPWPPInzln=w351-h400" width="351" /></a></div><p>There are so many layers of daftness and inconsistency here it's hard to know where to start;</p><p></p><ol style="text-align: left;"><li>He mentions leaving "£2,959m surplus for other benefits" - the headline figure for other benefits is £12,903m (£21,420m - £8,517m). But of course that isn't the whole picture, because a proportion of National Insurance resceipts never reach the NI fund but are <a href="https://commonslibrary.parliament.uk/research-briefings/sn04517/" target="_blank">redirected to the National Health Service</a>, and other taxes are used to pay some of the other elements of Social Protection (which takes us to point 2.)<br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiPIs318nfvRgok1lAFf_yYrg0KcrFJAmfA2NG34bfYt-P3cXEnXaHdWmDJmZ8ocXKMWZ8PFgqDjbUP88OUqjlYQE4EbOiFRpoaEze2uU9Dne5rkqsGTlhcGnMA0iKt0adlwv8goqyKIgK_Hgq1eApxtpOXOFT8Axf5gO7AFpd9PtrfUKfyymzUZUPu=s1170" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="740" data-original-width="1170" height="253" src="https://blogger.googleusercontent.com/img/a/AVvXsEiPIs318nfvRgok1lAFf_yYrg0KcrFJAmfA2NG34bfYt-P3cXEnXaHdWmDJmZ8ocXKMWZ8PFgqDjbUP88OUqjlYQE4EbOiFRpoaEze2uU9Dne5rkqsGTlhcGnMA0iKt0adlwv8goqyKIgK_Hgq1eApxtpOXOFT8Axf5gO7AFpd9PtrfUKfyymzUZUPu=w400-h253" width="400" /></a></div><br /></li><li>It is meaningless anyway to take one source of taxation and compare it to one line of spending because we do not (in any meaningful way) have hypothecated taxes in the UK. NI is <i>conceptually</i> used to pay not just pensions but also to pay other contributory benefits as well as contributing towards NHS funding - but as <a href="https://moneyweek.com/personal-finance/tax/603610/the-myth-of-hypothecated-taxes" target="_blank">Merryn Somerset-Webb rather neatly summarises</a>: <i>"This brings us to the very idea of a hypothecated tax. We don’t have those in the UK. Your NI does not go on the NHS – it’s just a misleadingly-named extra income tax. Your road tax does not go on the roads. Your air passenger duty does not go on emissions mitigation."</i></li><li>The only way to assess the extent to which Scotland can afford an item of public spending is to consider the totality of taxes raised and the totality of public spending (and then deciding what level of deficit is sustainable). The <a href="https://www.gov.scot/binaries/content/documents/govscot/publications/statistics/2021/08/government-expenditure-revenue-scotland-2020-21/documents/government-expenditure-revenue-scotland-2020-21/government-expenditure-revenue-scotland-2020-21/govscot%3Adocument/government-expenditure-revenue-scotland-2020-21.pdf?forceDownload=true" target="_blank">GERS figures Rideout is quoting from</a> show Scotland's Total Public Expenditure exceeding Scotland's Total Revenue by £36.3 billion or 22.4% of GDP</li><li>The Table Rideout refers to shows that Scotland is responsible for just 8.0% of the UK's National Insurance Contributions but the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/documents/" target="_blank">supplementary data - expenditure database</a> shows us that Scotland receives 8.8% of the UK's State Pension payments - so in fact we "get more out than we put in" when it comes to NI and the State Pension (but per 1. above, we get a lot more out than just the State Pensions) </li><li>If this data <i>did</i> show that Scotland can somehow easily support the current state pension, why all the fuss?</li></ol><p></p><p style="text-align: center;">********************************************</p><p><b>Footnotes</b></p><p>1. OECD pensions data </p><blockquote>What matters here is that the SNP's claim, on their own terms, is simply not correct if we use the latest data. We could easily devote an entire blog to how to compare state pension entitlements between different countries. The apparent jump in the OECD's treatment of the UK relates to the fact that the auto-enrolment scheme has passed the 85% threshold required to qualify as quasi-mandatory. The OECD's treatment is consistent across countries and represents their view of the best way to compare pensions entitlements on a consistent basis. To go any further, one would have to start looking at the entirety of lifetime tax-burdens and factor in differences in (eg) the costs of health and social care throughout citizens' lifetimes. </blockquote><p>2. The <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1041296/Great_Britain_National_Insurance_Fund_Account_-_2020_to_2021.pdf" target="_blank">National Insurance Fund's accounts</a> are helpfully informative:</p><p></p><blockquote><i>"Current practice is to aim to maintain the level of
the Fund at a working balance of at least 1/6th (16.7%) of projected annual benefit expenditure [</i>..<i>]</i> <i>The National Insurance scheme is financed on a pay as you go basis with contribution rates set at a level broadly necessary to meet the expected benefits expenditure in that year, after taking into account any other payments and receipts, and to maintain a working balance [..] The minimum working balance for 2020 to 2021 was estimated at £17.9 billion, being 16.7% </i> <i>of estimated benefit
expenditure</i><i>, as stated in the report on the Social Security Benefits Up-rating Order published by the Government
Actuary in January 2020."</i></blockquote><p></p><blockquote>So the NI fund is just a working balance, it cannot in any meaningful way be described as a pension pot (as the term "pension pot" implies a cumulative holding of banked contributions and any associated returns on those contributions, from which future pension payments would be funded).</blockquote><p></p><blockquote><p> "<i>The National Insurance Act 1946 and National Assistance Act 1948 established the modern welfare state that continues today"</i></p></blockquote><blockquote>This timing is significant, because at the time it raised the question of whether or not soldiers returning from WWII would be entitled to a state pension (having not made past NI contributions). The decision to pay current pensions out of current taxes makes perfect sense within this context, because it was the only way to make a pension immediately available. </blockquote><blockquote><p>As a point of interest, although dominated by the state pension, the NI fund is also used to manage other contributory benefits as listed below</p></blockquote><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgr1EWqa6HLpxaPEqWD5ddiGsltjBfO9duZvygFqLIfg2O7idQdb-qPeCKxz5_ydow20llhzrHGqJlBsHJKn5ALmJKPRbMjoHZG1FGrnEbYxGXOqang5ZEkIAYIt7fwD4fWwGIvmxsmtLqKvT5OtQ8T8QhXD4JH4IxOcd2FjwDaqZs6YxFK7mNGtXNj=s733" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="316" data-original-width="733" height="277" src="https://blogger.googleusercontent.com/img/a/AVvXsEgr1EWqa6HLpxaPEqWD5ddiGsltjBfO9duZvygFqLIfg2O7idQdb-qPeCKxz5_ydow20llhzrHGqJlBsHJKn5ALmJKPRbMjoHZG1FGrnEbYxGXOqang5ZEkIAYIt7fwD4fWwGIvmxsmtLqKvT5OtQ8T8QhXD4JH4IxOcd2FjwDaqZs6YxFK7mNGtXNj=w640-h277" width="640" /></a></div><blockquote><div class="separator" style="clear: both; text-align: left;">Further helpful detail on the background to and operation of the NI fund can be found <a href="https://researchbriefings.files.parliament.uk/documents/SN04517/SN04517.pdf" target="_blank">here</a></div></blockquote><div class="separator" style="clear: both; text-align: center;"><br /></div>3. To put this in context: the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1041296/Great_Britain_National_Insurance_Fund_Account_-_2020_to_2021.pdf" target="_blank">NI Fund at the end of 2021</a> held £42 billion compare to total UK assets per the <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/902427/WGA_2018-19_Final_signed_21-07-20_for_APS.pdf" target="_blank">March 2019 Whole of Government Accounts</a> of £2,099 billion or <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicspending/bulletins/ukgovernmentdebtanddeficitforeurostatmaast/june2021" target="_blank">gross debt at the end March of 2021</a> of £2,223 billion.]<br /> <p></p><p></p></div></div></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com17tag:blogger.com,1999:blog-1603438996450817644.post-30703380489893149902021-12-19T05:32:00.027-08:002021-12-19T14:09:56.699-08:00What devolution of DWP functions tells us about the likely costs of Independence<div>A few days ago I tweeted about the lack of serious analysis from Scottish nationalists when it comes to the question of what it would cost to replicate the costs of our currently shared machinery of state:</div>
<blockquote class="twitter-tweet"><p dir="ltr" lang="en">in everything the SNP have published on the economics of separation, nowhere have i seen even a half-hearted attempt to model the annual costs iScotland would incur to replace the currently shared functions of HMRC, DWP, Treasury, FCO, DFID, Cabinet Office, BEIS etc.<br /><br />why?</p>— Kevin Hague (@kevverage) <a href="https://twitter.com/kevverage/status/1471555694029647879?ref_src=twsrc%5Etfw">December 16, 2021</a></blockquote> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script>
<blockquote class="twitter-tweet" data-conversation="none"><p dir="ltr" lang="en">in the deficit we currently see (per GERS) we’re allocated just 8.2% of the costs of those departments at UK scale - all the empirical evidence (see Scottish civil service costs) suggests it would cost more than twice that for stand-alone Scottish functions - it’s never discussed</p>— Kevin Hague (@kevverage) <a href="https://twitter.com/kevverage/status/1471566892926226437?ref_src=twsrc%5Etfw">December 16, 2021</a></blockquote>
<p>To illustrate this issue, I decided to look at what the Scottish Government estimate it will cost to take on the adminstration of 11 DWP benefits being devolved (representing about 15% of DWP spending) alongside 5 new benefit that will be delivered through the Scottish Social Security Programme [see <a href="https://www.gov.scot/publications/social-security-programme-business-case-executive-summary/">Social Security Programme Business Case</a> - "Scotland is taking responsibility for around 15% of DWP’s benefit spending"]. So what we're looking at here is a sub-set of just one of the currently reserved functions listed in my tweet.</p><p>Before looking at the estimated set-up costs of the Scottish Social Security Programme, let's remind ourselves that during the independence referendum in 2014 the SNP claimed it would cost just <b>£250m </b>to set up a newly independent nation. This was pointed out as being a patently ridiculous claim at the time, but the Yes campaign defended it to the hilt [see <a href="https://chokkablog.blogspot.com/2014/06/dunleavy-and-costs-of-independence.html" target="_blank">Dunleavy and the costs of independence</a>]. More recently, in 2018 the <a href="https://static1.squarespace.com/static/5afc0bbbf79392ced8b73dbf/t/5b0a988c352f53c0a5132a23/1527421195436/SGC+Full+Report.pdf" target="_blank">SNP's Sustainable Growth Commission </a>(SGC) suggested:</p><p></p><blockquote><i>"An independent Scotland would face total transition-period costs of around <b>£450</b> million in the two years leading up to independence and the first three years immediately afterwards, in creating new administrative structures that duplicate UK institutions."</i> - SGC, B5.17</blockquote><p></p><p>Dig a little deeper and we see that within that figure, <b>just £25m was assumed for the transition costs of Social Security and Pensions</b>.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgeHnusdRElFydVZUw_FZgI-m99qst0YUjmF0xBh-EQOSWbGkNjIrrEd-q4bHW5BcWIdsGfZBJbcPHPW3LjBzQeScKJHowos6Gaaikt8YmK8rW1ZoVoQHh0UaSBoQj1zpvEtguXFr2IC-CnrdicPAU3nVNMICHkSzM1pX40DlvQ25QVZ5h9bW79RJC7=s1101" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="857" data-original-width="1101" height="428" src="https://blogger.googleusercontent.com/img/a/AVvXsEgeHnusdRElFydVZUw_FZgI-m99qst0YUjmF0xBh-EQOSWbGkNjIrrEd-q4bHW5BcWIdsGfZBJbcPHPW3LjBzQeScKJHowos6Gaaikt8YmK8rW1ZoVoQHh0UaSBoQj1zpvEtguXFr2IC-CnrdicPAU3nVNMICHkSzM1pX40DlvQ25QVZ5h9bW79RJC7=s1101" width="550" /></a></div><div><br /></div><div>Now let's take a look at The Scottish Government's <a href="https://www.gov.scot/publications/social-security-programme-business-case-executive-summary/documents/" target="_blank">Social Security Programme Business Case</a> published in Feb 2020. This estimates a Total Implementation Investment of <b>£651m </b>will be required to take on just a sub-set of the functions currently performed by DWP.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgJy0aKhKABzDiYZr-dFNF0fNrGOAyLCegRX_vpgm1qZmAC1taEQvGqTywujrcFr-G7jXC4bCCR_uREqOm0YifdxmSllxaHPLvH65UYDOL6irGiB3Fxm7J7_r_AUaiRWmrdgvzmhQ8JHY19fKqRIo8dVTdHlSKusCh4Twf3gfEjRLFMkGN7oYVN5U6C=s991" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="624" data-original-width="991" height="345" src="https://blogger.googleusercontent.com/img/a/AVvXsEgJy0aKhKABzDiYZr-dFNF0fNrGOAyLCegRX_vpgm1qZmAC1taEQvGqTywujrcFr-G7jXC4bCCR_uREqOm0YifdxmSllxaHPLvH65UYDOL6irGiB3Fxm7J7_r_AUaiRWmrdgvzmhQ8JHY19fKqRIo8dVTdHlSKusCh4Twf3gfEjRLFMkGN7oYVN5U6C=s991" width="550" /></a></div><br /><div><b>So the Scottish Government are saying it will cost £651m to do a fraction of the work that their own Sustainable Growth Commission suggested would cost just £25m!</b> </div><div><br /></div><div>Now let's turn to the operating costs question (the point of my tweets). That same Scottish Government business case suggests the annual operating costs for the programme in steady-state will be £216m pa.</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgnWuF4DKk7etQoE36bW1mu2SrS0uzg0ieB2JGwJFswot48IGO4V_CkH_H7vjpQISJpi1zURX168XoaQfB5epYORCiViRhKSYlW14PwvKNTevYEaUwQEwq_OgAaJNloxYwxRTpxHpVnkA002cWlpVfr53Iy3_E4bkcBAKv35Tfdg6dM2nS3WsCGdd1_=s553" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="363" data-original-width="553" height="362" src="https://blogger.googleusercontent.com/img/a/AVvXsEgnWuF4DKk7etQoE36bW1mu2SrS0uzg0ieB2JGwJFswot48IGO4V_CkH_H7vjpQISJpi1zURX168XoaQfB5epYORCiViRhKSYlW14PwvKNTevYEaUwQEwq_OgAaJNloxYwxRTpxHpVnkA002cWlpVfr53Iy3_E4bkcBAKv35Tfdg6dM2nS3WsCGdd1_=s553" width="550" /></a></div><div><br /></div><div>But in GERS Scotland is currently allocated just £350m pa. as its population share of <i>all</i> DWP operating costs:</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgTtRUlUX9m45wHCqlAT1wISNja1oZSBsStI8QgBbdjcHWxBk6ISCbymJDMxKY_Bz2GmloouaPXswuiGAVgooCcykfilqjzEzESet8wvlWfb93QfjjeUpSxR1dXjxbGPot2rtQa5f0W1Uge1Qn91gBNrEujU1PYBVoVNceepn0CxsOQsIbj_-G6OCc8=s916" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="249" data-original-width="916" height="150" src="https://blogger.googleusercontent.com/img/a/AVvXsEgTtRUlUX9m45wHCqlAT1wISNja1oZSBsStI8QgBbdjcHWxBk6ISCbymJDMxKY_Bz2GmloouaPXswuiGAVgooCcykfilqjzEzESet8wvlWfb93QfjjeUpSxR1dXjxbGPot2rtQa5f0W1Uge1Qn91gBNrEujU1PYBVoVNceepn0CxsOQsIbj_-G6OCc8=s916" width="550" /></a></div><div><br /></div><b>So taking on the adminstration of just 15% of the benefit expenditure administered by DWP will cost more than 60% of the <i>total</i> DWP costs Scotland is currently allocated in GERS.</b></div><div><br /></div><div>Now consider that the SNP's Sustainable Growth Commission assumed that 100% of DWP functions could be replicated in an independent Scotland for an operating cost <i>less</i> than the amount curently allocated to Scotland in GERS, and you can perhaps see why why I argue that the independence movement hasn't made even a half-hearted attempt to be realistic about the economics of separation.</div><div><br /></div><div><div>Remember: what we've looked at here is just a relatively trivial subset of the challenges that would face an independent Scotland. </div><div><br /></div><div>If it costs <b>£650m </b>to recreate just some of the currently reserved DWP functions, what will it cost to recreate not just the rest of DWP, but also HMRC, HM Treasury, Home Office, Cabinet Office, Foreign & Commonwealth Development Office, Department for International Development, Department for Business, Energy & Industrial Strategy etc? The SNP would have you believe the <i>total</i> figure to establish all of those departments for an independent Scotland would be <b>"around £450m"</b> - and we're expected to take them seriously?</div><div><br /></div><div>I've asked this question before and I'm sure I will ask it again: if there's an economic case to be made for separating Scotland from the rest of the UK, why don't nationalists make it instead of resorting to such obviously ridiculous claims?</div><div><br /></div><div><br /></div></div><div style="text-align: center;"><br /></div><div style="text-align: center;">***</div><div><br /></div><div><u>Addendum</u></div><div><br /></div><div>The £350m allocated to Scotland in GERS for the operational costs of DWP is predominantly driven by DWP employee costs. 9.7% of DWP employees are currently located in Scotland [see <a href="https://www.gov.uk/government/statistics/civil-service-statistics-2021" target="_blank">Civil Service Statistics 2021</a>] compared to the 8.2% of those costs allocated to Scotland in GERS. Knowing that, the assertion made by SGC [B4.58] that <i>all</i> of these costs could be "transferred to Scotland" (with an associated fiscal multiplier benefit) is, like so many of their claims, clearly ridiculous.</div><div><p><br /></p> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com0tag:blogger.com,1999:blog-1603438996450817644.post-76018618353173975522021-08-26T10:30:00.032-07:002021-08-27T14:37:19.441-07:00GERS 2021 - So What?<p>Every year the Scottish Government's Chief Statistician provides an updated analysis of the state of Scotland's public sector finances by publishing the GERS report [<a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/" target="_blank">Government Expenditure & Revenue Scotland 2020-21</a>].</p><div class="separator" style="clear: both; text-align: center;"><a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="467" data-original-width="1561" height="120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4_y2DvJubgSI8sMFLwwGwMdGgXvQR7hB-HzKs3petmk7KaS0HljOksXmCaXkH-oV9V9OM708GXcWF5wKcaApIw2Ph747xQ4ESDsQlgST6iEuQRgSA068AUxk7SFxRAxlVw_yV27HCeSU/w400-h120/Screenshot+2021-08-26+at+10.32.39.png" width="400" /></a></div><p>This really shouldn't be a very controversial event, but since the independence referendum in 2014 each publication of GERS has been met with a veritable tsunami of media commentary and online debate, with both sides of the constitutional debate seeking to spin the figures in their favour.</p><p>In recent years, the GERS figures have shown Scotland's fiscal deficit (as a percentage of GDP or on per person basis) to be much larger than the UK's. Unionists claim this demonstrates the value of fiscal pooling & sharing within the UK while nationalists suggest it somehow proves that Scotland would be better off as an independent nation or - particularly in stagnant backwaters on social media - they seek to undermine trust in the figures. </p><p><b><u>GERS Deniers</u></b></p><p>Those nationalists who promote GERS-denial are indulging in a strategy which is explicitly<sup>1</sup> intended to distract from the simple economic facts. To get dragged into defending the integrity of the GERS figures is to play into GERS-deniers' hands. They don't need to win the arguments, they just need their supporters to see the figures being argued over and let confirmation bias do the rest: "People are arguing about the figures so they obviously can't be trusted - I'll just go with what my gut tells me."</p><p>The inherent advantage GERS-deniers have was neatly summarised by the influential thinker George Horne back in 1786:</p><p></p><blockquote><i>"Pertness and ignorance may ask a question in three lines, which it will cost learning and ingenuity thirty pages to answer. When this is done, the same question shall be triumphantly asked again the next year, as if nothing had ever been written upon the subject." </i></blockquote><p></p><div>Elsewhere on this blog I have written more than my share of "thirty pages to answer" those trying to undermine the figures [most recently <a href="https://chokkablog.blogspot.com/2021/08/richard-murphy-on-gers-perpetually.html" target="_blank">here</a>]. But all anybody really needs to know to dimiss the vast majority of GERS-deniers are these three indisputable facts: </div><p></p><ul style="text-align: left;"><li>The decision to publish the GERS report is the Scottish Government's alone [as confirmed by <a href="https://www.whatdotheyknow.com/request/531245/response/1275154/attach/4/FOI%2018%2003301%20response.pdf?cookie_passthrough=1" target="_blank">this FOI response</a>]</li><li>GERS is compiled by the Scottish Government's own team of statisticians and economists (in St Andrew's House, Edinburgh) using methodologies and assumptions <i>they</i> have chosen following years of extensive consultation</li><li>GERS is an accredited National Statistics publication and carries the quality mark to prove it</li></ul><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMhHjQf-dfU3W2RwCeRJ_8X-zZi6fKg-gSB7wickSxrmA0YrByve8MvB0eS5XHyLBXl-ivfgd_y2NkT4AWjYNEuPcG5sZHRH4WHI1FQ2P-H_pqg_oaLk01_ba1G0mHhT4UG6IjnQxgeE8/s1546/Screenshot+2021-08-26+at+10.29.45.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="294" data-original-width="1546" height="76" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhMhHjQf-dfU3W2RwCeRJ_8X-zZi6fKg-gSB7wickSxrmA0YrByve8MvB0eS5XHyLBXl-ivfgd_y2NkT4AWjYNEuPcG5sZHRH4WHI1FQ2P-H_pqg_oaLk01_ba1G0mHhT4UG6IjnQxgeE8/w400-h76/Screenshot+2021-08-26+at+10.29.45.png" width="400" /></a></div><br /><div>Now that's out of the way, let's focus on what the GERS report actually tells us.</div><div><br /></div><p><b><u>The GERS Deficit</u></b></p><p>In essence the GERS report is a very simple publication which sets out to address just three questions:</p><p></p><ol style="text-align: left;"><li>What revenues were raised by Scotland?</li><li>How much did the country pay for the public services that were consumed?</li><li>To what extent did the revenues raised cover the costs of these public services?</li></ol>Throughout this blog all figures quoted are on the basis that Scotland is allocated a "geographical share" of North Sea revenue. In layman's terms this means Scotland gets to keep the revenues generated by "Scotland's Oil"<sup>2</sup>. So we need just three numbers to answer those question for 2020-21:<div><ol style="text-align: left;"><li>£62.8 billion of revenues were raised by Scotland</li><li>£99.2 billion was the cost of public services consumed by the country</li><li>£36.3 billion was the difference between revenues raised and the costs of these public services</li></ol>So the GERS figures show Scotland (as part of the UK) running a deficit<sup>3</sup> of £36.3 billion or 22.4% of GDP (compared to the overall UK deficit of 14.2% of GDP).</div><div><br /></div><div><div>In the context of the independence debate this 8.2% deficit gap is an important number, because (all else being equal) it shows how much bigger an independent Scotland's deficit would be than that Scots currently share as part of the UK. Of course all things wouldn't be equal, but we'll come to that.</div><div><br /></div><div>The following point can't be stressed too much: <b>while Scotland is an integral part of the UK, the GERS deficit is merely a paper exercise:</b></div><div><ul style="text-align: left;"><li>Scotland's public spending is not constrained by the GERS deficit, because the capacity for public spending in Scotland is ultimately determined by the UK's overall economic position</li><li>Scotland is not accruing a debt liability as a result of the notional GERS deficit, because Scotland pools and shares its deficit and debt with the rest of the UK</li></ul></div><div><br /></div><div><b><u>The Deficit Gap (aka the Fiscal Transfer)</u></b></div><div><br /></div><div>While some fringe nationalists might want to argue that Scotland shouldn't be responsible for any of the UK's debt, the GERS figures expose how morally indefensible that position is. Scots get their fair share of benefit from UK public spending, it would be outrageous to suggest they shouldn't bear any responsibility for the debt used to fund it.</div><div><br /></div><div>What is widely accepted (and is implied within the GERS calculations) is that Scotland should bear a population share of the UK's shared debt<sup>4</sup>.</div><div><br /></div><div>Those Nationalists who try to dismiss any talk of a Fiscal Transfer "because it's borrowing on our behalf" are simply misunderstanding what the Fiscal Transfer is: it's the <i>difference</i> between Scotland's population share of the UK's deficit (i.e. Scotland's share of the increase in the UK's debt) and the GERS deficit (i.e. Scotland's actual contribution to that increase in the UK's debt).</div><div><br /></div><div>To illustrate for 2020-21 when the UK's deficit was £297.7bn:</div><div><ul style="text-align: left;"><li>Scotland's 8.1% population share of the UK's deficit was £24.3 billion - this is the implied increase in Scotland's share of the UK's debt liability<br /></li><li>Scotland's actual contribution to the UK's deficit (i.e. the GERS deficit) was £36.3 billion - this is the implied contribution Scotland's economy actually made to that debt liability </li><li>The difference - the benefit to Scotland of only having to assume a population share of the UK's deficit (in the form of a population share of the UK's debt) was £12.1 billion<sup>5</sup></li></ul><div><b>So in 2020-21 GERS shows an implied fiscal transfer between the rest of the UK and Scotland of £12.1 billion - that's £2,210 for every man, woman and child in Scotland.</b></div></div><div><br /></div></div><div>To reiterate (because it comes up time and time again): this is absolutely <i>not</i> funded by debt which Scotland is expected to assume a liability for, it is the <i>difference</i> between Scotland's population share of the UK's debt and Scotland's contribution to that debt.</div><div><br /></div><div>In a final attempt to hammer this point home: anybody arguing that the fiscal transfer doesn't exist would have to argue that Scotland's share of the UK's debt went up by £36.3 billion last year (i.e. that Scotland would be responsible for 12.2% of the increase in the UK's debt, because Scotland was responsible for 12.2% of the UK's deficit<sup>6</sup>). I don't <i>think</i> any of them are arguing for that. </div><div><br /></div><div><br /></div><div><b><u>Isn't this just a snap-shot?</u></b></div><div><br /></div><div>GERS actually provides data going back for 23 years. While most commentary focuses on the absolute size of Scotland's deficit over that time, this blog is more interested in understanding how the Fiscal Transfer (aka Deficit Gap) has changed:</div><div><br /></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDLE79nO45PadV24eQD-wpk1QEnwVRglcg87rHZUIBXh7vt12zgWMYRUizdm92BvWONIshk3uIrhd9eaPekp-JxWenMcE7y3-uBRgu-cyjYzlDUpYg1t3tkXqgAx_quRe_ULH7cxsm0JM/s0/1_fiscal_transfer_23_years.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="483" data-original-width="785" height="338" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDLE79nO45PadV24eQD-wpk1QEnwVRglcg87rHZUIBXh7vt12zgWMYRUizdm92BvWONIshk3uIrhd9eaPekp-JxWenMcE7y3-uBRgu-cyjYzlDUpYg1t3tkXqgAx_quRe_ULH7cxsm0JM/s0/1_fiscal_transfer_23_years.png" width="550" /></a></div><br /><div>As the graph above clearly shows, the Fiscal Transfer in Scotland's favour has been well over £10 billion a year for each of the last six years. In fact, the data shows that Scotland has only been a net fiscal contributor to the UK in two of the last 23 years<sup>7</sup>. </div><div><br /></div><div>We will come on to show that the historical fluctuations in the fiscal transfer are almost entirely explained by movements in North Sea revenues.</div><div><br /></div><div>While the GERS data only goes back to 98-99, the Scottish Government's Scottish National Accounts Project (SNAP) previously attempted to take the analysis back to 1980. These older figures need to be treated with some caution (they appear generous to Scotland<sup>8</sup>), but they do illustrate that in the years when North Sea oil was booming, Scotland could be considered a very significant net fiscal contributor to the UK.</div><div><br /></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0syEhzd1JZbnkvuapVesYkYiezAxqcvhc9neZwnP3x38fjTxn7fto3wZw-mcvoamdor4i5kB9P7LHr2Dk2aPF-VPyand_7QwldaXAN8VSgrdynI0yAO97wiO46bzRh8jv7BYWknNChr8/s0/2_fiscal_transfer_41_years.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="484" data-original-width="785" height="339" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0syEhzd1JZbnkvuapVesYkYiezAxqcvhc9neZwnP3x38fjTxn7fto3wZw-mcvoamdor4i5kB9P7LHr2Dk2aPF-VPyand_7QwldaXAN8VSgrdynI0yAO97wiO46bzRh8jv7BYWknNChr8/s0/2_fiscal_transfer_41_years.png" width="550" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div>This graph is evidence of pooling and sharing within the UK working over time. When North Sea oil was booming, Scotland was a major contributor to the UK; now North Sea oil revenues are a mere trickle, Scotland is a major beneficiary. <div><br /></div><div>As I have observed <a href="https://www.these-islands.co.uk/publications/i354/fiscal_transfers_and_shifting_narratives.aspx" target="_blank">elsewhere</a>, the direction of the fiscal transfer doesn't seem to faze Scottish nationalists - in whatever direction the transfer flows, it will be argued as a reason to break up the UK.<div><br /></div><div>That said, the longer the current economic situation persists, the harder it becomes for nationalists to sustain the "Westminster stole our oil" grievance. Over this 41-year period - the longest period for which we have the data and a period which assumes a starting point highly favourable to the nationalists' argument - Scotland is in fact a net beneficiary of fiscal pooling and sharing within the UK (the red bars outweigh the black).</div><div><br /></div><div>This is neatly illustrated by the cumulative picture:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWNq-iT22R0iaSrDl3QM2tEkcXZg1OS_KSnnHb4GEK8iC1Z8qA_A9SYTs8c1BW962jdrq0VLg5gbmRZplOGg2Cz03jQqrWxeE3XkLKfaXXsuu7yOM7uAExon-GztmViysmr_EAtuBU1E8/s785/3_cumulative_fiscal_transfer.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="484" data-original-width="785" height="339" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhWNq-iT22R0iaSrDl3QM2tEkcXZg1OS_KSnnHb4GEK8iC1Z8qA_A9SYTs8c1BW962jdrq0VLg5gbmRZplOGg2Cz03jQqrWxeE3XkLKfaXXsuu7yOM7uAExon-GztmViysmr_EAtuBU1E8/s16000/3_cumulative_fiscal_transfer.png" width="550" /></a></div><br /><div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>This shows that, as of now, Scotland has "got back" from the UK (largely in the form of higher public spending) more than it "put in" during the 1980's as as result of the oil boom years.</div><div><br /></div><div><div><br /></div><div><b><u>If Scotland's Deficit is so large, doesn't that prove being in the UK is bad for Scotland?</u></b></div><div><br /></div><div>The simple answer to this question is: No.</div><div><br /></div><div>To explain why, we need to understand the extent to which that larger deficit is a function of lower revenue generation (relatively poor economic performance) and to what extent it is due to higher public spending (doing relatively well out of pooling and sharing).</div><div><br /></div><div>The GERS report puts Scotland's revenue and spending numbers in context by comparing them to figures for the whole of the UK (including Scotland) on a per person basis. This shows us that in 2020-21:</div><div><ol style="text-align: left;"><li>Scotland generated £382 less revenue per person than the UK average [Table S.4]</li><li>Scotland's spending was £1,828 more per person than the UK average [Table S.6]</li></ol><div>Although the report doesn't put this figure in a summary table, the inevitable result of the figures above is that Scotland's deficit per person is £2,210 greater than the UK average. Multiply that £2,210 per head by Scotland's population of 5.47m and we've found another way to get the <b>implied Net Fiscal Transfer of £12.1 billion</b>. Analysis is satisfying sometimes, isn't it?</div></div><div><br /></div><div>This tells us that more than 80% of the Fiscal Transfer is explained by the fact the UK's system of pooling and sharing leads to higher spending per person in Scotland. It's hard to see how even the most committed separatist could argue that this is a bad thing.</div><div><br /></div><div>Once we appreciate that the Deficit Gap (aka Net Fiscal Transfer) is the summation of differences in revenue generation and spending per person, we can squeeze some more insight from the historical GERS figures. </div><div><br /></div><div>In the graph below:</div><div><ul style="text-align: left;"><li>The red line shows how much higher Scotland's <span style="color: red;"><b>spending</b></span> per person has been than the UK average over time</li><li>The black line shows how much higher/lower Scotland's <b>revenue</b> per person has been</li><li>The green line shows how much lower Scotland's <b><span style="color: #6aa84f;">onshore revenue</span></b> (i.e. excluding North Sea revenues) has been</li></ul></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxwv51EhH4PgtpgOjoNce50rosVJmsUiuPdk_SJC4YPEFJsmj49c04MjGuj3q5IzKa4IKlbHe0W3WcZMqemG10Z0mIPdJyK-qI1x6ebj7GNlsOxTqH5xvyASpfBfMVQ2Gutwo6BkbPTec/s0/4_rev_spend_diff_23_years.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="493" data-original-width="960" height="282" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhxwv51EhH4PgtpgOjoNce50rosVJmsUiuPdk_SJC4YPEFJsmj49c04MjGuj3q5IzKa4IKlbHe0W3WcZMqemG10Z0mIPdJyK-qI1x6ebj7GNlsOxTqH5xvyASpfBfMVQ2Gutwo6BkbPTec/s0/4_rev_spend_diff_23_years.png" width="550" /></a></div>
<br /><div>The gap between the red and black lines is the Fiscal Transfer; the gap between the red and green lines is the Onshore Deficit Gap (i.e. the size of Fiscal Transfer that would exist if there were no North Sea revenues).</div><div><br /></div><div>There's a lot to digest in this graph:</div><div><ul style="text-align: left;"><li>The red line shows that the gap between spending for Scotland and the UK average has actually grown over this period<sup>9</sup></li><li>The green line shows that Scotland's Onshore Revenue generation only slightly lags the UK average, although that gap grew materially between 2014 and 2017<sup>1O</sup></li><li>Throughout this period there has been a large Onshore Deficit Gap (the gap between red and green lines) which is revealed when North Sea revenues decline</li><li>The scale of the <i>Onshore</i> Deficit Gap is consistently explained largely by relatively higher Scottish public spending</li><li>Fluctuations in the Fiscal Transfer are dominated by fluctuations in North Sea revenues (the gap between the black and green lines) - when oil revenues decline, the Onshore Deficit Gap is revealed. This was clear in 2014 and illustrates why the economic case for independence was always a reckless gamble on future oil revenues</li></ul></div><div><b><u><br /></u></b></div><div><b><u>Isn't this because GERS unfairly allocates UK-Wide spending to Scotland?</u></b></div><div><b><u><br /></u></b></div><div>In a word: No.</div><div><br /></div><div>In GERS, UK-wide costs considered to benefit the whole of the UK (e.g. Defence, Overseas Development Aid, UK Debt Interest, Whitehall Departmental Costs, DWP and HMRC overheads etc.) are allocated to Scotland on a per person basis (i.e. Scotland is allocated an 8.1% population share of these costs). This means that <i>by definition</i> there is no difference between the cost per person allocated to Scotland and to the rest of the UK in these categories.</div><div><br /></div><div>How much an independent Scotland might spend to replicated the services delivered by these currently shared UK costs is a not a question the GERS report is designed to answer. But as I argue <a href="https://chokkablog.blogspot.com/2021/08/richard-murphy-on-gers-perpetually.html" target="_blank">elsewhere</a>, it seems highly unlikely that an independent Scotland could replicate HMRC, DWP, Treasury, FCO, DFID, Cabinet Office, BEIS etc. functions for less than the 8.1% of these UK departments' costs which are allocated to Scotland in GERS. </div><div><br /></div><div><br /></div><div><b><u>So why is Scotland's spend per person so much higher?</u></b></div><div><br /></div><div>The table below shows where the £1,828 per person higher expenditure comes from in 2020-21<sup>11</sup></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOpUhp41NLBmIEa6sqnczvpA5tM8x1IXr8ErSUUaIwB7UVBIrDVa84mmq1i2kDuRc4z-QKrTFbNPMuINQtrTP1B5qyDrZAdhEH7sez0qNxYBc5UQCF0LgQAkB7xKXMQVYHe6ukwdSy0AU/s0/5_spend_person_vs_UK.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="329" data-original-width="460" height="393" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOpUhp41NLBmIEa6sqnczvpA5tM8x1IXr8ErSUUaIwB7UVBIrDVa84mmq1i2kDuRc4z-QKrTFbNPMuINQtrTP1B5qyDrZAdhEH7sez0qNxYBc5UQCF0LgQAkB7xKXMQVYHe6ukwdSy0AU/s0/5_spend_person_vs_UK.png" width="550" /></a></div>
<br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div style="text-align: left;">Note that there is no difference in spend per person on Defence and International Services because, as explained above, these are allocated in GERS on a per person basis.</div><div style="text-align: left;"><br /></div><div>Scotland has a lower population density than the UK average, extensive remote and island communities and particular demographic challenges which makes it inevitable that it will cost more per person to deliver equivalent services in some categories. Whether the actual level of higher spend the GERS figures reveal can be entirely justified on a like-for-like cost-to-serve basis is an unanswered question.</div><div><br /></div><div>The detail behind these figures deserves an entire blog in its own right, but to pick some highlights;</div><div><ol style="text-align: left;"><li>The biggest absolute difference in spend per person is on <b>Social Protection</b> (i.e. pensions and benefits), an area which is almost entirely reserved to Westminster<sup>12</sup>. This demonstrates a fundamental but too often over-looked point: under current constitutional arrangements, Scotland is <i>guaranteed</i> to get its needs-based share of reserved social protection spend. The amount spent in scotland is determined directly by how many people in Scotland qualify for the relevant pensions and benefits, no Barnett Formula calculations or inter-governmental negotiation are required. Scotland gets a significantly higher share of Social Protection spending than the UK average as a result and - assuming one believes in the principle of UK-wide social solidarity - that is demonstrably fair (and an advert for the merits of reservation).</li><li>Those seeking to undermine the GERS methodology often make an uninformed fuss [as discussed at length <a href="https://chokkablog.blogspot.com/2021/08/richard-murphy-on-gers-perpetually.html" target="_blank">here</a>] about the <b>Transport</b> spending allocation, mainly because it used to include an allocation for HS2 costs which were not incurred in Scotland. This was never a material issue, but in a welcome move the Scottish Government's statisticians have chosen to now completely exclude any HS2 allocations from the GERS figures. This means that there are literally <b>no</b> infrastructure costs which take place outside Scotland (transport or otherwise) allocated to Scotland in GERS<sup>13</sup></li><li>The fact that <b>Public and Common Services</b> is relatively so much higher than the UK is another trigger for those who like to look at a number they think doesn't feel right and cry "foul!". Scotland has a large public sector and these numbers are entirely reasonable and fully explained within GERS, as detailed <a href="https://chokkablog.blogspot.com/2021/08/richard-murphy-on-gers-perpetually.html" target="_blank">here</a></li><li>The figure which may surprise some is that <b>Health</b> spending is only 1% higher per person in Scotland than the UK average. We will discuss this further in the next section.</li></ol><div><b><u><br /></u></b></div><div><b><u>What does this tell us about the Scottish Government's priorities?</u></b></div><div><br /></div><div>Perhaps the most interesting way to look at the realtive spend per person data is to consider how it has changed over time. The graph below shows the differences between Scotland and the average of rest of the UK spend per person over time, by category (the health spending line has been highlighted):</div></div><div><br /></div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9gNzxrHY8VvpvqpGWwr_iJPqcHaD0_2kdTbnlHzntVp10s6v5r-_HXlhMe6__jMYjUQHiEpaBa3yVF5fpyuBDzhJaT2r3BKUxfo1wovcakoSIBlDDQHsww_9ss8eI4aHYed2TxS4Zt-s/s0/7_spend_person_category_trend.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="502" data-original-width="960" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj9gNzxrHY8VvpvqpGWwr_iJPqcHaD0_2kdTbnlHzntVp10s6v5r-_HXlhMe6__jMYjUQHiEpaBa3yVF5fpyuBDzhJaT2r3BKUxfo1wovcakoSIBlDDQHsww_9ss8eI4aHYed2TxS4Zt-s/s0/7_spend_person_category_trend.png" width="550" /></a></div></div></div><br /><div>The relative decline in health spending over recent years is particularly marked. It is of course the case that funding increases in the health service in the rest of the UK are automatically passed on to Scotland via the Barnett Formula, so the decision to deprioritise spending on health has been the Scottish Government's alone. This shouldn't come as a surprise given that in April 2021 (i.e. using 2019-20 figures) the <a href="https://ifs.org.uk/publications/15396" target="_blank">IFS observed</a> <b style="font-style: italic;">"Official estimates suggest Scottish health spending per person now 3% higher than in England, compared with 22% at the start of devolution". </b><b style="font-style: italic;"> </b></div><div><div><br /></div>Again we could write an entire blog on what each of these lines tells us, but it's perhaps worth drawing attention to three of them:</div><div><ul style="text-align: left;"><li>The relative increase in education spending </li><li>The relative increase in Public Order & Safety (i.e. Police) spending - presumably largely due to the centralisation of Police Scotland</li><li>The recent relative up-tick in enterprise and economic development spending</li></ul><div>Whether these relative spending increases have delivered improvements in service delivery is, at best, a moot point.</div></div><div><br /></div><div>There is one other piece of information buried in the GERS tables which seems worth highlighting. Table 3.2 shows that <b>in the last year Scottish Local Government spending declined by 0.9% whereas in the UK overall it increased by 16.5%.</b> It is hard to see how one could interpret this as anything other than the SNP Government centralising and taking power away from local government. </div><div><br /></div><div><br /></div><div><b><u>Aren't these figures meaningless when it comes to the case for Independence?</u></b></div><div><br /></div><div>The GERS figures are historical actual figures, so they can only reflect the performance of the Scottish economy under current constitutional arrangements. That is: sharing the UK's machinery of state, operating within a borderless UK single market, sharing a central bank and currency, pooling and sharing resources and accepting that some tax and spend decisions are reserved to Westminster.</div><div><br /></div><div>Those caveats matter, but they certainly don't make the figures meaningless: they still tell us what revenue the Scottish economy currently generates and how much it costs to deliver the public services that Scots are used to receiving. They provide a base-line against which those wishing to make an economic case for separation can argue what would change.</div><div><br /></div><div>None of that prevents us being able to draw some simple conclusions from the figures as they stand, as the SNP proved in 2014 when their chosen <a href="https://www.theguardian.com/news/datablog/2014/may/28/would-scotland-be-economically-better-off-it-was-independent" target="_blank">line on the GERS figures</a> was:</div><blockquote><div>"<b>Scotland accounted for 9.3% of UK public spending between 2008-09 and 2012-13, while generating 9.5% of tax receipts</b> - it put in more than it got out. It suggests that tax receipts are currently 14% higher in Scotland than the rest of the UK"</div></blockquote><div>The latest GERS figures allow us to update this statement for the most recent five year period:</div><div><blockquote>"<b>Scotland accounted for 9.2% of UK public spending between 2016-17 and 2020-21, while generating just 7.9% of tax receipts</b> - it put in <i>less</i> than it got out. It suggests that tax receipts are currently 3.5% <i>lower</i> in Scotland than the rest of the UK<b>"</b></blockquote></div><div>So back when the SNP could lay claim to significant North Sea revenues, the GERS figures were used to argue that Scotland "put in more than it got out" because Scotland had higher per person tax receipts which more than offset Scotland's higher per person spending<sup>14</sup>.</div><div><br /></div><div>Since then North Sea revenues have declined (to the surprise of nobody who was paying attention in 2014) and so the same analysis now shows that <b>despite generating slightly </b>[3.5%] <b>lower tax receipts than the the UK average, Scotland continues to benefit from significantly </b>[11.2%] <b>higher public spending.</b></div><div><u><br /></u></div><div><br /></div><div><b><u>Is this fair?</u></b></div><div><b><u><br /></u></b></div><div>Whether all of this is <i>fair</i> or not depends on your perspective. It can certainly be argued that this is merely pooling and sharing of resources across the UK working effectively over time. When oil boomed in the 1980's, Scotland "put in more than it got out"; now oil revenues have declined to a trickle, Scotland "gets out more than it puts in".</div><div><br /></div><div>From a less transactional and more philosophical perspective: if you believe that fellow citizens of this union should not have the quality of their healthcare, education or social welfare constrained by the revenue generating performance of their constituent nation (or region) then yes, this is <i>probably </i>fair.</div><div><br /></div><div>If you take a narrower view and think that pooling and sharing is weakness, that a tighter line should be drawn around the groupings that should have to "stand on their own two feet" then I guess you will see the fiscal transfer revelaed by the GERS figures as a reason to break up the UK.</div><div><br /></div><div>I know where I stand.</div><div><br /></div><div style="text-align: center;">*****</div><div><br /></div><div><b>Notes</b></div><div><br /></div><div>1. It was explicitly stated in one of those "Ten Things That Will Help Us Win Independence" type articles in The National some years back, but I confess I can't be bothered to find it again</div><div> </div><div>2. In case anybody doubts that: in recent years Scotland has actually been apportioned more than 100% of the UK's North Sea Revenues, because PRT rebates are weighted towards fields in English waters</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcqVdv2KNZnDELj6pBLaMYozBcPe53zH2HEVe6E3BXY5R7vVvof8nBkKcEuKvAWU5d54vrGKJdCjPWtIU3KyIA_Yv4JD5-Hkq3kZVEXVW1VgOuODtR3m-sT4nyLv8tWn-ADme8kXxzK2Q/s0/Screenshot+2021-08-26+at+10.48.34.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="784" data-original-width="1304" height="300" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhcqVdv2KNZnDELj6pBLaMYozBcPe53zH2HEVe6E3BXY5R7vVvof8nBkKcEuKvAWU5d54vrGKJdCjPWtIU3KyIA_Yv4JD5-Hkq3kZVEXVW1VgOuODtR3m-sT4nyLv8tWn-ADme8kXxzK2Q/w640-h384/Screenshot+2021-08-26+at+10.48.34.png" width="500" /></a></div><br /><div>3. aka a negative Net Fiscal Balance </div><div><br /></div><div>4. This was the starting position assumed in the Independence White Paper and the SNP's more recent Growth Commission report - and the GERS report itself allocates a population share of the shared UK debt interest to Scotland. For detail geeks: public sector pension fund interest receipts and expenditure are known for Scotland and - because Scotland's public sector employment is larger - the share of both is larger than Scotland's population share (which <a href="https://chokkablog.blogspot.com/2021/08/richard-murphy-on-gers-perpetually.html" target="_blank">excites some people</a> when they see the allocation on the cost side, but per GERS p.7 Q2, the receipts and expenditure largely cancel each other out anyway)</div><div><br /></div><div><br /></div><div>5. There's a rounding effect in the number presentation - with one more decimal place we can see £24.26 billion minus £36.34 billion = £12.08 billion</div><div><br /></div><div>6. </div><div><br /></div><div>GERS-denier in Chief Richard Murphy has stated in previous years <i>"I have been continually bemused by the fact that GERS [..] says that Scotland runs a deficit so much larger in proportionate terms than that for the UK as a whole [..] Proportionately the Scottish deficit is suggested to be, after North Sea revenue is taken into account, 3.45 times that of the UK as a whole". </i>I can only presume he will be even more bemused now that the deficit has grown and Scotland's deficit is proportionately only 1.6 times larger than the UK's as a whole. </div><div><br /></div><div>Or let's look at what <a href="https://www.heraldscotland.com/news/18683593.opinion-iain-macwhirter-gers-renamed-twits-wee-poor-stupid/" rel="nofollow" target="_blank">Iain McWhirter said in the Herald last year:</a> <i>"But even then, as the tax expert Professor Richard Murphy has pointed out, it is absurd to claim, as GERS has in recent years, that Scotland with 8% of the UK population accounts for nearly 60% of the entire UK deficit. This just doesn't make sense."</i> It was never absurd and just because Iain couldn't get his head around the maths involved didn't mean it didn't make sense (as I have explained many times, for example <a href="https://youtu.be/FucizmkldGw" target="_blank">here</a> and <a href="https://chokkablog.blogspot.com/2020/02/deficits-deficit-gaps-and-fiscal.html" target="_blank">here</a>). Now the absolute deficit has grown, Scotland is only responsible for 12% of the UK's deficit - I can only assume Iain will see this as further proof of the absurdity of fiscal arithmetic.</div><div><br /></div><div>7. The figures being used in 2014 showed a slightly more favourable position for Scotland, but the GERS figures have since been revised, most notably by amending with more accurate (lower) North Sea revenue figures</div><div><br /></div><div>8. Whereas historical GERS figures are continually restated to reflect changes in accounting policies and more up-to-date understanding of the data, the SNAP figures were last updated in 2012-13 and so will not be strictly comparable. In the years where SNAP and GERS overlap, the SNAP deficit is on average £1.5bn lower than the GERS deficit (i.e. the SNAP data is favourable to Scotland compared to our more recent understanding). By inspection, the net difference is mainly explained by higher spending allocations in GERS compared with historical SNAP data.</div><div><br /></div><div>9. Some people assume the "Barnett Squeeze" should inevitably lead to convergence in spending - this isn't the case because of differential rates of population growth between Scotland and the rest of the UK. If you think about it: if spending didn't change at all but Scotland's population grows more slowly than the rest of the UK's, Scotland's spend per head will be less diluted by population growth than that of the rest of the UK. For more on this topic, see here > <a href="https://www.these-islands.co.uk/publications/i271/what_is_the_barnett_squeeze.aspx" target="_blank">What is the Barnet Squeeze</a></div><div><br /></div><div>10. The reasons behind this deserve a blog of their own, but some obvious factors to consider are</div><div><ul style="text-align: left;"><li>The decline in the North Sea industry will have had knock-on effects on the onshore economy</li><li>Increases in personal tax rates in recent years have either led to a change in, or a better understanding of, the actual number of higher rate tax payers in Scotland</li><li>The ongoing constitutional uncertainty, which can surely not have helped business confidence</li></ul>11. For those who are curious, here is the same data vs rUK as well as vs UK (including Scotland)</div><div class="separator" style="clear: both;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijW6ARyEt-qSfM5JIjNnmhI-QnWTwWu_q4akziTE4rJKFPP8a26t9UyvUlVdz6I9BAdMHKr_R7JIqJjPqmcSeUn5m8vrja7TxJQy9sty_cfVnPZVBXOiYNVY4RmAtEz3XTyECaaFyryv4/s0/6_spend_person_UK_rUK.png" style="display: block; padding: 1em 0px; text-align: center;"><img alt="" border="0" data-original-height="329" data-original-width="655" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEijW6ARyEt-qSfM5JIjNnmhI-QnWTwWu_q4akziTE4rJKFPP8a26t9UyvUlVdz6I9BAdMHKr_R7JIqJjPqmcSeUn5m8vrja7TxJQy9sty_cfVnPZVBXOiYNVY4RmAtEz3XTyECaaFyryv4/s0/6_spend_person_UK_rUK.png" width="550" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><div>12. see Box 3.2 and Table 4.4 in the GERS report</div><div><br /></div><div>13. You can check this by surfing the "supplementary-expenditure-database" which accompanies the GERS report - the biggest source of confusion is the allocation of UK Government Network Rail costs (the organisation responsible for Scotland’s rail infrastructure) which is quite reasonably allocated based on actual Train Operating Company usage in Scotland</div><div><br /></div><div>14. Since those figures were quoted, the GERS figures have been revised down (mainly by correcting down the oil revenues attributed to Scotland) - so using the updated figures for the same time period we would actually say: "Scotland accounted for 9.3% of UK public spending between 2008-09 and 2012-13, while generating 9.3% of tax receipts". So in fact even during those relative boom years for North Sea revenue, Scotland merely paid its way <i>on the SNP's own terms</i></div><p></p></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com7tag:blogger.com,1999:blog-1603438996450817644.post-16607583136911295382021-08-25T11:27:00.012-07:002021-08-26T01:20:56.313-07:00Richard Murphy on GERS: The Perpetually Baffled Man<p>I'm writing a serious blog on GERS and really don't want it to get bogged down by engaging with the frankly bonkers claims made by the perpetually baffled GERS-denier in chief, Richard Murphy. </p><p>To engage with Murphy on the topic of GERS is as pointless and frustrating as trying to play chess with a pigeon (while wrestling a pig). But I recognise that some of you might think that describes an amusing spectator sport, so let me use this blog to deal with some of his recent - um - "contributions to the debate".</p><p>My starting point is his appearance on the "<a href="https://www.youtube.com/watch?v=KK9f0rB2Bdk" rel="nofollow" target="_blank">GERS - Scotonomics Special</a>". This is an hour of video and I only made it 5 minutes in before I realised that I simply couldn't sit through any more of it because life, like me, is too short. </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhI202fD5zfSZE8qZoca6GKHLJzmlriaycTQ_ZQMz9dA29jug1jMaEW2z6c9_kJaG4RTiiZgeuIQuork5tv1a0to2S4ZP_fOJiXulsC3uky21L-V7koG3Cwx6ckW7djpDTN4_1FWkciaI4/s1870/Screenshot+2021-08-25+at+18.05.29.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="934" data-original-width="1870" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhI202fD5zfSZE8qZoca6GKHLJzmlriaycTQ_ZQMz9dA29jug1jMaEW2z6c9_kJaG4RTiiZgeuIQuork5tv1a0to2S4ZP_fOJiXulsC3uky21L-V7koG3Cwx6ckW7djpDTN4_1FWkciaI4/w400-h200/Screenshot+2021-08-25+at+18.05.29.png" width="400" /></a></div><p>The fact that this entire blog is required to unpick what is basically just one minute of his extraordinarly comprehensive wrongness I hope explains why I will try to avoid engaging in any further pigeon-chess-playing-while-pig-wresting. </p><p>Suffice to say that this blog alone should be enough to convince any rational observer how <span style="background-color: white;">spect</span>acularly misplaced Murphy's arrogance is when it comes to criticising the work of the Scottish Government's statisticians. If more convincing is needed, see <a href="https://chokkablog.blogspot.com/2017/03/richard-murphy-gers-denier.html" target="_blank">here</a> and <a href="https://chokkablog.blogspot.com/2017/08/i-see-professor-richard-murphy-has-been.html" target="_blank">here</a> or - if you want to see him taken apart in front of a Holyrood committee by the inestimable Jackie Baillie - <a href="https://www.youtube.com/watch?v=Ni5dTPBgLKE" target="_blank">here</a>.</p><p>The point where I gave up the will to go on appears at about 3:30 in that video - I quote him here verbatim:</p><p></p><blockquote><i>"... when you look at the expenditure side, what you actually see [is] the vast proportion of the expenses of the UK are apportioned to Scotland on the basis of population - 8.1% - and yet I put out figures on the blog this morning and show that the vast majority of the expenses actually represent more than 8.1% of the total UK spend and in some cases vastly higher .. in terms of Public Administration costs something like 13 to 14% of the total costs of the UK are apparently incurred in Scotland that's why I think frankly what's happened is they've taken the UK figure and then they've taken the figures for running Scotland and added the two together not allowing for the fact that some things obviously aren't done twice in Scotland ..,. they've done that sort of crass stuff and I'm afraid to say I just think that this is really poor accounting </i>[and on and on he goes ...]"</blockquote><p></p><p>Honestly it's hard to know where to start with this level of wrongness, but let me try and be calm and forensic.</p><p>The blog of his he refers to is the typically boldly titled "<a href="https://www.taxresearch.org.uk/Blog/2021/08/18/why-gers-is-wrong-yet-again/" rel="nofollow" target="_blank">Why GERS is wrong - yet again</a>". That blog contains even more nonsense which it's hard not to get distracted by, but I'll relegate the most obvious howlers to a footnote<sup>1</sup> so I can wrestle here specifically with his bizarre assertions about Public Administration (by which his blog makes clear he means the GERS line item "Public & Common Services") cost allocations.</p><p>The figure that has him so exercised is £2,410m of Public & Common Services expenditure allocated to Scotland [see Table 3.1 on page 28 of the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2020-21/" target="_blank">GERS report</a>] which is indeed 13.7%c of total UK costs.</p><p>First of all, the fact that he admits to being baffled by how much higher than the UK average Scotland's Public Administration costs are shows how poorly he understands Scotland. If he'd read page 7 of the GERS report (remembering that Scotland accounts for just 8.1% of the UK population) he would have seen a broad hint:</p><blockquote><p><i>"... around 9.1% of UK spending is undertaken for Scotland, slightly </i><i>higher than a population share. While direct estimates of spend in Scotland are not </i><i>available, this is consistent with broader indicators of public sector activity in Scotland, </i><i>which show that the public sector plays a larger role in Scotland than the UK as a whole. </i><i>For example, around 10% of UK public sector employees are based in Scotland, with </i><i>regional pay differences resulting in around 9.3% of the UK paybill spent in Scotland." - GERS page 7.</i></p></blockquote><p>If he'd made it as far as page 35 he's have seen Table 3.8 in GERS shows that £1,683m of the £2,410m of Public & Common Services costs in GERS are <b><i>directly incurred by the Scottish Government</i></b> <b style="font-style: italic;">and Local Authorities. </b>So what he's getting exercised about is in fact an allocation of £726m for Public & Common services delivered by the UK Government.</p><p>Cross-referenceing Tables 3.8 and 3.7 would have shown him that this £726mn is an allocation of just 4.6% of those UK Government Costs<sup>2</sup>. So his wild assertion that 8.1% of all UK Public & Common Services costs have simply been added on to Scotland's costs is, obviously, wrong. Suggesting that such a basic error could have been made merely advertises the fact that he has no conception of the depth and detail of the work that goes into compiling the GERS figures.</p><p>But is that 4.6% reasonable? </p><p>Well intuitively it doesn't sound weird given how much of the UK's integrated machinery of state Scotland still relies upon and we're dealing here with only £0.7bn out of a £36.3bn deficit.</p><p>But we don't have to rely on intuition, we can dig deeper. The "supplementary-expenditure-database" which accompanies GERS provides detailed line-level detail to back-up all the GERS spending allocations for the prior year (when £624m of UK Government Public & Common Services costs were allocated to Scotland).</p><p>This database shows us that roughy half of those UK government costs<sup>3</sup> allocated to Scotland are a simple population share of HMRC costs. Now HMRC is a big department and it's a shared UK resource. This cost allocation is not duplicating anything it's not something "done twice in Scotland" so - surprise surprise - none of Murphy's alleged double-counting is going on here. </p><p>As an aside: frankly it's highly unlikely that Scotland could replicate the full service offered by HMRC for as little as 8.1% of what it costs the UK today, so this could be argued as a very good value deal - but that's a different question for another day. </p><p>These HMRC costs helpfully illustrate the wrong-headedness of another of Murphy's frequently voiced claims: that GERS is wrong because we're incurring spending outside Scotland and not seeing the tax generating benefits of that spending in Scotland. A quick google would lead him to the UK's <a href="https://www.gov.uk/government/statistics/civil-service-statistics-2021" target="_blank">civil service statistics</a> which tell us that 7,730 HMRC employees are based (and generating tax) in Scotland. That's 12.8% of them so, even allowing for salary differentials, more HMRC employee costs are incurred <i>in</i> Scotland than allocated <i>to</i> Scotland in GERS. [A similar situation exists with DWP staff: 8,820 or 9.7% of DWP employees are paying tax in Scotland].</p><p>Another aside: that Civil Service headcount data allows us to cross-check the figure quoted on page 7 of GERS - and sure enough 47,590 or 9.97% of all UK-based Civil Servants are based in Scotland. It's almost as if the team who sit in St Andrew's House working on the GERS report have a better understanding of what's going on than Murphy does, isn't it?</p><p>So we're now down to explaining just £0.3bn of Public & Common Services costs incurred by the UK Government and charged to Scotland in GERS. The detailed database shows us that £0.2bn of them relate to a population share of HM Treasury, the Cabinet office and the Department for International Development (DFID). Whether Scotland could replicate these services for just 8.1% of the UK's costs charged in GERS is again open to debate (a debate to which I predict the conclusion would be: no). That said, although 18% of UK-based Foreign, Commonwealth & Development Office<sup>4</sup> employees are based in Scotland, it is of course true that the vast majority of HM Treasury and Cabinet Office employees are in London. </p><p>The £0.1bn that's left (£142m if you really care) is Scotland's share of House of Commons, IPSA, House of Lords and a few other bits and bobs.</p><p>So there are some costs which occur in England that are allocated to Scotland - but equally there are some costs that occur in Scotland that are allocated to England (just think of those HMRC and DWP employees or see below to learn about how Scottish ferry costs are treated). </p><p>Murphy blusters that he is sure the amount spent in England which is allocated to Scotland (and could be transferred to Scotland to generate more tax) is "some billions" - needless to say that is a nonsensical number based on nothing more than a cumulation of ignorant assertions.</p><p>I've done the analysis in detail <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">here</a>, but the simple answer is it wouldn't be more than a couple of hundred million at most (and you can't both save costs and transfer them!). </p><p>If you can work up a grievance out of the possible fiscal multiplier effect from moving maybe a couple of hundred million of spending within the context of what is a £12 billion fiscal transfer<sup>5</sup> from the rest of the UK to Scotland ... well good luck to you.</p><p style="text-align: center;">***</p><p>Not only could I do this exercise for every expenditure category in GERS, I have done. I know right? What kind of a lunatic would spend time familiarising themselves with the detail behind the figures before opining on how they were compiled?</p><p>Having been through that detail with a fine-tooth comb, I do have some disagreements with the GERS methodology. For example I think the EU contribution calculation attributes too high a share of the UK's rebate to Scotland and I think the treatment of Renewable Obligation Certificates understates the effective subsidy from the rest of the UK to the Scottish Renewables sector. But that doesn't mean I rubbish GERS: I make polite enquiries of the team responsible in the Scottish Government to test and build my understanding. Even where I continue to disagree, I recognise the reasonableness of the approach that has been taken.</p><p>Not only is it patently obvious that Murphy has never taken the time to check any of his wild theories with the team who actually compile the figures, he clearly hasn't even read the report.</p><p>To illustrate my point, here's just one other extract from that YouTube clip which somebody has drawn my attention to. Again I quote him verbatim [from about 5:18]</p><blockquote><p><i>"HS2 - which is not going to come near Scotland for decades and decades if ever - is being apportioned to Scotland and there's no benefit from it. We know that the mass of public transport investment in the UK is in the South East of England and that's being apportioned to Scotland. This is nonsense..."</i></p></blockquote><p>He's right, but only insofar as everything he says there is nonsense.</p><p>It really couldn't be clearer, it's there in black and white on GERS page 11: <b>"in this edition of GERS none of the expenditure associated with High Speed 2 is allocated to Scotland".</b></p><p>HS2 used to be the exception that proved the rule, because none of any other "<i>transport investment ... in the South East of England"</i> has <i>ever</i> been allocated to Scotland in GERS<sup>6</sup>. </p><p>It's rather useful that HS2 is now completely excluded from GERS (it's been removed from prior years as well) because</p><p></p><ol style="text-align: left;"><li>This saves me having to explain how relatively trivial that HS2 figure was - just 2.3% of HS2 costs used to be allocated in GERS (based on the business case assessment of the knock-on value to the Scottish economy) and last year that would have been just £75m<br /><br /></li><li>There is now only one example where GERS allocates transport infrastructure spending in one part of the country to another - and that's where £69m (30%) of the Scottish Government's Ferries costs are allocated to the rest of the UK<sup>7</sup>. I wonder why Murphy hasn't kicked up a fuss about that?</li></ol><p>You do have to wonder why, every time he's "baffled" or "simply does not understand" GERS, Murphy leaps to the conclusion that the figures must be wrong and the Scottish Government's own economists must be lazy and/or incompetent. Surely it couldn't be that he's a grifter who's spotted a chance to build a profile by saying what cybernats and reality-denying nationalists want to hear?</p><p>As a parting thought: imagine being part of the team that has spent years refining the GERS methodology and compiling the reports, only to have this man - on the basis of transparently superficial "analysis" and without bothering to gain even the most rudimentary understanding of the data he's dealing with - to accuse you of doing "crass stuff" and being guilty of "really poor accounting".</p><p>He really is beyond the pale.</p><p><br /></p><p>Chokka-bloke, checking out.</p><p style="text-align: center;">***</p><p><b><u>Footnotes (the first one's a doozy)</u></b></p><p>1. Some other howlers in Muprphy's blog</p><p></p><ul style="text-align: left;"><li><i>"Scottish data is inflated compared to the UK by including local pension fund costs, which are not in the UK data, which you might say is odd"</i> - I would say it is odd, because <b>his assertion that those costs are not in the UK data is simply and obviously untrue!</b> The figures are shown in the supplementary-expenditure-database which accompanies GERS (something Murphy has clearly never troubled himself to look at), where we can see that Scotland is allocated £2.0bn of the UK's £17.2bn of public sector pensions debt interest.</li><li>He's goes on to be baffled by debt interest allocations - <i>"why has Scotland got a disproportionately large share of interest payments, picking up almost 15% too much?"</i>. It's not 15% "too much", as he would know if he bothered reading the GERS report. Below are direct quotes from the main GERS report which explain clearly: why Scotland picks up a higher share (9.3%) of debt interest payments than our population share (8.1%); that <b>this is entirely explained by a correction to the historical treatment of public sector pension fund interest expenditure</b>; that this is consistent with the way interest income is apportioned (and so the net effect on the stated deficit of these public sector pension fund interest expense and income allocations is roughly zero); that these are local government pension funds where data are available for Scotland. </li><ul><li><i>"GERS includes two categories of interest spending. The first is reserved UK debt interest, and Scotland is allocated a population share of this, amounting to £2.3 billion in 2020-21. The second is interest spending associated with public sector pension funds. These funds also generate interest income, and in 2020-21 Scotland is apportioned £1.5 billion of interest expenditure associated with public sector pensions, and £1.4 billion of interest income" </i>GERS page 7</li><li><i>"In previous editions of GERS, Scotland has been allocated a population share of all UK public sector interest expenditure. In this year’s publication, this has been changed to separate out interest expenditure which is associated with public sector pension funds. These are local government funds which generate both interest revenue and expenditure, and where data are available for Scotland. This change brings the treatment of expenditure associated with these funds into line with the treatment of their revenue, which was already allocated to Scotland using Scottish data" GERS page 11</i></li><li><i>Consistent with the CRA, interest expenditure by public sector pension funds is shown as spending by HM Treasury." GERS page 30</i></li><li><i>"The main methodology change in GERS 2020-21 relates to the treatment of public sector interest expenditure, where interest expenditure associated with Scottish Local Government pension funds is separated out. All this expenditure is treated as Scottish, rather than apportioning Scotland a population share." GERS page 25</i></li></ul></ul><div>[Given Scotland's larger public sector, the fact that public sector pensions costs are higher than the UK average is singularly unsurprising]</div><div><br /></div><div>2. For those who care about following the audit-trail</div><div><ul style="text-align: left;"><li>Numerator: £726 [Table 3.8]</li><li>Denominator: Total UK P&CS costs of £17,524 [Table 3.7] less Scottish P&CS costs of £1,683 [Table 3.8]= £15,841</li></ul></div><div><br /></div><div>3. £294m out of £624m to be precise - so 47%</div><div><br /></div><div>4. In September 2020 the Foreign & Commonwealth Office (FCO) and Department for International Development (DFID) merged to form the Foreign, Commonwealth and Development Office (FCDO)</div><div><br /></div><div>5. This will be covered by my other blog, but it's an easy enough number to calculate:</div><div><ul><li>Scotland's 8.1% population share of the UK's deficit was £24.26billion - this is the implied increase in Scotland's share of the UK's debt liability<br /><br /></li><li>Scotland's actual contribution to the UK's deficit (i.e. the GERS deficit) was £36.34 billion - this is the implied contribution Scotland's economy actually made to that debt liability<br /> </li><li>The difference - the benefit to Scotland of only having to assume a population share of the UK's deficit (in the form of a population share of the UK's debt) was £12.1 billion</li></ul><div>So in 2020-21 the GERS figures show an implied fiscal transfer between the rest of the UK and Scotland of £12.1 billion - that's £2,210 for every man, woman and child in Scotland.</div></div><div><span style="white-space: pre;"><br /></span></div><div><span>6. </span>at least not in the 8 years that I've been studying these figures</div><div><br /></div><div><span>7. per the </span>"supplementary-expenditure-database" which accompanies GERS: 30% of Scottish Government costs associated with Caledonian Maritime Assets Limited and Ferry Service Department are apportioned to rUK (reflecting an assessment of the share of the value of Scottish ferry services enjoyed by travellers from the rest of the UK) <span style="white-space: pre;"> </span></div><p></p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com6tag:blogger.com,1999:blog-1603438996450817644.post-90559660018437221392021-04-26T08:06:00.021-07:002021-11-20T06:45:54.650-08:00Sturgeon on Andrew Marr, 25/04/21<p>Anybody who read <a href="https://chokkablog.blogspot.com/2021/04/sophists-choice-how-sturgeon-dodges.html" target="_blank">my analysis of Sturgeon's last four TV interviews</a> could be forgiven for feeling a weary sense of déjà vu if they watched her being <a href="https://www.bbc.co.uk/programmes/p09fqbhz" target="_blank">grilled by Andrew Marr yesterday</a> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivSopvIFvmUOKDecAAxXQ3rPFgPoLzjCoqaiKKcAa0izLb346XIy1lWl23l4W1ZyY55wyDqdk7yBKytsT9MY_0oOQbAF8d2wWkRttRzkjrPZYyXxQRGz-KcIFnfF0ZzkV3xlkc72XsFGI/s620/stregon_Marr.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="362" data-original-width="620" height="234" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivSopvIFvmUOKDecAAxXQ3rPFgPoLzjCoqaiKKcAa0izLb346XIy1lWl23l4W1ZyY55wyDqdk7yBKytsT9MY_0oOQbAF8d2wWkRttRzkjrPZYyXxQRGz-KcIFnfF0ZzkV3xlkc72XsFGI/w400-h234/stregon_Marr.png" width="400" /></a></div><p><br /></p><p><b><u>1. She sounds like a Brexiteer as she attempts to wish away border issues</u></b></p><p>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.)</p><p>She starts her response with a revealing line: <i>"<b>it's not the SNP that raises issues of borders, this issue only transpires because of [Brexit]"</b>. </i>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.</p><p>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:</p><p></p><ul style="text-align: left;"><li><i>"<b>I want to</b> and will work with others to make sure we <b>keep trade flowing easily </b>across the border between Scotland and England"</i></li><li><i>"of course <b>we want to</b> <b>keep trade flowing</b> across the England/Scotland border [...] <b>we would work</b> to make sure that happened"</i></li><li><i>"and <b>we will work to</b> make sure that we have <b>trade flowing easily </b>across that border"</i></li><li><i>"<b>we will need to work</b> to ensure that that [free trade with rUK] can be secured"</i></li><li><i>"<b>we would work </b>as a country to make sure that for our businesses there was <b>no difficultie</b>s in terms of their day-to-day experiences in trading"</i></li><li><i>"<b>I want </b>Scotland to be able to trade freely across that [EU market] and yes, <b>do the work </b>that t<b>akes away the practical difficulties for trade</b> across the England Scotland border"</i></li><li><i>"<b>We will</b> <b>put in place arrangements</b> and <b>we will negotiate</b> those arrangement with the UK that means that businesses do not in pracatical sense suffer from any of that [trade friction]"</i></li><li><i>"We will <b>keep trade flowing freely</b> .. we will <b>put in place arrangements</b> <b>to keep trade flowing</b>"</i></li></ul><div>The fact that the SNP <i>want </i>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.</div><div><br /></div><div>Regular observers of Sturgeon's interviews will notice she throws in a couple of her usual attempts at misdirection along the way;</div><div><ul style="text-align: left;"><li><i>"Scotland exports more manufactured goods to the rest of the world than we do to the rest of the UK"</i> - 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?</li><li>On at least two occasions she mentions that the EU market is "<i>seven times the size of the UK"</i> - neglecting to mention that, after over 40 years of unfettered market access, <a href="https://www.gov.scot/publications/export-stats-scotland-2018/" target="_blank">Scotland exports three times as much to rUK as it does to the EU</a></li></ul></div><div>She even states that <b>"we shouldn't be forced to choose between these two things"</b> - 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.</div><div><b><u><br /></u></b></div><div><b><u>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</u></b></div><div><b><u><br /></u></b></div><div>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</div><div><ul style="text-align: left;"><li><i>"we'll set out, when it comes to an independence referendum, what the implications are ..."</i></li><li><i>"not yet, we will do all of that as we did in 2014 [...] we will do that then..."</i></li><li><i>"you can go and look at the 2014 White Paper ..."</i></li><li><i>"on the basis of quality, up-to-date information - that's what we did in 2014 and it is what we will do again"</i></li></ul></div><div>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 <a href="https://chokkablog.blogspot.com/2014/06/dunleavy-and-costs-of-independence.html" target="_blank">risible suggestion</a> 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 "<a href="https://firstminister.gov.scot/letter-to-the-prime-minister/" target="_blank">between £400m-£660m</a>"] 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?</div><div><br /></div><div>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?</div><div><br /></div><div>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.</div><div><br /></div><div>No economic case is offered because none exists.</div><div><br /></div><div>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 <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2019-20/" target="_blank">GERS report</a> 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 <i>still</i> 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.</div><div><br /></div><div><br /></div><div><b><u>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</u></b></div><div><b><u><br /></u></b></div><div>Possibly the highlight of this interview is when she is pressed on the <a href="https://cep.lse.ac.uk/pubs/download/brexit17.pdf" target="_blank">LSE modelling </a>which shows how damaging leaving the UK to join the EU would be for the Scottish economy. As with <a href="https://chokkablog.blogspot.com/2021/04/sophists-choice-how-sturgeon-dodges.html" target="_blank">previous interviews</a>, she rather unconvincingly claims not to be that familiar with the analysis and tries to dismiss it as being "very narrowly based"</div><div><ul style="text-align: left;"><li><i>"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 ..."</i></li></ul></div><div>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: <i><b>"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"</b></i></div><div><br /></div><div>She's trapped, so this famously well-briefed politician feigns ignorance of this headline grabbing analysis: <i>"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 ...". </i></div><div><br /></div><div>[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.]</div><div><i><br /></i></div><div>She then claims she will <i>"engage on the substance of the point"</i> 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:</div><div><ul style="text-align: left;"><li>"[you're suggesting that]<i> somehow uniquely Scotland is incapable of being a successful properous independent country .."</i></li></ul><div>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).</div></div><div><br /></div><div><br /></div><div><b><u>4. When rattled, she resorts to claiming Scotland is "one of the wealthiest countries in the world" while <i>simultaneously </i>claiming that lots of countries are "wealthier than Scotland" (which is the UK's fault, obviously)</u></b></div><div><br /></div><div>She's clearly rattled at this point and launches into a confused and frankly rather logically incoherent rant. It's worth repeating in full:</div><div><ul style="text-align: left;"><li><i>"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 <b>these countries are wealthier than Scotland</b>, they are ... er .. healthier than Scotland, they are happier in terms of the studies that are done - <b>Scotland is one of the wealthiest countries in the world </b>and if you're pointing me to studies that are about Scotland's fiscal position </i>[he wasn't] <i>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 ..."</i></li></ul><div>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.</div><div><br /></div><div>Predictably enough, she goes on to claim that Scotland's deficit makes the case for breaking away from the UK ("<i>you're making my point for me"). </i></div><div><br /></div><div>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).</div></div><div><br /></div><div>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"?</div><div><br /></div><div>She then repeats her <a href="https://chokkablog.blogspot.com/2021/04/sophists-choice-how-sturgeon-dodges.html" target="_blank">lines from previous interviews</a> 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:</div><div><ul style="text-align: left;"><li><i>"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 <b>like </b>welfare and pensions"</i></li></ul><div>To repeat what I've said before: this is sophistry of the worst kind. </div><div><br /></div><div>Pensions and social security are the <i><b>only </b></i>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 <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">here</a>].</div><div><br /></div><div>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? </div><div><br /></div><div>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: <i>"Scotland needs no lectures about tough choices, we have suffered a decade of Tory austerity".</i></div></div><div><br /></div><div>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:</div><div><ul style="text-align: left;"><li><i>"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 ..." </i></li></ul>... and at that point the interview runs out of time, which is a shame. </div><div><br /></div><div>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.</div><div><br /></div><div>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 <a href="https://chokkablog.blogspot.com/2021/04/sophists-choice-how-sturgeon-dodges.html" target="_blank">she recently confirmed she still endorses</a>) 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.</div><div><br /></div><div>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.</div><div><br /></div><div><br /></div><p><br /></p><p><br /></p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com8tag:blogger.com,1999:blog-1603438996450817644.post-19340176507459873592021-04-22T02:12:00.005-07:002021-04-22T03:45:22.575-07:00Sophist's Choice: how Sturgeon dodges questions on the economics of separation<p><b style="text-decoration-line: underline;"></b></p><blockquote><p><b style="text-decoration-line: underline;">sophistry</b><u> <i>/ˈsɒfɪstri/</i></u><br /><i>noun:</i> the use of clever but false arguments, especially with the intention of deceiving.</p><p><u><b>sophism </b><i>/sofˈi-zm/</i></u><br /><i>noun:</i> a plausibly deceptive fallacy</p><p><b><u>sophist </u></b> <i>/ˈsä-fist/<br />noun: </i>a<i>n</i> intentionally fallacious reasoner</p></blockquote><p></p><p>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</p><p></p><ul><li>15 April 2021: <a href="https://www.itv.com/news/2021-04-15/nicola-sturgeon-i-have-no-intentions-of-working-with-alex-salmond-in-scottish-independence-drive" target="_blank">ITV News Interview</a> with Peter Smith [<a href="https://twitter.com/PeterAdamSmith" target="_blank">@PeterAdamSmith</a>]</li><li>15 April 2021: <a href="https://www.channel4.com/news/scottish-election-2021-snp-pledges-transformational-spending-for-nhs" target="_blank">4 News Interview</a> with Ciaran Jenkins [<a href="https://twitter.com/C4Ciaran" target="_blank">@C4Ciaran</a>]</li><li>20 April 2021: <a href="https://news.stv.tv/politics/face-to-face-with-colin-mackay-snp-leader-nicola-sturgeon?top" target="_blank">STV News Interview </a>with Colin Mackay [<a href="https://twitter.com/STVColin" target="_blank">@STVcolin</a>]</li><li>21 April 2021: <a href="https://www.itv.com/hub/peston/2a4458a0208" target="_blank">ITV Peston interview</a> with Robert Peston [<a href="https://twitter.com/Peston" target="_blank">@Peston</a>]</li></ul><p>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.</p><p>Here's how she did it.</p><p>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.</p><p>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:</p><p><i></i></p><blockquote><i>“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”</i></blockquote><p>That <i>"underlying approach"</i> 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 <i>"to take account of the changes around Covid"</i> 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 <a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">they recommended</a>. This point was not put to Sturgeon, so she was able to move on.</p><p>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 <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">Andrew Wilson had used in a recent FT article</a>:</p><p></p><p><i></i></p><blockquote><i>"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 [...]"</i> </blockquote><p>As I have explained <a href="https://chokkablog.blogspot.com/2021/04/analysing-sturgeons-stv-interview.html" target="_blank">elsewhere on this blog </a> this is sophistry of the worst kind. </p><p>Pensions and social security are the <i>only</i> 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 <i>in</i> 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 <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">much more</a>]. That £7bn is <i>before</i> considering Scotland's share of Overseas Development Aid, UK's international diplomatic presence, debt interest costs and defence spending outside Scotland.</p><p>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.</p><p>These points were not put to Sturgeon, so she was able to move on.</p><p>When she dismissively observes that <i>"most countries right now run a deficit"</i> she ignores that the <i>scale </i>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.</p><p>STV's Colin Mackay had a go, and this is the response he got:</p><p></p><p><i></i></p><blockquote><i>"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."</i> </blockquote><p></p><p>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:</p><p></p><blockquote><i>"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"</i> </blockquote><p></p><p></p><p>In both cases that response went unchallenged and the interviewers move on to their next questions. </p><p>But "Scotland's share of the UK's borrowing" most certainly does <i>not</i> 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;</p><p></p><ul style="text-align: left;"><li>Scotland's deficit was £15.1bn</li><li>That £15.1bn is the difference between Scotland's spending<sup>1</sup> and "taxes people in Scotland pay"</li><li>The UK's deficit (funded by the UK's borrowing) was £55.4bn</li><li>Scotland's 8.2% population share<sup>2</sup> of the UK's deficit was £4.5bn; that is "Scotland's share of the UK's borrowing"</li><li>£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</li></ul><div>This point was not put to Sturgeon, so she was able to move on.</div><p></p><p></p><p></p><p></p><p>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:</p><p></p><p></p><blockquote><i>" 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"</i> </blockquote><p>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:</p><p></p><p></p><p></p><blockquote><i>"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 ..."</i></blockquote><p>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.</p><p>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?</p><p>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.</p><p style="text-align: center;">***</p><p style="text-align: left;"><u>Notes</u></p><p style="text-align: left;">1/ E<span style="font-size: small;">ven if we only consider spending <i>in </i>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 </span><i style="font-size: small;">still</i><span style="font-size: small;"> the case that spending</span><i> in Scotland </i><span style="font-size: small;">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.</span></p><p style="text-align: left;">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</p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com2tag:blogger.com,1999:blog-1603438996450817644.post-59404430878313386472021-04-16T07:44:00.011-07:002021-04-16T11:01:07.827-07:00Analysing Sturgeon's STV Interview<p>I've just caught up with ITV News’s Peter Smith's interview with Nicola Sturgeon. It's worth watching the <a href="https://www.itv.com/news/2021-04-15/nicola-sturgeon-i-have-no-intentions-of-working-with-alex-salmond-in-scottish-independence-drive" target="_blank">full 15 minutes here</a> - it's a masterclass in deflection, evasion and misdirection.</p><p>The first question is about whether Scots would be as well vaccinated today if she succeeded in her manifesto pledge to take Scotland <i>"out of the UK and into the EU"</i>. 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 <i>why </i>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. </p><p>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 <i>in Scotland</i>".</p><p>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.</p><p>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<i> </i>that every penny of that would still be spent?"</p><p>She doesn't miss a beat, responding without hesitation: "<b><i>Yes - and let me tell you how it will be funded ...</i></b>" before going on to give her rehearsed answer for how it would be afforded <i>while Scotland is in the UK. </i> She answers the question she had expected to be asked, not the one she was actually asked.</p><p>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) .</p><p>Her response is a carefully rehearsed rhetorical sleight of hand which we've seen <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">road-tested by Andrew Wilson</a> and it really needs to be called out:</p><p><i><b></b></i></p><blockquote><i><b>"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 [...]"</b></i></blockquote><p></p><p>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.</p><p><i></i></p><blockquote><i>"they also fund the services that are currently reserved like pensions and social security"</i></blockquote><p></p><p>As this blog has <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">pointed out before</a>, taxes raised in Scotland categorically do <i>not</i> fund <i>all</i> services that that are currently reserved, but they <i>do </i>(give or take) fund reserved spending on pensions and social security.</p><p>So if one was prepared for the answer she gave (and journalists really should be) then the follow up would be:</p><p><i></i></p><blockquote><i>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 <b>only</b> 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?</i></blockquote><blockquote><i>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.</i></blockquote><p></p><p>Too long? OK then:</p><blockquote><p><i>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 <b>don't </b>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?</i></p></blockquote><p>Still too long? OK then:</p><blockquote><p><i>Why do you only mention reserved spending on pensions and benefits but ignore other reserved spending that directly funds over 33,000 jobs in Scotland<sup>1</sup>, 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 </i><i>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.</i></p></blockquote><p>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:</p><p><b><i></i></b></p><blockquote><b><i>"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 ..."</i></b></blockquote><p></p><p>Notice how the <i>scale</i> 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). </p><p>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.</p><p>She goes on:</p><blockquote><p><b><i>"how you manage that [deficit and debt] is what determines your priorities and what determines the success of your economy.."</i></b></p></blockquote><p>Well quite - and she's being asked <i>how </i>she proposes an independent Scotland would manage that. Just when you think she might be about to answer the question, she deflects:</p><p></p><blockquote style="font-weight: bold;"><i>"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 ..."</i></blockquote><p>But "the point" she's been asked to address is how would those commitments be funded <i>in an independent Scotland </i>- and she has ducked the question (again) by instead answering how they propose those committments would be met <i>while remaining in the UK</i>. She's evading answering the actual question, because she has no answer.<b> </b></p><p>Rightly pressed on this, she resorts to just kicking the can down the road:</p><p></p><blockquote style="font-style: italic; font-weight: bold;">"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 ..."</blockquote><p>Well now.</p><p>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 pa<sup>2</sup>. Since then actual oil revenues have averaged about £0.6 billion pa<sup>3</sup>. 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."</p><p>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</p><p style="font-style: italic; font-weight: bold;"></p><blockquote><b><i>"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 ...</i></b>"</blockquote><p></p><p>Wouldn't we all?</p><p>The problem is she's blatantly failed to address the key question, despite being pressed several times in this interview. <i>How </i>does she propose<i> </i>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 <a href="https://cep.lse.ac.uk/pubs/download/brexit17.pdf" target="_blank">the LSE has argued</a> 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. </p><p>These are questions which she will not answer for the simple reason that she has no answers.</p><p style="text-align: center;">***</p><p>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. </p><p>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". </p><p>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.</p><p>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.</p><p></p><p></p><p style="text-align: center;">***</p><p><b>NOTES</b></p><p>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:<br /><a href="https://www.gov.uk/government/statistics/civil-service-statistics-2020">https://www.gov.uk/government/statistics/civil-service-statistics-2020</a><br /><a href="https://www.gov.uk/government/statistics/location-of-uk-regular-service-and-civilian-personnel-annual-statistics-2019" style="font-size: 11pt;">https://www.gov.uk/government/statistics/location-of-uk-regular-service-and-civilian-personnel-annual-statistics-2019</a></p><p>2. "<a href="https://www.gov.scot/binaries/content/documents/govscot/publications/strategy-plan/2013/11/scotlands-future/documents/scotlands-future-guide-independent-scotland/scotlands-future-guide-independent-scotland/govscot%3Adocument/00439021.pdf?forceDownload=true" target="_blank">Scotland's Future</a>" p.75</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRpmh71JPcIVBt1L-KLy5Hu7u3PVXAgUMsWGdqBmHe2jqj2m8v5lYYRwc1MN7DyNjx9rSIKctrm0BzjGpChEfMjZY9gs2Px6wYM_oYLFarqMPLfoUHLn1zGyJ4FvCgB2KQo5S6t7_264s/s1125/highlighted.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1125" data-original-width="920" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjRpmh71JPcIVBt1L-KLy5Hu7u3PVXAgUMsWGdqBmHe2jqj2m8v5lYYRwc1MN7DyNjx9rSIKctrm0BzjGpChEfMjZY9gs2Px6wYM_oYLFarqMPLfoUHLn1zGyJ4FvCgB2KQo5S6t7_264s/w328-h400/highlighted.png" width="328" /></a></div><br /><p>3. Average North Sea revenues between 2015-16 and 2019-20 were £614m pa (per <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2019-20/#:~:text=Estimates%20including%20a%20population%20share,1.7%25%20in%202019%2D20." target="_blank">Scottish Government GERS figures</a>)</p><p><br /></p><p> </p><p><br /></p><p><br /></p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com6tag:blogger.com,1999:blog-1603438996450817644.post-23043729701944422021-04-05T10:05:00.029-07:002021-04-05T14:55:44.047-07:00Mind The Gap: Critiquing the FT's Fiscal Gap Analysis<hr />
<b><u>tl;dr</u></b><br />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<hr /><p><br /></p><p>The Financial Times recently published an analysis ["<a href="https://www.ft.com/content/ff6c0f6b-2d65-4a4e-bbba-878e2260cf3e" target="_blank">Independent Scotland would face a large hole in its public finances</a>"] which summarised the implications of how Scotland's fiscal position has deteriorated since 2014:</p><p><i></i></p><blockquote><i>"Based on the pro-independence Scottish National party’s previous assumptions, this would mean Scotland needed to raise taxes or cut public spending annually<sup>1</sup> by the equivalent of £1,765 per person in the period after exiting the UK so as to narrow the deficit to sustainable levels."</i></blockquote><p></p><p>Anybody thinking £1.8k per person appropriately scales the economic challenge represented by separation has failed to realise the significance of that opening caveat: "<i>Based on the pro-independence Scottish National party’s previous assumptions ...". </i></p><p>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 <i>"Based on what the Leave campaign wrote on the side of a bus ..."</i>.</p><p>To help explain why the true challenge is so much greater than this analysis suggests, here's the FT's own summary chart</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ_uzMRA-_ayTCvXyBUYXOKF7Crb5AFlpV6S-frr2QXwfwEUVnuB8roB-WSa9G6J4m5HgNqz5K5s8-ZZGaGOk-D0kFOrhap45Njac03Tb5QnjjYKiHz6ElP4aTDIPJgYDmb014cd5e5HQ/s1087/ft_graph2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="896" data-original-width="1087" height="378" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhQ_uzMRA-_ayTCvXyBUYXOKF7Crb5AFlpV6S-frr2QXwfwEUVnuB8roB-WSa9G6J4m5HgNqz5K5s8-ZZGaGOk-D0kFOrhap45Njac03Tb5QnjjYKiHz6ElP4aTDIPJgYDmb014cd5e5HQ/w400-h330/ft_graph2.png" width="458" /></a></div><br /><div class="separator" style="clear: both; text-align: justify;"><span style="text-align: left;">Let's first look at what </span><i style="text-align: left;">has </i><span style="text-align: left;">been included before considering the more important issue of what has</span><i style="text-align: left;"> not</i><span style="text-align: left;"> been included.</span></div><p>What <i>has</i> been included are "proposed spending cuts" of 1.2% of GDP<sup>2</sup>. This figure is sourced from the SNP's Sustainable Growth Commission and - having spent more time than is healthy with that report [see <a href="https://www.these-islands.co.uk/publications/i306/gc_4_a_reality_check.aspx" target="_blank">Growth Commission Response: A Reality Check</a>] - I am familiar with what lies behind the 1.2% saving and 5.9% "2018 financing gap"<sup>3</sup> deficit assumption:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhcOOVf-YbzDFR56dN8pux_hiGZiLYlBLrhYJU57bRG1UxVkK76AzY8sP8TvRPiRPi0kFAeb0eTg0rGUCtcqoHIhuIAeB0Otl6kouo7IJZwcqkvVdRTTqf93FaESZwNqnUTw_xKuGAtkI/s725/SGC_savings.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="616" data-original-width="725" height="340" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhcOOVf-YbzDFR56dN8pux_hiGZiLYlBLrhYJU57bRG1UxVkK76AzY8sP8TvRPiRPi0kFAeb0eTg0rGUCtcqoHIhuIAeB0Otl6kouo7IJZwcqkvVdRTTqf93FaESZwNqnUTw_xKuGAtkI/w400-h340/SGC_savings.png" width="400" /></a></div><br /><span style="text-align: left;">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".</span><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">The FT rightly notes <i>"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"</i>.<i> </i></div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">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;</div><div class="separator" style="clear: both; text-align: left;"><ol style="text-align: left;"><li>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 UK<sup>4</sup>.</li><li>The larger part of the SGC's "saving" comes from assuming that £2.4 billion of "<i>spending that is allocated to Scotland but takes place elsewhere" </i>could be "<i>transferred to Scotland "</i> and generate "r<i>evenue benefits of £0.6 billion"</i><sup>5</sup> 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 exist<sup>6</sup>. If £2.4 billion of transferrable spending <i>did</i> 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.</li><li>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</li><li>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</li></ol></div><p>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 <a href="https://chokkablog.blogspot.com/2016/06/thoughts-on-eu-referendum.html" target="_blank">Thoughts on EU Referendum</a>) - but of course to focus on that figure alone would be to miss the real costs of Brexit.</p><p>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 <i>not</i> included in the FT's quantitative analysis.</p><p>The FT's assumption of a 9.9% deficit for 2025-26 is broadly in line with <a href="https://www.ifs.org.uk/publications/14982#:~:text=Scotland's%20implicit%20budget%20deficit%20could,Institute%20For%20Fiscal%20Studies%20%2D%20IFS" target="_blank">IFS projections</a> (graph below) - but these are figures which assume Scotland remains within the UK and the UK single-market</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB9B0dEgeMIf67cCgz4sOEL9yEhbTlpkeE-6V4ev9voEZvAEPi5IGPgAMtKCw-g-j5W-ItZr28SHRpn7Du7Iose8k8ftLqvRfoy1U8WS2-3j-LdJ-QeDdJ8QmleOzdSvgEQNwBG7pki-Y/s1822/IFS+projections.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1084" data-original-width="1822" height="238" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB9B0dEgeMIf67cCgz4sOEL9yEhbTlpkeE-6V4ev9voEZvAEPi5IGPgAMtKCw-g-j5W-ItZr28SHRpn7Du7Iose8k8ftLqvRfoy1U8WS2-3j-LdJ-QeDdJ8QmleOzdSvgEQNwBG7pki-Y/w400-h238/IFS+projections.png" width="400" /></a></div><div><br /></div>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" <i>and </i>ignoring the other effects of separation (effects which the article goes on to mention in commentary only).<div><br /></div><div><div>The article notes <i>"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."</i></div><div><i><br /></i></div><div>The full research paper is worth reading [here > <a href="https://cep.lse.ac.uk/pubs/download/brexit17.pdf" target="_blank">Disunited Kingdom? Brexit, trade and Scottish independence</a>]. The figures quoted relate to income per capita and come with these caveats:</div><div><ul style="text-align: left;"><li><i>"These numbers likely <b>underestimate </b>the losses caused by higher trade costs, as we do not account for any dynamic effects of trade on productivity"</i></li><li><i>"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 <b>it will take 10-15 years </b>for the full effects to materialise"</i></li></ul><div>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).</div></div><div><br /></div><div>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!</div><div><br /></div><div>The FT article goes on to mention "<i>A further complication around borrowing relates to Scotland’s future currency arrangements". </i>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: <i>"With persistently high borrowing unlikely to succeed, an independent Scotland would need greatly improved economic performance to avoid tight spending control or higher taxes."</i></div><div><i><br /></i></div><div>This massively understates the scale of the currency challenge. As explained in this These Islands paper [<a href="https://www.these-islands.co.uk/publications/i330/choose_your_poison_the_snps_currency_headache.aspx" target="_blank">Choose Your Poison: The SNP's Currency Headache</a>], 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.</div><div><br /></div><div>If we add back the rather speculative 1.2% cost-savings, we increase the gap by a further £400 per head. </div><div><br /></div><div>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. </div><div><br /></div><div>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.</div><div><br /></div><div style="text-align: center;">*****</div><div><p><b><u><span>Notes</span></u></b></p><p><span>1. Pedantic point: they mean "cut annual public spending" not "cut public spending annually"</span></p><p><span>2. [7.1% - 5.9%] = 1.2%; [9.9% - 8.7%] = 1.2%</span></p><p><span>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</span></p><p><span>4. See <a href="https://www.gov.uk/government/statistics/civil-service-statistics-2020" target="_blank">Civil Service Statistic 2020</a>: 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)</span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHNpRinMnywOGJ0zajiJy6HZQvAPa6VlKpIovxATf_rff8FoZ7nEloLmUPvBEL54lvVM99cR0ODKYDM95DNo822e4_5sriWBN5D7zAoUQXg-EgVoSk1FCIM2XVpCk_3Dm4QrLnuvEQ7VQ/s492/CS+heads.png" style="margin-left: 1em; margin-right: 1em;"><span><img border="0" data-original-height="389" data-original-width="492" height="316" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiHNpRinMnywOGJ0zajiJy6HZQvAPa6VlKpIovxATf_rff8FoZ7nEloLmUPvBEL54lvVM99cR0ODKYDM95DNo822e4_5sriWBN5D7zAoUQXg-EgVoSk1FCIM2XVpCk_3Dm4QrLnuvEQ7VQ/w400-h316/CS+heads.png" width="400" /></span></a></div><span><br /></span><p><span>5. <a href="https://static1.squarespace.com/static/5afc0bbbf79392ced8b73dbf/t/5b0a988c352f53c0a5132a23/1527421195436/SGC+Full+Report.pdf" target="_blank">Sustainable Growth Commission B4.58</a></span></p><p><span>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 > <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">What's £7 billion between friends</a>], 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:</span></p><p></p><ul style="text-align: left;"><li><span>Civil Service costs which already take place in Scotland (e.g. DWP & HMRC): £569m</span></li><li><span>Overseas Pensions for ex-pat Scots: £336m</span></li><li><span>EU transactions (cost of EU membership): £270m</span></li><li><span>BBC costs which are already in Scotland: £251m</span></li><li><span>Nuclear decommissioning costs which already take place in Scotland: £222m</span></li><li><span>Other pensions responsibilities: £90m</span></li><li><span>EEA Medical costs: £59m</span></li><li><span>Financial Services Compensation Scheme Costs: £41m</span></li><li><span>Maritime & Coastguard Agency costs: £26m</span></li></ul><p></p><p><span>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 <i>and </i>transferred, which is what the SGC assume)</span></p><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><p><br /></p><div><br /></div></div></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com4tag:blogger.com,1999:blog-1603438996450817644.post-80376494467439257422021-01-31T09:50:00.017-08:002021-02-01T14:17:43.564-08:00What's £7 billion between friends?<p>In yesterday's <a href="https://www.ft.com/content/4ec7158d-fe9f-4aa6-9757-4b86a9800157?shareType=nongift" target="_blank">Financial Times,</a> Andrew Wilson (Chair of the SNP’s Sustainable Growth Commission) made the following sweeping statement:</p><p><i></i></p><blockquote><i>“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.” </i></blockquote><p></p><p>That statement is near-enough true<sup>1</sup>, 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."</p><p>If you take the time to go through the 515 cost line-items which make up the reserved expenditure allocated to Scotland in GERS<sup>2</sup> - and I have - you will find Wilson is glossing over the following c.<b>£4.7 billion of non-defence related reserved spending incurred directly <i>in</i> Scotland</b><sup>2</sup>;</p><p></p><ul style="text-align: left;"><li><b>£918m</b> - 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 <i>in </i>Scotland than charged <i>to </i>Scotland in GERS<sup>3</sup></li><li><b>£94m</b> - Other civil service costs incurred <i>in </i>Scotland (figure relates only to those located in Scotland<sup>4</sup><b>)</b></li><li><b>£884m</b> - Network Rail (maintaining and improving Scotland's rail infrastructure)</li><li><b>£726m</b> - Renewable Obligation Certificates (support for Scotland's renewable power industry)</li><li><b>£676m</b> - Research Grants awarded to and spent in Scotland as well as the Renewable Heat Incentive<sup>5</sup> </li><li><b>£529m</b> - R&D tax credits and other tax reliefs<sup>6</sup> supporting economic activity in Scotland</li><li><b>£273m</b> - Nuclear decommissioning costs in Scotland<sup>7</sup></li><li><b>£251m</b> - BBC costs (in Scotland)<sup>8</sup></li><li><b>£125m</b> - Scottish Ferries costs and Creative/Historic Scotland costs recharged to the rest of the UK in GERS<sup>9</sup></li><li><b>£70m </b>- HMCTS central<sup>10</sup>, British Transport Police, CICA Agency<sup>11</sup></li><li><b>£36m</b> - Environment Protection costs<sup>12</sup></li><li><b>£118m</b> - Other spending in Scotland, including elements of: Maritime and Coastguard Agency, UK Space Agency, Electricity Settlement Company, Broadband Voucher Scheme, CITB/ECITB; Lottery Grants<sup>13</sup>; Medical Research Council; etc.</li></ul><p></p><p>In addition to the above non-defence spending in Scotland, roughly <b>£2.5 billion of defence spending takes place <i>in</i> Scotland<sup>14</sup>.</b></p><p><b>So that's over £7 billion of existing reserved spending that takes place <i>in</i> Scotland that Wilson suggests "could be replicated or not".</b></p><p>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.</p><p>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.</p><p><br /></p><p><u>Addendum 1</u></p><p>It's worth mentioning the other costs <i>not </i>spent in Scotland that Wilson is also suggesting "could be replicated or not";</p><p></p><ul style="text-align: left;"><li><b>£891m</b> - Overseas Development Assistance (in his Growth Commission report, Wilson commited to maintaining this via an "Annual Solidarity Payment" to rUK)</li><li><b>£666m</b> - EU transactions<sup>15</sup></li><li><b>£134m</b> - Foreign & Commonwealth Office costs (the Growth Commission committed to continuing this level of spend)<sup>16</sup></li></ul><div>The remaining figure that Wilson is suggesting "could be replicated or not" is Scotland's <b>£4.5 billion </b>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.</div><div><br /></div><div><u><br /></u></div><div><u>Addendum 2</u></div><div><br /></div><div>For those who are curious, the full analysis which backs up this summary will be published soon on <a href="https://www.these-islands.co.uk/" target="_blank">These Islands</a> - 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;</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA4_G0dCX0QyGNDE2FQ58YeED9ZyUpkGi1LPcBuqvzZwjvyi8p9Wz8BZQMXeQNUqNQKdptNX9TxqPYEgVO_H3hD063-mMN40Zryy_2lKqG5Ob6uwpODS-w0tNpY48NOtZQWbeAfpLluf0/s876/summary.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="876" height="452" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhA4_G0dCX0QyGNDE2FQ58YeED9ZyUpkGi1LPcBuqvzZwjvyi8p9Wz8BZQMXeQNUqNQKdptNX9TxqPYEgVO_H3hD063-mMN40Zryy_2lKqG5Ob6uwpODS-w0tNpY48NOtZQWbeAfpLluf0/w640-h526/summary.png" width="550" /></a></div><br /><div><u><br /></u></div><div><u>Addendum 3</u></div><div>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). </div><div><br /></div><div>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 <i>as well</i> as moving £2.4bn of (basically non-existent) rUK spending to Scotland<sup>17</sup>.</div><div><br /></div><div>To be fair to Richard Murphy, I guess when he <a href="https://www.taxresearch.org.uk/Blog/2017/08/25/gers-is-this-why-it-always-says-the-scottish-deficit-is-so-large/comment-page-1/" rel="nofollow" target="_blank">asserted</a> "the sum in question is unlikely to exceed £10 billion" he was right - £0.5bn is indeed less than £10bn.</div><div><br /></div><div>/ENDS/</div><div><br /></div><div>___________________</div><p>1. According to <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2019-20/" target="_blank">2019-20 GERS</a> 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.<span> 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 <i>in</i> Scotland than is allocated <i>to</i> Scotland in GERS (10.6% of DWP employees are located in Scotland, but GERS apportions just 9.1% of their costs to Scotland). </span></p><p>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 "<a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2019-20/" target="_blank">supporting files</a>"). 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.</p><p>3. See <a href="https://www.gov.uk/government/statistics/civil-service-statistics-2020">https://www.gov.uk/government/statistics/civil-service-statistics-2020</a>: 10.6% of DWP employees and 11.7% of HMRC employees are located in Scotland; <span>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 <i>in </i>Scotland than costs allocated<i> to</i> 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.</span></p><p>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.</p><p>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</p><p>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)</p><p>7. GERS shows £221m as Scotland's population share of UK costs, but the costs incurred<i> in</i> Scotland (per the CRA database) were £273m</p><p>8. Compared to the £298m allocated in GERS, this figure of £251m represents the estimated spend in Scotland per the <a href="https://www.bbc.com/aboutthebbc/reports/annualreport" target="_blank">2019-20 Annual Report</a>. <span>This figure is made up of £202m "dedicated direct spend in Scotland" and £49m of indirect spend, mainly for distribution costs.</span></p><p>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 </p><p>10. HM Courts and Tribunal Service spending in Scotland (non-devolved tribunals)</p><p>11. Criminal Injuries Compensation Authority (compensation claims from people physically or mentally injured because they were victim of a violent crime)</p><p>12. Natural Environment Research Council spending, Low-Carbon Initiative (eg, support for offshore windfarms), energy efficiency loans and flood risk management (RE)</p><p>13.Lottery income is included in Scotland's tax revenues, so it is consistent to include this cost</p><p>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 (<a href="https://www.gov.uk/government/statistics/location-of-uk-regular-service-and-civilian-personnel-annual-statistics-2019" target="_blank">6.8% of regular and civilian personnel are based in Scotland</a>) and MOD <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/919361/20200227_CH_UK_Defence_in_Numbers_2019.pdf" target="_blank">regional per capita spending with UK industry</a></p><p>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. <span>Even if it did, Scotland would get a contribution share not a population share of the abatement, so the net cost would be £413m</span></p><p><span>16. </span> Albeit recognising it would result in Scotland having a diplomatic presence in significantly fewer than the 169 countries where the FCO is present</p><p>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.</p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p><br /></p><p>In yesterday's <a href="https://www.ft.com/stream/f6d345ef-1347-4ec4-b4c1-13d5c19e0cbd" target="_blank">Financial Times</a>, Andrew Wilson (Chair of the SNP’s Sustainable Growth Commission) wrote:</p><p><i></i></p><blockquote><i>"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”</i></blockquote><p></p><p>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”. </p><p>By implication<sup>1</sup><i> </i>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 GERS<sup>2</sup>, so I can tell you precisely what he is suggesting "could be replicated or not" by an independent Scotland.</p><p><br /></p><p class="MsoNormal"><o:p></o:p></p>
<p class="MsoListParagraphCxSpFirst" style="mso-list: l0 level1 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£2.x billion of non-defence spending <i>in</i> scotland<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£899m - Network Rail (Scotland’s rail
infrastructure)<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£726m - Renewable Obligation Certificates<a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftn2" name="_ftnref2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a><o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£482m - Research Grants (inc MRC, AHC etc etc)<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£569m - civil service costs (x thousand employees,
mainly HMRC and DWP <o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£487m - R&D tax credits and other tax
reliefs<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£251m - BBC<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£273m - nuclear decommissioning<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£171m - Renewable Heat Incentive<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£125m - ferries and Creative/Historic Scotland<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£70m – HMCTS<a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftn3" name="_ftnref3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a>,
British Transport Police and CICA<a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftn4" name="_ftnref4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a><o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£41m - Financial Services Compensation Scheme<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£36m – Environmental Protection<a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftn5" name="_ftnref5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a><o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£31m – Lottery grants<a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftn6" name="_ftnref6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 11pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></a><o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£26m - Maritime & Coastguard Agency costs<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="mso-list: l0 level1 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: Symbol; mso-bidi-font-family: Symbol; mso-fareast-font-family: Symbol;"><span style="mso-list: Ignore;">·<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£? billion of money spent <i>for</i> Scotland<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£336m of overseas pensions costs for ex-pat Scots<o:p></o:p></p>
<p class="MsoListParagraphCxSpMiddle" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£270m as Scotland’s share of the UK’s EU
membership costs<o:p></o:p></p>
<p class="MsoListParagraphCxSpLast" style="margin-left: 72pt; mso-add-space: auto; mso-list: l0 level2 lfo1; text-indent: -18pt;"><!--[if !supportLists]--><span style="font-family: "Courier New"; mso-fareast-font-family: "Courier New";"><span style="mso-list: Ignore;">o<span style="font: 7pt "Times New Roman";">
</span></span></span><!--[endif]-->£59m of EEA medical costs<o:p></o:p></p>
<div style="mso-element: footnote-list;"><!--[if !supportFootnotes]--><br clear="all" />
<br /><hr align="left" size="1" width="33%" />
<!--[endif]-->
<div id="ftn1" style="mso-element: footnote;">
<p class="MsoFootnoteText"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference">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</span></span></span></p><p class="MsoFootnoteText"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><span class="MsoFootnoteReference">2. </span></span></span></p><p class="MsoFootnoteText"><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref1" style="mso-footnote-id: ftn1;" title="">[1]</a></span></span><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref1" title=""><!--[endif]--></a></span></span> Financial
Times, 30/01/2021<o:p></o:p></p>
</div>
<div id="ftn2" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref2" name="_ftn2" style="mso-footnote-id: ftn2;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[2]</span></span><!--[endif]--></span></span></a> support
for Scotland’s renewable pwer industry)<o:p></o:p></p>
</div>
<div id="ftn3" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref3" name="_ftn3" style="mso-footnote-id: ftn3;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[3]</span></span><!--[endif]--></span></span></a> HM
Courts & Tribunal service for non-devolved tribunals held in Scotland<o:p></o:p></p>
</div>
<div id="ftn4" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref4" name="_ftn4" style="mso-footnote-id: ftn4;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[4]</span></span><!--[endif]--></span></span></a> Criminal
Injuries Compensation Authority<o:p></o:p></p>
</div>
<div id="ftn5" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref5" name="_ftn5" style="mso-footnote-id: ftn5;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[5]</span></span><!--[endif]--></span></span></a> Natural
Environment Research Council grants, low-carbon initiatives (e.g. offshore
windfarms), energy efficiency loans and flood risk management<o:p></o:p></p>
</div>
<div id="ftn6" style="mso-element: footnote;">
<p class="MsoFootnoteText"><a href="https://d.docs.live.net/90b3871e7302eca7/KH%20These%20Islands/GERS%202020/GERS%20Reserved%20Spending%20-%20Support%20Analysis%201.1.docx#_ftnref6" name="_ftn6" style="mso-footnote-id: ftn6;" title=""><span class="MsoFootnoteReference"><span style="mso-special-character: footnote;"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span face=""Calibri",sans-serif" style="font-size: 10pt; line-height: 107%; mso-ansi-language: EN-GB; mso-ascii-theme-font: minor-latin; mso-bidi-font-family: "Times New Roman"; mso-bidi-language: AR-SA; mso-bidi-theme-font: minor-bidi; mso-fareast-font-family: Calibri; mso-fareast-language: EN-US; mso-fareast-theme-font: minor-latin; mso-hansi-theme-font: minor-latin;">[6]</span></span><!--[endif]--></span></span></a>
Lottery income is included in Scotland’s tax revenue figure<o:p></o:p></p>
</div>
</div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com3tag:blogger.com,1999:blog-1603438996450817644.post-38438654705309799672020-12-05T03:51:00.009-08:002021-01-31T10:33:50.143-08:00In Other News<p>I'm conscious that I haven't posted here for a while - so I thought it might be useful to collate here stuff that I've written elsewhere:<br /></p><ul style="text-align: left;"><li><a href="https://www.these-islands.co.uk/publications/i368/gers_figures_dont_lie_despite_what_independence_supporters_say.aspx" target="_blank">Herald Article</a>: GERS figures don't lie, despite what (some) independence supporters say <span style="font-size: small;">[014/12/2020]</span></li><li><a href="https://www.spectator.co.uk/article/leaving-the-union-would-harm-scotland-more-than-brexit" target="_blank">Spectator Article:</a> Responding to Andrew Wilson's ''Scotland can’t afford to remain part of the Union" piece the week before <span style="font-size: small;">[01/12/2020]</span></li><li><a href="https://www.bbc.co.uk/sounds/play/m000ptbj" target="_blank">A Brief snippet on the BBC Radio 4's World at One</a>: from 34 minutes in<span style="font-size: small;"> [27/11/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i365/why_sturgeon_might_not_actually_be_leading_an_unstoppable_force.aspx" target="_blank">Herald Article</a>: Why Sturgeon might not actually be leading an unstoppable force <span style="font-size: x-small;">[27/11/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i363/focus_groups_report.aspx" target="_blank">These Islands Focus Group Report</a>: Lessons learned from focus groups carried out with “disgruntled Remainers” (Scots who voted No in 2014, Remain in 2016) who now favour independence <span style="font-size: small;">[27/11/2020]</span></li><li><a href="https://www.thetimes.co.uk/article/independence-is-a-quack-cure-for-everything-hz5c6brmp" target="_blank">Times Op-Ed</a>: Independence is a quack cure for everything (a response to Andrew Wilson) <span style="font-size: x-small;">[01/09/2020]</span></li><li><a href="https://www.bbc.co.uk/sounds/play/m000lzl7" target="_blank">Discussion on BBC Radio Scotland:</a> brief exchange with Andrew Wilson from 1hr 19 mins <span style="font-size: x-small;">[26/08/2020]</span></li><li><a href="https://www.bbc.co.uk/sounds/play/m000m049" target="_blank">Discussion on Radio 4's Today Programme</a>: brief Exchange with Andrew Wilson from 1hr 47 mins <span style="font-size: x-small;">[22/08/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i354/fiscal_transfers_and_shifting_narratives.aspx" target="_blank">Reaction Article</a>: Fiscal Transfers and Changing Narratives <span style="font-size: small;">[17/07/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i353/the_critic_magazine_podcast_with_kevin_hague.aspx" target="_blank">The Critic Magazine Podcast</a>:<span style="font-size: small;"> </span>speaking to Graham Stewart, on the Scottish independence question. <span style="font-size: x-small;">[08/07/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i347/newcastle_conference_kevin_hague_on_scotlands_finances.aspx" target="_blank">Presentation at These Islands Newcastle Conference:</a> a 20 minute, whistle-stop tour through Scotland's (and the UK regions') fiscal position <span style="font-size: x-small;">[01/03/2020]</span></li><li><a href="https://www.these-islands.co.uk/publications/i320/matt_forde_podcast_with_kevin_hague.aspx" target="_blank">Matt Forde's The Political Party Podcast</a>: A broad-ranging discussion about the reasons for setting up <a href="https://www.these-islands.co.uk/" target="_blank">These Islands</a> <span style="font-size: small;">[24/11/2018]</span></li><li><a href="https://www.these-islands.co.uk/publications/i318/kevin_hague_in_the_ileach.aspx" target="_blank">Ileach Article:</a> Responding to reports of a speech by Robin McAlpine of the Commonweal<span style="font-size: small;"> [13/10/2018]</span></li><li><a href="https://www.these-islands.co.uk/publications/i301/growth_commission_response_executive_summary.aspx" target="_blank">Response to Andrew Wilson's Growth Commission Report</a>: A detailed paper - reviewed and endorsed by senior economists - which takes a critical look at the report which some claim to be the SNP's economic blue-print for independence <span style="font-size: x-small;">[23/07/2018]</span></li><li><a href="https://www.these-islands.co.uk/publications/i297/snp_growth_commission_kevin_hague_gives_his_first_impressions_on_bbc_radio_scotland.aspx" target="_blank">BBC Radio Scotland appearance</a>: reacting to the initial publication of the SNP's Sustainable Growth Commission <span style="font-size: x-small;">[26/05/2018]</span></li><li><a href="https://www.spectator.co.uk/article/scotland-s-deficit-figures-show-that-the-uk-works" target="_blank">Spectator Article</a>: Scotland's deficit figures show that the UK works <span style="font-size: x-small;">[06/07/2017]</span></li><li><a href=""kevin hague" site:dailyrecord.co.uk" target="_blank">Around 30 articles for the Daily Record</a>: my "thinking allowed" columns which ran in the Daily record during 2016/17</li></ul><p></p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com5tag:blogger.com,1999:blog-1603438996450817644.post-52235367935814773302020-08-27T04:05:00.006-07:002020-08-27T12:40:54.933-07:00Apples and Pears: GERS<p>The Scottish Government's economists yesterday published their latest <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers-2019-20/" target="_blank">Government Expenditure & Revenue Scotland (GERS)</a> figures. I'll publish a more complete analysis on this blog soon, but the bottom line is they just confirm what we already know:</p><p></p><ul style="text-align: left;"><li>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</li><li>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</li><li>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</li></ul><p>I wrote a brief summary of what this means <a href="https://www.dailyrecord.co.uk/news/politics/independence-union-two-leading-commentators-22583153" target="_blank">for the Daily Record</a> - it's the same old story.</p><p>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:</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9J2WAIiRoUhR05S1-9CaXGssxhh9LlxCLWGjKvQUP8GdKYL6jFKtNxU2oO2qOBvwqjK0MYo4DBsdekPj5PmP2X3eaUfl8gpzH_tv_B_F_whAeFKqmyyHqm7neHJ63yiDLoSY7yZdCmtw/s1377/eu+cont.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="469" data-original-width="1377" height="174" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi9J2WAIiRoUhR05S1-9CaXGssxhh9LlxCLWGjKvQUP8GdKYL6jFKtNxU2oO2qOBvwqjK0MYo4DBsdekPj5PmP2X3eaUfl8gpzH_tv_B_F_whAeFKqmyyHqm7neHJ63yiDLoSY7yZdCmtw/w512-h174/eu+cont.png" width="512" /></a></div><p>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. </p><p>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.</p><p>Scotland's figure is a roughly £0.5bn pa net contribution <i>to</i> the EU every year, or about £100 per head (although without the UK abatement it would be nearly double that).</p><p>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". </p><p>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. </p><p>Let me explain.</p><p>Putting aside the EU exit charge, the annual impact of leaving the EU for the UK is a direct, day-one <i>saving </i>of c.£10bn pa or £150 per head. The comparable figure for Scotland leaving the UK is a direct day-one <i>loss </i>of nearly £11bn pa or £2,000 per head.</p><p>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.</p><p>The important point (both for Brexit and Scexit) is that this represents only the day-one fiscal tranfer impact <i>before</i> 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).</p><p>The big headline "cost of Brexit" figures (e.g "<a href="https://fullfact.org/europe/online-cost-brexit-net-contributions/" target="_blank">£200 billion by the end of 2020</a>") refer to this wider economic impact - normally an estimate of a cumulative GDP impact versus an alternative Remain scenario.</p><p>So what would the equivalent "cost of Scexit" figure be?</p><p>The first thing to note is the answer to that question is most definitely <i>not</i> 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 <i>additional </i>cost that exists with Scexit, something which in Brexit terms was in fact a benefit.</p><p>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.</p><p>If we agree that Brexit will be a big net economic cost (I certainly do) then logically the <i>equivalent</i> economic cost for Scotland leaving the UK will be so much greater. </p><p>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).</p><p>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.</p><p></p>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com7tag:blogger.com,1999:blog-1603438996450817644.post-48677599456868442232020-07-18T03:49:00.014-07:002020-07-23T02:00:51.919-07:00Fact Checking a Fact CheckThe National today published a 1,000 article rather hilariously labelled as a "Fact Check" which amounted to little more than a personal attack against me. The entire piece is predicated on their view that issuing a clarification is "being forced to eat your words" - it's a sorry state of affairs when a blogger has more journalistic integrity than a publication claiming to be a national newspaper. Despite taking all those words merely to demonstrate their own failure to grasp the basic facts of the matter, they boldly conclude: "Chokkablog gets it spectacularly wrong".<div><div><div><div><div><br /></div><div>Well allow me to retort.</div></div></div></div></div><div><br /></div><div><b>Context</b></div><div><br /></div><div>I wrote some tweets and <a href="https://chokkablog.blogspot.com/2020/07/kate-forbes-grievance-dissected.html" target="_blank">a blog</a> complaining about Kate Forbes' attempts to seek grievance by suggesting that Rishi Sunak's "Plan for Jobs" £30bn pandemic support was worth only £21m to Scotland.</div><div><br /></div><div>My main complaint was that she was mithering about funds the <i>Scottish Government</i> was receiving, cynically expecting independence supporters to read that as being all the support that <i>Scotland</i> was receiving. You might be thinking only a knuckle-dragging grievance-junky would make such a mistake. Ladies and gentlemen, I present to you the National's front page splash yesterday:</div><div><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigiml1dFgW452LZ0qd7BYWCdAPchWqLwfFhD16Ynh3JK65XZDmXLE1-8GgOg_YS03u2GJjG5xqwST78lhUFhjL4TnbUdJ5Zuzf_IkVrSJivVhWblpyyTWfAOzeNuHlW93BzHtyFBXcjC8/s977/EdJFdDsXkAUtRLL.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="641" data-original-width="977" height="329" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEigiml1dFgW452LZ0qd7BYWCdAPchWqLwfFhD16Ynh3JK65XZDmXLE1-8GgOg_YS03u2GJjG5xqwST78lhUFhjL4TnbUdJ5Zuzf_IkVrSJivVhWblpyyTWfAOzeNuHlW93BzHtyFBXcjC8/w500-h329/EdJFdDsXkAUtRLL.jpg" width="500" /></a></div><div><br /></div><div>For the avoidance of any doubt: the claim that <i>"Scotland only gets £21m from '£30bn'"</i> is absolutely and unequivocally false. Rememember: this is the paper which is claiming to be publishing a "Fact Check" on this topic!</div><div><br /></div><div>Here is <a href="https://www.ifs.org.uk/publications/14938" target="_blank">what the IFS actually said</a>: <i>"Of course, <b>Scotland as a nation will receive much more</b> – UK-wide measures like the Job Retention Bonus, Kickstart Scheme and VAT cut could amount to <b>around £1 billion of genuinely new money for Scottish businesses, jobseekers and consumers</b>. And the Scottish Government itself will receive over £700 million as a result of other funding confirmed in the Summer Economic Update"</i></div><div><i><br /></i></div><div>I also questioned the veracity of the £21m number itself, even as the figure the <i>Scottish Government </i>would get "of the £30bn". As is always the way with my blog, I laid out the audit-trail of information I was able to find, explained my reasoning and was clear about what I could and could not show.</div><div><br /></div><div>I concluded: "<i>To be clear: I don't know what the Barnett Consequentials are on the £30bn figure, but I do know the correct denominator for the calculation is certainly not £30bn* and I would be amazed if the correct numerator was as low as £21m"</i></div><div><i><font size="2"><br /></font></i></div><div><i><font size="2">* as that includes funds spent directly in Scotland, not via the Scottish Government</font></i></div><div><i><br /></i></div><div>I was completely clear about the basis of my judgement and - as it happens - I was right.</div><div><br /></div><div>Again looking at <a href="https://www.ifs.org.uk/publications/14938" target="_blank">what the IFS actually said</a>:<i> "the Scottish Government will get far more than £21 million. Because stamp duty is devolved to Scotland it will get much more than that [..] Exactly how much is not yet clear [..] but initial estimates published by the OBR this week suggest it could amount to around £120 million spread over this year and next"</i></div><div><br /></div><div>So why did I apologise?</div><div><br /></div><div>I apologised because in my blog I referenced <a href="https://www.heraldscotland.com/news/18571809.leading-economist-21m-claim-snp-finance-chief-not-true/" target="_blank">a statement made by the IFS</a> as support for my conclusions and - emboldended by the IFS spokeperson being quoted as saying the £21m was "not true" - I said <i>"far fewer people will take the time to understand the complicated truth than accept the simple lie".</i></div><div><i><br /></i></div><div>When the IFS issued a subsequent statement (the one I quote above) highlighting that they had - like me - not realised how much of the £30bn was recycled money, I felt it would be wrong for me not to update my blog to reflect that. I also felt, in the light of the revised IFS statement, that I had been overly harsh in suggesting that Kate Forbes' claim was a "lie" and that I should apologise for that - so I did. I also pinned the Tweet making that apology to my Twitter profile, to ensure it was widely seen.</div><div><br /></div><div><b>The National "Fact Check"</b></div><div><br /></div><div>They offer their readers this "Doorstep answer": <i>"Kevin Hague was forced to eat his words when the independent Institute for Fiscal Studies did the sums again and agreed with the Cabinet Secretary. Hague was forced to apologise."</i></div><div><i><br /></i></div><div>I wasn't forced to do anything - who on earth do they think did this forcing? In fact what happened is that I had the integrity to ensure that my post was updated to reflect the IFS's own updated statement and I hope the good grace to recognise that I had been overly harsh in my original wording.</div><div><br /></div><div>I'll skip the National's ad hominem attacks on me and the organisation I chair and try and focus on the odd moments where the National attempts to deal with what I actually wrote. They say:<i> "he accepts at face value the Chancellor’s claim that the Plan for Jobs means £30bn of new money, though there are references in the initial Treasury paper to existing cash pledges being “brought forward”.</i></div><div><i><br /></i></div><div>It is patently untrue that I accepted £30bn at face value as new money. They're claiming this is a "Fact Check" remember and my exact words were: <i>"Now some of these are described as "accelerating investment" and some are "previously announced" - so it's possible that the Barnett Consequentials relating to them have already been included in previous figures announced". </i></div><div><br /></div><div>The National go on to say: <i>"Suspiciously, despite endless laudatory quotes from Sunak’s Plan for Jobs .."</i></div><div><br /></div><div>Far from being endless, there isn't a single "laudatory quote" in my blog (remember, they think this is a "Fact Check") - I merely detail what's in the Plan to explicitly separate out what would be UK-wide and so have no impact on the Scottish Government's budget.</div><div><br /></div><div>They then rather neatly highlight my transparent honesty (don't forget they claim I'm doing this "suspiciously"): "... <i>Hague actually avoids giving exact numbers for what he considers to be the correct Barnett consequentials. In fact, he admits: “I don’t know what the Barnett consequentials are on the £30bn figure”. How then can he criticise Kate Forbes?"</i></div><div><i><br /></i></div><div>The problem here is that the author of the National's "Fact Check" clearly has no understanding of how an analytical audit trail works, or why admitting that you don't have the information to be able to calculate or recreate a specific figure is not "suspicious", it's <i>transparent and honest</i>. It is precisely because I am being very careful to avoid misleading readers of my blog that I feel I can criticise Kate Forbes.</div><div><br /></div><div>The National continue: "<i>Instead, Hague quotes an analysis written on the day of the Chancellor’s statement, by Peter Phillips of the independent Institute for Fiscal Studies (IFS). Here Philips rejects the Cabinet Secretary’s figure of £21m in Barnett consequentials as simply “not true”. Unfortunately for Hague, a week later Phillips completely reversed his judgement, explicitly exonerating Forbes."</i></div><div><i><br /></i></div><div>It's not "instead" and it was an interview quote not an "an analyis", but yes I referenced an IFS quote in support of my conclusion - which is why when they issued a clarification I updated my blog. It's also obvious to anybody who reads what the IFS actually wrote that, while mainly complaining about Sunak's misleading presentation of the figures, they were not <i>"explicitly exonerating Forbes". </i>They were recognising that the £21m was a valid number under a specific definition (<i>Barnett Consequentials</i> of <i>newly announced spend</i>) but also that it is not even all of the money the Scottish Government "get" as a result of newly announced spend ("<i>Because stamp duty is devolved to Scotland it will get much more than that")</i>.</div><div><br /></div><div>The National's Conclusion is actually - unintentionally I'm sure - rather flattering: "<i>KEVIN Hague was quick to reword his original blog (yesterday). He also apologised for essentially calling her a liar. But in his reworked blog post, there remains the implication that Forbes was manufacturing grievance for political ends. Buried deep in the small print of the revised blog, Hague makes a grudging admission regarding his earlier erroneous criticisms of the Cabinet Secretary’s integrity: “... it’s only fair to highlight that her figure is more justifiable than my original wording implies.”</i></div><div><i><br /></i></div><div><i>"Buried deep in the small print" </i>amuses me, given there is no small print, it's the conclusion of the blog and I screen-capped, tweeted and pinned the apology - but whatever. Apart from that nonsense I'm pretty happy with the rest of their summary to be honest. Only a single-issue propaganda sheet with no journalisic integrity or interest in factual accuracy would see the act of clarifying and apologising as a bad thing - and my suggestion that she was manufacturing grievance for political ends is vindicated by the National's own headline on Friday, so I guess I should thank them for that!</div><div><br /></div><div>Now, while it's always <i>super </i>fun to start the weekend defending yourself against a hit-piece in a national newspaper, I really do have better things to be doing with my time.</div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com4tag:blogger.com,1999:blog-1603438996450817644.post-15779392622760259932020-07-09T08:22:00.015-07:002020-07-17T04:00:30.844-07:00Kate Forbes' Grievance, DissectedAt the time of writing, in the 24 hours since being posted this tweet from Scottish Finance Secretary Kate Forbes has received around 4 thousand retweets and likes<blockquote class="twitter-tweet"><p dir="ltr" lang="en">Of the c. £30 billion announced by the Chancellor today to support the economy, the Scottish Government will receive only £21m – less than 0.1%.</p>— Kate Forbes MSP (@KateForbesMSP) <a href="https://twitter.com/KateForbesMSP/status/1280880396910186498?ref_src=twsrc%5Etfw">July 8, 2020</a></blockquote> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script>
Those are some big social media numbers for a bold claim - so let us dissect this grievance:
<div><br /></div><div><b><u>"Of the c.£30 billion announced by the Chancellor today to support the economy"</u></b></div><div><b><br /></b></div><div>It's clear she's referring to <a href="https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/898422/A_Plan_for_Jobs__Print_.pdf" target="_blank">this announcement</a> by Chancellor Rishi Sunak and a quick browse finds us the (up to) £30bn</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS6WhVxHcLDjhqn6LtV1G-4-y5S4NauHryxDAKdm24OkPTsFt5cQ46idHHoHB76vGeL5UfPKxXkQUGdZmmvXkZtL2AeK5VGf4p0-Fk9bxqJSCWkBz04snM0JgIv-P_MxuJwW75ba6pH9U/s692/the+30.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="692" data-original-width="679" height="500" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiS6WhVxHcLDjhqn6LtV1G-4-y5S4NauHryxDAKdm24OkPTsFt5cQ46idHHoHB76vGeL5UfPKxXkQUGdZmmvXkZtL2AeK5VGf4p0-Fk9bxqJSCWkBz04snM0JgIv-P_MxuJwW75ba6pH9U/w491-h500/the+30.png" width="491" /></a></div><div><br /></div><div><b><u>"the Scottish Government will receive..."</u></b></div><div><br /></div><div>A cynic might see signs of sophistry here: by referring to what "<i>the Scottish Government will receive</i>" is she hoping casual readers will read that as being all the economic support Scotland will receive? Surely not.</div><div><br /></div><div>On the off-chance that anybody might have fallen for this rather clumsy rhetorical sleight of hand: for those parts of the scheme that are UK or GB-wide, <i>Scotland</i> will receive money based directly on need (or take-up), it just won't come via the conduit of the Scottish Government.</div><div><br /></div><div>So by limiting herself to funds "<i>the Scottish Government will receive"</i> she's able to ignore our needs-based share of the:</div><div><ul style="text-align: left;"><li>£9.4bn Job Retention Bonus</li><li>£2.1bn Kickstart Scheme </li><li>£1.2bn of various support programmes for those seeking work</li><li>£1.2bn of decarbonisation initiatives</li><li>£0.5bn "Eat Out to Help Out" scheme</li><li>£0.3bn of UK-wide investment in "World Class Laboratories"</li></ul><div>The above totals £14.7bn, of which Scotland will of course receive its fair share based on need and/or take-up. If we assume for illustrative purposes that equates to our 8.2% population share, <b>that's £1,200m she's decided to disregard.</b></div><div><br /></div><div>But the above are just the UK and GB-wide <i>spending</i> elements of the support package announced - the £30bn also includes £4.1bn of VAT reduction for hospitality, accomodation and attractions which Scotland will benefit from based on our share of consumption in those sectors (the Scottish tourism industry being of particular significance here). Again if we assume this translates into our 8.2% population share (my guess is it will be higher), <b>that's another c.£330m of economic support she's disregarding.</b></div><div><b><br /></b></div><div>But it doesn't stop there: the £30bn headline number also includes a £3.8bn <i>cut</i> to Stamp Duty Land Tax (SDLT) in England and NI. This is a tax fully devolved to Scotland (as LBTT) and there has been nothing - other than political will and/or courage - to prevent the Scottish government taking similar action. <i>[I'll be honest: how - if at all - this cut would affect the Scottish Block Grant Adjustment is not something I've taken the time to get my head around].</i></div><div><br /></div><div><div><hr /></div><div style="text-align: center;"><font color="#073763">**** Update 17/07/2020 ****</font></div></div><div style="text-align: left;"><font color="#073763">There will indeed be a Scottish budget increase as a direct result of this SDLT cut - </font><a href="https://www.ifs.org.uk/publications/14938" target="_blank">according to the IFS</a><span style="color: #073763;">, </span><span style="color: #073763;">: </span><i style="color: #073763;">"Exactly how much is not yet clear – it will depend on updated forecasts and ultimately outturns for stamp duty revenues in England and Northern Ireland. But initial estimates published by the OBR this week suggest it could amount to around £120 million spread over this year and next."</i></div><div style="text-align: left;"><hr /></div><div style="text-align: center;"><br /></div><div>So if we add together the elements above, <b>we have identified £22.6bn of the £30bn which is not relevant to the figure that the <i>Scottish Government</i> should receive.</b></div><div><br /></div><div><br /></div><div>"<b><u>... only £21m - less than 0.1%"</u></b></div><div><br /></div><div>Where does the £21m come from? The implication is that this is the Barnett consequentials on the £30bn announced, but that's a hard number to calculate (and as we've seen, £30bn is the wrong denominator to use).</div><div><br /></div><div>We've already shown that £22.6bn of the package announced wouldn't be relevant for the purposes of calculating Barnett Consequentials anyway (because those are sums being spent UK or GB-wide and/or relate to tax cuts, not spending). </div><div><br /></div><div>But that still leaves us with c.£7bn of spending committed to England on which we might expect Barnett consequentials to flow to the Scottish Government.</div><div><br /></div><div>That £7bn is made up of;</div><div><ul style="text-align: left;"><li>£2.0bn of Green Homes Grant (an English initiative)</li><li>£1.5bn of "accelerating investment" in England's NHS</li><li>£0.8bn of "accelerating investment" in England's Schools</li><li>£0.6bn of other "accelerating investment" in English infrastructure projects</li><li>£0.9bn of English home building / housing fund increase</li><li>£0.3bn of England-only job support</li><li>c.£1.0bn of implied other English infrastructure investment (mainly the Affordable Homes Programme)</li></ul><div>Now some of these are described as "accelerating investment" and some are "previously announced" - so it's possible that the Barnett Consequentials relating to them have already been included in previous figures announced.</div></div><div><br /></div><div>But Kate Forbes is talking about the amount that will flow to the Scottish Government <i>"of the £30bn announced"</i> and is using the £30bn as the denominator for her grievance-headline grabbing "less than 0.1%" claim - so it would simply be incorrect to exclude any of the Barnett Consequentials from the above in her calculation, whenever they may have been previously announced or discussed.</div><div><br /></div><div>To be clear: I don't know what the Barnett Consequentials are on the £30bn figure, but I do know the correct denominator for the calculation is certainly not £30bn and I would be amazed if the correct numerator was as low as £21m (the Green Homes Scheme alone would surely generate £160m of Barnett Consequentials?)</div><div><br /></div><div>In fact as I am writing this post I see "<a href="https://www.heraldscotland.com/news/18571809.leading-economist-21m-claim-snp-finance-chief-not-true/" target="_blank">Leading economist: £21m claim by SNP finance chief not true</a>" in which David Phillips of the IFS reaches the same conclusion.</div><div><br /><hr /></div><div style="text-align: center;"><font color="#073763">**** Update 17/07/2020 ****</font></div><div><font color="#073763">David Phillips has subsequently posted this "<a href="https://www.ifs.org.uk/publications/14938" target="_blank">Up to £10 billion of the Chancellor's 'Plan for Jobs' will be funded by underspends on previously planned projects</a>" making this very important correction:</font></div><div><font color="#073763"><br /></font></div><div><i><font color="#073763">"But the Scottish Government won’t, as I initially presumed, get extra funding as a result of the Green Homes Grant or the full £40 million it would if all of the money for traineeships and so on were new. Instead, apart from the stamp duty money, it will receive £21 million – the figure quoted by the Scottish Finance Minister – as a result of the combination of the ‘Plan for Jobs’ and the reductions in investment spending elsewhere that the Treasury is now expecting."</font></i></div><div><font color="#073763"><br /></font></div><div><font color="#073763">Revisiting my own text in the light of this, a couple of observations and corrections:</font></div><div><font color="#073763"><br /></font></div><div><font color="#073763">I said above "<i>some of these are described as "accelerating investment" and some are "previously announced" - so it's possible that the Barnett Consequentials relating to them have already been included in previous figures announced"</i> - Whilst I was right, there's no doubt that when writing I was assuming that <i>some</i> rather than effectively <i>all</i> of these figures had already been announced. So mea culpa, I fell into the same trap as the IFS</font></div><div><font color="#073763"><br /></font></div><div><font color="#073763">I did say <i>"To be clear: I don't know what the Barnett Consequentials are on the £30bn figure"</i> - and to be fair I still don't. All we know now is that the Barnett Consequentials on the proportion of the £7bn [i.e. that part of the £30bn that is not being spent UK or GB-wide] <i>which is genuinely new money</i> is £21m (and that there will be an additional c.£120m block grant adjustment over 2 years related to the SDLT cut).</font></div><div><font color="#073763"><br /></font></div><div><font color="#073763">I said above "<i>I would be amazed if the correct numerator was as low as £21m ". </i>Given at this stage we are past the "suggesting that what matters here is what the Scottish Government gets as opposed to what the people of Scotland get"point, we are now debating technicalities. So it's fair to point out that a/ </font><span style="color: #073763;">"of the £30bn" the consequentials are indeed greater than £21m - when quoting the £21m we should be saying "of what's new in the £30bn" b/ </span><span style="color: #073763;">the £21m excludes the block grant adjustment impact of the SDLT cut, worth c.£120m over 2 years</span></div><div><font color="#073763"><br /></font></div><div><font color="#073763">But I've thought about this and, given the <i>incremental</i><i> Barnett Consequentials</i> fro</font><span style="color: #073763;">m what was annouced are only £21m, I don't think it's unreasonable that Kate Forbes chose that as her headline "the Scot Gov gets" number. In an ideal world she should have said "the only new money the Scottish Government will receive is ..." and even then should have included c£120m for the likely SDLT block grant adjustment ... but it would be inconsistent of me to hold her to higher standards than HM Treasury, and it's their attempt to pass recycled money off as new that's caused the confusion and provided her with cover.</span></div><div><font color="#073763"><br /></font></div><div><font color="#073763">None of this changes the most important point here, the point Kate Forbes was hoping to distract from (again quoting the IFS):</font></div><div><font color="#073763"><br /></font></div><div><i><font color="#073763">Of course, Scotland as a nation will receive much more – <b>UK-wide measures like the Job Retention Bonus, Kickstart Scheme and VAT cut could amount to around £1 billion of genuinely new money for Scottish businesses, jobseekers and consumers. And the Scottish Government itself will receive over £700 million as a result of other funding confirmed in the Summer Economic Update – mainly as a result of extra spending on public services in England such as the NHS.</b></font></i></div><div><hr /></div><div><br /></div><div>There is no doubt in my mind that Forbe's tweet was intended to stoke grievance by implying that <i>Scotland</i> is only seeing 0.1% of the £30bn. That in itself is at best pretty disappointing, at worst downright outrageous.</div><div><br /></div><div>But even if we grant her the semantic benefit of the doubt - if we assume she was expecting her followers to interpret this as an issue of control of spending rather than the absolute amount of support the Scottish economy is receiving - the figures she quotes make no sense. </div><div><br /></div><div>The Barnett Consequentials resulting from the figures annouced yesterday will clearly be greater than she claims*, and she divides this wrong figure by the wrong figure anyway to get to her 0.1% claim. This is the sort of behaviour that gives people like me headaches.</div><div><br /></div><div><div><hr /></div><div style="text-align: center;"><font color="#073763">**** Update 17/07/2020 ****</font></div></div><div style="text-align: left;"><font color="#073763">* per the update above: the Barnett Consequential from <i>that part which is new money of</i> the figures annouced will not be greater than she claims. The italicised part above is important, but it's only fair to highlight that her figure is more justifiable than my original wording implies</font></div><div style="text-align: left;"><div><hr /></div><div><br /></div></div><div>It took Kate Forbes a couple of minutes to fire out that tweet, and it will have done its job for her amongst the SNP's grievance-hungry supporters. The moment I saw the tweet I, like so many others, knew instinctively it was nonsense. But it has taken me most of the day to robustly show why - and far fewer people will take the time to understand the complicated truth than accept the simple lie*. Such is the depressing reality of modern politics, I guess.</div><div><br /></div><div><div><div><hr /></div><div style="text-align: center;"><font color="#073763">**** Update 17/07/2020 ****</font></div></div><div><font color="#073763">* I still have issues with the tweet - the implication that £21m is all <i>Scotland</i> is getting, the fact she uses £30bn as the denominator ("of the £30bn") when most of the £30bn is UK-wide spend anyway and the fact that she ignore the block grant adjustment impact of the SDLT cut </font><span style="color: #073763;">- but knowing what we now know about the way the treasury recycled already committed spending to make it look like new spending, I think I was wrong to label the tweet a "simple lie" and offer my apologies to Kate Forbes for doing so </span></div><div><div><hr /></div><div><br /></div></div></div><div style="text-align: center;">***</div><div><br /></div><div>As an addendum: I see Andrew Wilson - Chair of the SNP's Sustainable Growth Commission (a commission on which Kate Forbes sat) - has offered his hot take:</div><div><blockquote class="twitter-tweet"><p dir="ltr" lang="en">Reaction instructive. Kate is making a self evidently truthful point. Once upon a time the other parties and civic Scotland would understand. And back devolution. But partisanship means too many side even with Boris. Hence the polls....... <a href="https://t.co/mjmzVLj4Si">https://t.co/mjmzVLj4Si</a></p>— Andrew Wilson (@AndrewWilson) <a href="https://twitter.com/AndrewWilson/status/1280951503583404034?ref_src=twsrc%5Etfw">July 8, 2020</a></blockquote> <script async="" charset="utf-8" src="https://platform.twitter.com/widgets.js"></script>
</div><div>Apparently in the world of the SNP fan-club, she is making a "self evidently truthful point" .. and to highlight the reality of the support the Scottish economy is receiving from the UK government is to somehow fail to "back devolution".</div><div><br /></div><div>I despair.</div><div style="text-align: center;"><br /></div><div style="text-align: center;">***</div><div><br /></div><div>For those who care about the workings, the below is the spreadsheet I used to turn the text in the "Plan for Jobs" report into something I could interpret</div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikspAMNZlFhx4lJVe-0nYoP1DlYBWYgGuKhImn8xU-UWufvFcQxcOlt8ZZP2_-Al3j-CX5gcJMsZzyFuxaGh7prpMIE73ZQUS2-X34zQ3XyXJrrXyfa7HtTnSccslVORRjZXMJHWALS3c/s1446/30_detail.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1446" data-original-width="1080" height="625" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEikspAMNZlFhx4lJVe-0nYoP1DlYBWYgGuKhImn8xU-UWufvFcQxcOlt8ZZP2_-Al3j-CX5gcJMsZzyFuxaGh7prpMIE73ZQUS2-X34zQ3XyXJrrXyfa7HtTnSccslVORRjZXMJHWALS3c/w468-h625/30_detail.png" width="468" /></a></div><div><br /></div><div><br /></div><div> </div><div><br /></div><div><br /></div></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div><div><br /></div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com12tag:blogger.com,1999:blog-1603438996450817644.post-22510354740906235822020-02-05T08:37:00.003-08:002020-02-08T02:48:18.624-08:00Deficits, Deficit Gaps and Fiscal Transfers<div>
To understand what is going on when we talk about <b><i>implied fiscal transfers</i></b> between different parts of the UK (as discussed <a href="https://chokkablog.blogspot.com/2020/02/pooling-and-sharing-english-regions.html" rel="" target="_blank">here</a>), it's perhaps easiest to think of what happens when we split the bill in a restaurant.<br />
<br />
To know whether or not we benefit from splitting the bill, we only need to know two things:<br />
<ol>
<li>How much of the bill are we responsible for creating?</li>
<li>How much of the bill do we actually have to pay?</li>
</ol>
If the first figure is greater than the second, we benefit from splitting the bill (we receive an <i>implied transfer</i> from the others we're splitting the bill with).<br />
<br />
In the context of the debate around Scottish independence, the first of these questions is answered by the Scottish Government's own GERS report. This tells us, based on a series of explicit assumptions, how much of the UK's deficit (the bill) Scotland is responsbile for.<br />
<br />
The second question is more contentious, as there are no "official figures" as to how responsibility for the national debt (the cumulation of annual deficits) is shared<sup>1 </sup> - so how much of the bill does Scotland have to pay?<br />
<br />
Fortunately there is broad consensus around the view that the UK's debt should (or at the very least <i>reasonably could</i>) be shared on a population basis.<br />
<ol>
<li>The GERS figures include a population share of the interest charge generated by the UK's debt - given that debt is merely the accumulaton of the UK's deficits over time, that is effectively a population share of the UK's (cumulative) deficit</li>
<li>The Independence White Paper in 2014 stated <i>"Scotland and the rest of the UK will agree a share of the national
debt. This could be by reference to the historical contribution
made to the UK’s public finances by Scotland. An alternative
approach would be to use our population share."</i></li>
<li>The SNP's own Sustainable Growth Commission danced around this question, but eventually assumed a population share of UK debt interest within their proposed "solidarity payment"</li>
</ol>
So it's really pretty simple: the difference between the share of the UK's deficit Scotland is responsible for creating (see GERS) and the share of the UK's deficit Scotland pays for (assume population share) is the implied fiscal transfer.<br />
<br />
As we'll come on to see, you can make different assumptions about the share of the UK's deficit Scotland will ultimately have to pay, and conclude a different figure for the implied fiscal transfer.<br />
<br />
<div style="text-align: center;">
***</div>
<br />
<div>
At the risk of labouring the restaurant analogy, let's run through an example with some illustrative figures to help us explain the differences between three terms that often get confused: the <b>deficit</b>, the <b>deficit gap</b> and the <b>effective fiscal transfer</b>:</div>
<div>
<div>
<ul>
<li><b>Group A: </b>18 people go for a meal, the bill comes to £1,800 so they have spent £100/head</li>
<li><b>Group B:</b> 2 different people go for a meal, their bill is £300 so they have spent £150/head</li>
</ul>
If Group A and Group B decide to get together and split the bill (to "pool & share the deficit"), what happens? The total bill would be £2,100 which split equally between 20 people would be £105/head. Here's a simple summary:<br />
<br /></div>
<div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsY6JPlTZFShEpaiURTt8xupMOeC0lfjyFFETufSBYBJ5s-KHvAxSBpROGRaIXnhor3i_ot5-t4fPBeWvqQEvorRmIUpEJ05spfCjM2-5BxEMx2y3HLLwSh2Ws_mKv5mwt9r_uXFsZzlA/s1600/benefit_head.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="807" data-original-width="1600" height="277" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgsY6JPlTZFShEpaiURTt8xupMOeC0lfjyFFETufSBYBJ5s-KHvAxSBpROGRaIXnhor3i_ot5-t4fPBeWvqQEvorRmIUpEJ05spfCjM2-5BxEMx2y3HLLwSh2Ws_mKv5mwt9r_uXFsZzlA/s1600/benefit_head.png" width="550" /></a></div>
<br />
The spending <b>gap</b> between the groups is £50/head (Group B spent £50/head more than Group A), but the benefit of pooling and sharing - the effective <b><i>transfer</i></b> Group B receives - is £45/head<sup>2</sup>.<br />
<br />
The <b><i>total</i> <i>transfer</i></b> from Group A to Group B is £45x2 = £90</div>
<div>
<br />
<div>
Now let's replace the figures in our analogy with the fiscal reality (per GERS 2018-19) - the "bill" is the deficit, Group B is Scotland and Group A is the rest of the UK.</div>
<div>
<br /></div>
</div>
<div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhagZAv5xxjL7rbbq3gQKr-byjWbaFeBr9ZNkeUDhwwfebhPbsLwoPky1sEu3TNL5D7GApAvN1Sb2lMhqHWmcFqK87rRn0om4yURtBVyuKsETPUxxOUwl56q-2W3dtg94OjJfJsUulREas/s1600/illustatre_transfer.PNG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="883" data-original-width="1410" height="344" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhagZAv5xxjL7rbbq3gQKr-byjWbaFeBr9ZNkeUDhwwfebhPbsLwoPky1sEu3TNL5D7GApAvN1Sb2lMhqHWmcFqK87rRn0om4yURtBVyuKsETPUxxOUwl56q-2W3dtg94OjJfJsUulREas/s640/illustatre_transfer.PNG" width="550" /></a></div>
<br />
So Scotland's GERS <b>deficit is £12.6bn</b>, the <b>deficit gap is £11.6bn</b> and the <b>effective fiscal transfer to Scotland is £10.7bn</b>.<b> </b><br />
<br />
A huge amount of confusion is caused by people failing to understand the conceptual the differences between these figures - if you've followed what's going on up to here, give yourself a pat on the back.<br />
<br />
<div style="text-align: center;">
<b>***</b></div>
So armed with this understanding, let's take a look at the most common mistake made when people debate the "£10bn fiscal transfer". To illustrate, let me use the following screen-capture which (incredibly) is taken from Stuart Campbell's own "Wings Over Scotland" blog:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh12XJlf3GcbkHRew9g5t4OYhlz_oHrFUjsrQij-P_YDQq-tEZ60LXtiMXxwlZPIGT34erfbhOQxSJ-jY3lx4KyaB4Di9NWS5s_PDAg08JcDP0rf0DVbP5DbHYthvU-ExLu_eTJ-6aXzRY/s1600/fisctrans.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="418" data-original-width="591" height="282" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh12XJlf3GcbkHRew9g5t4OYhlz_oHrFUjsrQij-P_YDQq-tEZ60LXtiMXxwlZPIGT34erfbhOQxSJ-jY3lx4KyaB4Di9NWS5s_PDAg08JcDP0rf0DVbP5DbHYthvU-ExLu_eTJ-6aXzRY/s400/fisctrans.jpg" width="400" /></a></div>
<i><br /></i>
If you've been following this blog post so far, you will realise who the twit is in the exchange above (hint: it's not Paul). To walk through this carefully, per the figures above:<br />
<ul>
<li>Scotland's deficit is £12.6bn</li>
<li>We assume Scotland bears a population share of the UK's deficit - so in this year Scotland takes on an additional "loan" of just £1.9bn</li>
<li>The difference of £10.7bn is the effective fiscal transfer Scotland receives - it's the amount<i> over and above </i>the "loan" Scotland takes on</li>
</ul>
<b>Fun Fact: this means that those who argue Scotland should assume <i>less </i>than our population share of the UK's debt are - whether they realise it or not - arguing that the effective fiscal transfer in Scotland's favour is in fact <i>larger </i>than £10.7bn</b>.<br />
<br />
<div style="text-align: center;">
***</div>
<br />
<div>
A common reaction to these figures is <i>"how can Scotland's 8% of the UK population possibly be responsible for a third of the UK's deficit - that seems unbelievable". </i>This is what is technically known as an "argument from incredulity" and is perhaps best summarised by <a href="http://www.taxresearch.org.uk/Blog/2017/08/25/gers-is-this-why-it-always-says-the-scottish-deficit-is-so-large/" target="_blank">this quote</a> from Professor Richard Murphy:</div>
<div>
<blockquote class="tr_bq">
<i>"I have been continually bemused by the fact that GERS says that Scotland runs a deficit so much larger in proportionate terms than that for the UK as a whole."</i></blockquote>
Here our restaurant bill analogy falls short, because what we're dealing with when we're sharing the deficit is not how much we've spent but the net effect of how much revenue we've generated less the amount we've spent. I've explained the dynamics involved here in this brief video (with apologies for my exasperated tone and the figures being a year out-of-date)<br />
<br />
<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/FucizmkldGw" width="560"></iframe>
<br />
<br />
<br />
Another way to help understand this point is to look at fiscal transfers across the UK (including the English regions) as this blog has recently done <a href="https://chokkablog.blogspot.com/2020/02/pooling-and-sharing-english-regions.html" target="_blank">here</a>. There is nothing surprising or hard to fathom going on here - it's just simple fiscal arithemetic.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3XBYHB4GPoZ_tFqupp9BK0LG4Xy2ju173Juj92ZGvCoj8_n7YIx2xkRFCvgwrfMdvPflxq2OQCRYSfeHQX27_pMB7jDiMZRXhm8-MtH5HA0QWaCqY4PTBimIQicqWa6UyPhwjhNY3IAM/s1600/transfer_cra.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1077" data-original-width="1046" height="568" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3XBYHB4GPoZ_tFqupp9BK0LG4Xy2ju173Juj92ZGvCoj8_n7YIx2xkRFCvgwrfMdvPflxq2OQCRYSfeHQX27_pMB7jDiMZRXhm8-MtH5HA0QWaCqY4PTBimIQicqWa6UyPhwjhNY3IAM/s1600/transfer_cra.png" width="550" /></a></div>
<br />
As I've pointed out before: it's not hard to imagine a situation where Scotland runs a small deficit while the the UK overall is in fiscal balance - in that scenario Scotland would be responsible for an infinite (or more accurately: a "divide by zero error") share of the UK's deficit. It's just maths.<br />
<br />
<div style="text-align: center;">
***</div>
<br />
When we use the GERS figures to scale the <b>effective fiscal transfer, </b>we have to recognise that these are only pro-forma figures, they represent what Scotland's stand-alone defict would be <b><i>if we kept generating revenues and incurring spending as shown in GERS</i></b>.<br />
<br />
<hr />
<i>In case it's not already dead, let me flog the restaurant analogy one more time: "if we weren't sharing the bill, maybe we wouldn't have tipped the waiter 15% and perhaps we wouldn't have ordered the bottled water for the table."</i><br />
<hr />
<br />
This is a fair point. Even before we consider the likely economic shock impacts on revenue or spending that separation from the UK would cause (see Brexit), the scale of deficit that the GERS figures reveal means that current levels of spending would be unsustainable for a newly independent Scotland, particularly if trying to launch a new currency.<br />
<br />
It's true that some of that spending in GERS is costs allocated from the rest of the UK on a simple population basis (defence, debt interest and international aid being the vast majority of these), so any case for independence needs to start by working out what an independent Scotland would replace these costs with. For reference: relative to that £10.7bn fiscal transfer, the notoriously optimistic White Paper on independence assumed a net saving of £0.6bn.<br />
<br />
What typically happens at this point is that some of the more blindly-committed supporters of independence start suggesting that the GERS figures are all made up anyway as part of some vast conspiracy by which Westminster has managed to get the Scottish Government's own economists to pull the wool over the eyes of the SNP (and their Sustainable Growth Commission, their Fiscal Commission Working Group, the IFS, Fraser of Allandar, NIESR, UK Statistics Authority, etc. etc.).<br />
<br />
This is of course a ridiculous position to adopt (which, to be fair, is why only those flakier members of the independence movement attempt to adopt it). Alex Salmond was certainly very clear about what the GERS figures told us when he thought he could spin them in his favour:<br />
<br />
<iframe allow="autoplay; encrypted-media" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/mSvocvvj7rg" width="560"></iframe><br />
<br />
Salmond is the man who <a href="https://www.newsweek.com/alex-salmondsnpwestminsterukgeneral-election-605331" target="_blank">once proudly boasted</a> of his ability to put <i>“a gloss on statistics or any economic figure”</i> to build a political case, and he certainly did his best to do that with the 2010-11 GERS figures. He made the highly dubious claim that they showed an independent Scotland could have been spending £2.7bn more and therefore should have been running an even higher deficit than that shown in GERS!<br />
<br />
<br />
<iframe allow="autoplay; encrypted-media" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/2i18XdUxMdc" width="560"></iframe><br />
<br />
Still: desite the fact that he used a different method for "splitting the bill" (based on a GDP share not a population share), he was recognising the principle of the fiscal transfer<sup>3</sup>.<br />
<br />
Unfortunately for independence supporters, taking the logic Salmond applied to the 2011-12 figures and applying them to the 2018-19 figures produces a massive fiscal transfer now in Scotland's favour - so by his own logic, an independent Scotland should now be spending £10bn <i>less</i><sup>4</sup>.<br />
<br /></div>
<div>
At this point, most of those arguing for independence ignore how wedded they used to be to the figures and return to straight-froward "GERS denial" - fortunately this blog has already comprehensively dealt with those denials here > <a href="http://chokkablog.blogspot.com/2016/07/gers-deniers.html" target="_blank">GERS Deniers</a>.<br />
<br />
Ah but wait: what about "this is just a snapshot"?<br />
<br />
OK, well we can do this analysis over time and plot the size of the deficit gap<sup>5</sup> for the last 21 years:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4i1vZCs4LJ0fHQ0u0uDsVKubtkbyJURmyTodbg6KCgVC2kb5Q8qJKjIAOOmElrMeeVjV-_IllTNbwXDYaGcQZoEm5_V4VxwBFo-xgvgTsD8GYMnQU1z4GDOl0d-y4CdPdADC1di7BF3I/s1600/gap_time.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1065" data-original-width="1471" height="396" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4i1vZCs4LJ0fHQ0u0uDsVKubtkbyJURmyTodbg6KCgVC2kb5Q8qJKjIAOOmElrMeeVjV-_IllTNbwXDYaGcQZoEm5_V4VxwBFo-xgvgTsD8GYMnQU1z4GDOl0d-y4CdPdADC1di7BF3I/s1600/gap_time.png" width="550" /></a></div>
<br />
You can see why Alex Salmond was so excited about the 2008/09 to 2010/11 figures<sup>6</sup>.<br />
<br />
The reason for the dramatic reversal and growth in that gap will be familiar to regular readers of Chokkablog - they are most easily summarised by this graph:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6mUzLXrt9jcQ4t9c8_SAFcMDiIS4pkJIDp4MZ4bvrY8nOaDvXOz_EYCQ283bR_7fNNGW9OhFRjhmVo5q0KlcjT1_kB1PQjtI3C9F484HiZHSMdWk5N_GJx1RYzYCr2pMqMij-Si8EzH4/s1600/the_answer.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1037" data-original-width="1480" height="385" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg6mUzLXrt9jcQ4t9c8_SAFcMDiIS4pkJIDp4MZ4bvrY8nOaDvXOz_EYCQ283bR_7fNNGW9OhFRjhmVo5q0KlcjT1_kB1PQjtI3C9F484HiZHSMdWk5N_GJx1RYzYCr2pMqMij-Si8EzH4/s1600/the_answer.png" width="550" /></a></div>
<br />
<ul>
<li>The gap closed when North Sea revenues boomed, but has grown massively as North Sea revenues have plummeted</li>
<li>Scotland has not only continued to spend more per head than the rest of the UK, that spending gap itself has actually grown (thanks to the Barnett Formula and low levels of absolute spending growth<sup>7</sup>) </li>
<li>Scotland's onshore revenue performance has declined relative to rUK<sup>8</sup></li>
</ul>
<div>
For completeness, we can plot the onshore deficit gap over time (i.e. to see what happens if we strip out North Sea revenue effects from these figures):</div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTCu8fsYnVDlRy05AmAiAev4ww2wCAaDDUUsqqZJxi1juiMYUbWgMmJ0O7QYgwS6kdaLSxugPEFHTa43A102IxwODTG4hD8rqeluLZbl1veCD2V-piLtMo2gt8-rdIg4u0a68TlGBwtHs/s1600/onshore_deficit_gap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1066" data-original-width="1471" height="396" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhTCu8fsYnVDlRy05AmAiAev4ww2wCAaDDUUsqqZJxi1juiMYUbWgMmJ0O7QYgwS6kdaLSxugPEFHTa43A102IxwODTG4hD8rqeluLZbl1veCD2V-piLtMo2gt8-rdIg4u0a68TlGBwtHs/s1600/onshore_deficit_gap.png" width="550" /></a></div>
<div>
<br /></div>
<br />
Without oil revenues, there would never have been a <i>prime facie </i>economic case for Scottish independence - and the vagaries of the Barnett Formula (plus perhaps the impact of the SNP's tax rises) have led to the scale of the fiscal transfer that Scotland benefits from within the UK actually <i>increasing </i>in recent years.<br />
<br />
/Ends/</div>
<i><br /></i></div>
</div>
<div>
<br />
<hr />
</div>
<div>
Notes</div>
<div>
<hr />
</div>
<div>
<br /></div>
<br />
<br />
1. This very carefully worded <a href="https://www.gov.scot/publications/foi-18-03746/" target="_blank">FoI response</a> is sometimes in debates around the fiscal transfer:<br />
<blockquote class="tr_bq">
<i>"Official figures for any fiscal transfer are not available.</i></blockquote>
<blockquote class="tr_bq">
<i>The reason this information is not available is that such a figure requires a number of assumptions to be made. For example, as the UK as a whole spends more than is raised in revenue, an assumption would need to be made about which parts of the UK borrowing is undertaken for, or which types of public spending are financed by borrowing as opposed to taxation. This information is not available as, for example, some taxes are ringfenced to fund particular services; for example, some national insurance contributions are ring-fenced to fund the NHS. As such, any figure for a fiscal transfer from the rest of the UK to Scotland would rely on a number of assumptions."</i></blockquote>
this is entirely consistent with what this blog (and others) have always said - to calculate the implied fiscal transfer, we have to make some assumptions. In fact, argue we can calculate and implied fiscal transfer by only making one assumption: that the burden of the UK's deficit (and associated debt) is borne on a population share basis<br />
<br />
2. <i>People used to dealing with numbers will have spotted that the transfer = [(1-population share) x the gap] - something easily proved if you care for such things</i><br />
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAh34x50f6EoGP3M8o3WTqp4IIyq8D3LmDwGBC-kGWuoN3J90d9ozFaZFUEwNdzL2zG7W3cv6IAphDiceBPNSkXW2NBhWWHKAcEbIsigpPCNcNlU6T91zim21HFWuGpbYOUZ6CsRiiUoM/s1600/PandS2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="868" data-original-width="1384" height="344" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAh34x50f6EoGP3M8o3WTqp4IIyq8D3LmDwGBC-kGWuoN3J90d9ozFaZFUEwNdzL2zG7W3cv6IAphDiceBPNSkXW2NBhWWHKAcEbIsigpPCNcNlU6T91zim21HFWuGpbYOUZ6CsRiiUoM/s1600/PandS2.png" width="550" /></a></div>
<div>
<br /></div>
<div>
<i>This matters only insofar as we need to understand that, in the case of Scotland in the UK, the <b>fiscal transfer </b>is 92% of the <b>deficit gap</b></i><br />
<i><b><br /></b></i>
</div>
</div>
<div>
<div>
3. The IFS implicitly use that same assumption when referring to the fiscal tranfer <a href="https://www.ifs.org.uk/publications/13072" target="_blank">here</a><br />
<blockquote class="tr_bq">
<i>The most recent figures (2016–17) imply a budget deficit for Scotland of 8.3% of GDP. Managing this is the UK Government’s responsibility as it is part of the UK’s deficit, which was 2.3% of UK-wide GDP in the same year. Therefore there was a fiscal transfer from the rest of the UK to Scotland of about 6% of Scotland’s GDP (equivalent to around £1,750 per person in Scotland).</i></blockquote>
Because GDP/Capita is now about the same for Scotland and rUK, allocating the deficit on a per capita basis or per GDP basis makes no material difference - but I would still argue that per capta is the right way to do the analysis as long as GERS uses per capita allocations for all shared UK-wide costs</div>
<div>
4. To be completely accurate: if we used his GDP share rather than population share method then the figure would be £9.8bn (rather than the £10.7bn we get using population share) - but the broader point stands<br />
<br />
5. Remember: the implied fiscal transfer = <i>[(1-population share) x the gap]</i> = 92% of this figure<br />
<br />
6. These are the latest available restated historical figures - when first released the figures showed a significantly more favourable position for Scotland, but later revisions lowered Scotland's apparent fiscal advantage vs rUK - covered in some here: <a href="https://chokkablog.blogspot.com/2019/12/the-snp-living-in-past.html" target="_blank">The SNP: Living in the Past</a><br />
<br />
7. A dynamic most easily understood if you imagine a scenario where UK spend (and therefore Scotland's spend) doesn't change, but Scotland's population grows more slowly than rUK's - under that scenario it is inevitable that the gap between Scotland's spend/head and rUK's must increase<br />
<br />
8. Due to some combination of historically over-estimating the number of top-rate tax payers in Scotland and/or the increase in the Scotttish Rate of Income Tax causing some of those tax payers to redomicile</div>
</div>
Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com8tag:blogger.com,1999:blog-1603438996450817644.post-81533287713443708272020-02-02T09:28:00.002-08:002020-02-08T02:49:23.692-08:00Pooling and Sharing: The English RegionsIn a few weeks time I'll be chairing a conference in Newcastle - These Islands: Our Past, Present & Future<br />
<br />
The conference will feature an impressive array of speakers and panelists including: Douglas Alexander, Philippe Auclair, Gordon Brown, Andy Burnham, Frances Coppola, Sir John Curtice, Simon Evans, Sophia Gaston, Ayesha Hazarika, Gerry Hassan, Fiona Hill, Henry Hill, Colin Kidd, Carwyn Jones, David Lidington, Ian Murray, Baronesss Quin, Mark Reckless, Willie Rennie, Lord Salisbury and many, many more. If you're interested in coming along, you can find more details and ticket booking information here > <a href="https://www.eventbrite.co.uk/e/these-islands-our-past-present-and-future-tickets-90932614899" target="_blank">eventbrite page</a>.<br />
<br />
Needless to say: just as Bob Geldof wasn't going to go to all the trouble of organising Live Aid and not get on stage to perform with the Boomtown Rats, so I will not be passing up the opportunity to put some graphs in front of this captive audience<sup>1</sup> .<br />
<br />
We're holding the conference in Newcastle to highlight the importance of the English regions in any debate about the future of the UK. To this end I've been doing fresh analysis on the fiscal economics of the English regions and - because I won't have time to present detailed analysis at the conference - I though I'd quickly blog about it here.<br />
<br />
Chokkablog regulars will be familiar with the concept of the <i>implied fiscal transfer</i>, but to recap<i>:</i> if a devolved nation runs a deficit per head (aka "per capita deficit") higher than the UK average, then that nation is benefitting from an implied fiscal transfer from the rest of the UK<sup>2</sup>.<br />
<br />
The same principle can be applied to the English regions. Fortunately the data now exists to allow us to calculate and understand these <i>regional </i>fiscal transfers just as the (notorious?) Government Expenditure and Revenue Scotland (aka GERS) figures do for Scotland<sup>3</sup>.<br />
<br />
The source data is <a href="https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/articles/countryandregionalpublicsectorfinances/financialyearending2019/relateddata" target="_blank">Country and Region Public Sector Finances</a> analysis as produced by the ONS<sup>4</sup>. All the figures we use here are those that allocate a "geographical share" of oil & gas revenues (i.e. Scotland gets to keep the oil & gas revenues generated by oil in Scottish waters).<br />
<br />
The only other thing we have to remember before diving into this analysis is that the per capita deficit difference to the UK average is made up of two distinct parts: the per capita <i>revenue</i> difference and the per capita <i>spending</i> difference. The former reflects the economic performance of the region in terms of tax revenue generation, the latter reflects the cost of delivering public services to that region<sup>5</sup>.<br />
<br />
So let's look first at per capita <b>revenue </b>generation differences by region:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjlkKWUl7qO87xqA5hLIJ_hx6N4CE_rEdjtbvBXCy3bmvs3izBKB11gu-C4CupVhbzRO3CWyLOzANKXiAvpG3Pma52VWNYT51cPBRxjoZdVLap98_FswVsfk-6CIm-PhyphenhyphenFeb0VtqWeINY/s1600/revenue_CRA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1081" data-original-width="1045" height="570" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhjlkKWUl7qO87xqA5hLIJ_hx6N4CE_rEdjtbvBXCy3bmvs3izBKB11gu-C4CupVhbzRO3CWyLOzANKXiAvpG3Pma52VWNYT51cPBRxjoZdVLap98_FswVsfk-6CIm-PhyphenhyphenFeb0VtqWeINY/s1600/revenue_CRA.png" width="550" /></a></div>
<br />
Remember that what we're seeing here is how well these regions generate tax revenue versus the UK average. There has been a lot of talk in recent weeks of "levelling up" - that's basically about getting these bars to shrink back towards zero, so the size of the red bars is a decent guide to which areas are in greatest need of "levelling up".<br />
<br />
It should come as no surprise that London and the South East are the areas which "out-perform" and - unless you've been deceived by the SNP's grievance rehetoric - it should also be no surprise to see Scotland (like the East of England) performing as per the UK average and significantly out-performing Wales, Northern Ireland and all other English regions.<br />
<br />
So what's Scotland's problem?<br />
<br />
Well let's look at per capita <b>spending </b>per region<sup>4</sup>:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4Z7WszPaZ2_62YlcK22YoiMytKQICNqXBVs-XC77UZasFVOSNJbQmReSvgz7V0kaKYumTRoYH0Mu7GJWMWophQcsJOIsf8vvYk2YW911dMRXz_l0ytWgA27omRpRhhbIjYz38lWGx2nI/s1600/spend_cra.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1081" data-original-width="1047" height="570" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj4Z7WszPaZ2_62YlcK22YoiMytKQICNqXBVs-XC77UZasFVOSNJbQmReSvgz7V0kaKYumTRoYH0Mu7GJWMWophQcsJOIsf8vvYk2YW911dMRXz_l0ytWgA27omRpRhhbIjYz38lWGx2nI/s1600/spend_cra.png" width="550" /></a></div>
<br />
Here's where we see the areas that enjoy (or require) higher spending per capita: Northern Ireland and Scotland most significantly, with London, Wales and the North East as the other "relatively high spend" areas. The extent to which this is based on greater <i>need</i> (e.g. to deliver equivalent services in areas of lower population density and/or with remote/island communities and/or to reflecting higher social costs driven by demographic factors and/or due to areas of endemic poverty) or greater <i>investment </i>(for <i>better </i>services than the UK average or to stimulate economic development) is the subject of some debate.<br />
<br />
If we combine the per capita revenue difference with the per capita spending difference, we get to the per capita fiscal balance difference (and hence the implied <b>fiscal transfer)</b>:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdatrVzODIJ5WO9BP4zkmFMJa4N_DsPx-C-yr0W5cgyR_StGGpuFzi_QIQMrFOMkTsDv1ZaKbqkSlQ9jLmZfJ_rIrfuFdX-WfngI2yyU_-6Gs99sf8H0pL9YuO_ZjOFi_2_4p2VbXXQ3o/s1600/transfer_cra.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1077" data-original-width="1046" height="568" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhdatrVzODIJ5WO9BP4zkmFMJa4N_DsPx-C-yr0W5cgyR_StGGpuFzi_QIQMrFOMkTsDv1ZaKbqkSlQ9jLmZfJ_rIrfuFdX-WfngI2yyU_-6Gs99sf8H0pL9YuO_ZjOFi_2_4p2VbXXQ3o/s1600/transfer_cra.png" width="550" /></a></div>
<br />
It's quite a striking picture isn't it? The Devolved Administrations in Wales and Northern Ireland receive far greater per capita fiscal transfers than Scotland, as does the North East. London, the South East and the East of England are responsible for generating fiscal transfers that go to the rest of the UK.<br />
<br />
It's <i>perhaps </i>helpful to summarise all of this data on one exhibit:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfxdHIETrM3fw9s4Nc1UwoxEWJ-s2KPmTm_PP2GnGtklM9Mw8hpVLalbNYPPypYmGNBCcrAhkCWcbISH4Ew8WFf5Y_-bjyZgaYgSD64raGCvFvMcQ5kirRDafuji8LmVHnbwkKg8dFW9I/s1600/build_up_cra.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="972" data-original-width="1144" height="465" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgfxdHIETrM3fw9s4Nc1UwoxEWJ-s2KPmTm_PP2GnGtklM9Mw8hpVLalbNYPPypYmGNBCcrAhkCWcbISH4Ew8WFf5Y_-bjyZgaYgSD64raGCvFvMcQ5kirRDafuji8LmVHnbwkKg8dFW9I/s1600/build_up_cra.png" width="550" /></a></div>
<br />
What this shows us is the extent to which the fiscal transfer to Scotland (caused by the much debated higher notional Scottish deficit) is a function of higher spending, <i>not </i>lower revenue generation (i.e. <i>not "</i>weaker economic performance"). This contrasts dramatically with Wales the Midlands and the North of England, where relatively poor fiscal performance is explained by weaker revenue generation (i.e. "weaker economic performance") far more than by any spending differences.<br />
<br />
It's clear that any debate about the future of the UK has to grapple with these two related questons<br />
<ul>
<li>How are resources most fairly and efficiently distributed between and administered in the devolved nations and English regions?</li>
<li>What practical steps can be taken to "level up" economic performance across the UK?</li>
</ul>
<div style="text-align: center;">
***</div>
<br />
For those who like to see the figures behind the pictures:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3cUXhjg5zO8hbj4isksjDVQU_Zj972sdBYtjHR2MPPOoMAIbkNULvS9iHbr83tqrlS5_-eV-ipAguAhaJJZMuhRNNg1VhpUEkISCd1jgxBnJtKsMu70IVWapBQ0bpWIXnwNmvjFZ2RxU/s1600/data_table.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="389" data-original-width="924" height="230" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3cUXhjg5zO8hbj4isksjDVQU_Zj972sdBYtjHR2MPPOoMAIbkNULvS9iHbr83tqrlS5_-eV-ipAguAhaJJZMuhRNNg1VhpUEkISCd1jgxBnJtKsMu70IVWapBQ0bpWIXnwNmvjFZ2RxU/s1600/data_table.jpg" width="550" /></a></div>
<br />
For those who wonder about regional difference <i>within</i> Scotland, I offer the following<a href="https://ec.europa.eu/eurostat/statistical-atlas/gis/viewer/?mids=BKGCNT,BKGCRL,C06M01,CNTOVL&o=1,0.6,1,0.7&ch=C13,ECF,C06,C04&center=54.6056,1.56705,5&lcis=C06M01&" target="_blank"> GDP/capita chart </a>- suffice to say we could expect there to be similar fiscal transfers happening <i>within</i> Scotland, and the variance of economic performance <i>within</i> Scotland appears not dissimilar to the variance across the UK (or indeed in continental Europe):<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnXSs3mLWyEea6XW8wrVYSl2qaA9E0btsIOLogvhEYOcybiJbbg1ne14fCpmTUS83pB9ultIbEVZDGrwclHke3ekt8pF6mbDNxDlo0UpNwo-GHZ5g_zjMYJJ9Lp4O9jUc42GSN573QAtk/s1600/GDP_REGION.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="868" data-original-width="1132" height="421" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnXSs3mLWyEea6XW8wrVYSl2qaA9E0btsIOLogvhEYOcybiJbbg1ne14fCpmTUS83pB9ultIbEVZDGrwclHke3ekt8pF6mbDNxDlo0UpNwo-GHZ5g_zjMYJJ9Lp4O9jUc42GSN573QAtk/s1600/GDP_REGION.png" width="550" /></a></div>
<br />
<br />
<br />
<br />
<hr />
<b>Notes</b><br />
<hr />
<br />
1. Yes, I'm aware how ridiculous it is to imply that this conference is some sort of constitutional Live Aid<br />
<br />
2. We share the burden of the UK's deficit UK-wide - both in these analyses (i.e. the cost of the total UK debt is allocated to the regions and devolved administrations on a per capita basis) and as widely assumed and accepted in the case of inherited liabilities (i.e. were Scotland to separate from the UK, it would inherit a population share of he UK's debt, as accepted by the Independence White Paper and the SNP's more recent Sustainable Growth Commission)<br />
<br />
3. This figures differ from GERS, but not materially so at the deficit per head level - comparing 2018-19 ONS and GERS, it looks like there is a different approach to what is taken as revenue vs what is netted off against cost (but I'm guessing here) - all that really matters is that the figures used for the exhibits on this blog post are all compiled on a comparable basis<br />
<ul>
<li>Spend/head: ONS = £14.5k; GERS = £13.9k</li>
<li>Revenue/head: ONS = £12.0k; GERS = £11.5k</li>
<li>Deficit per head: ONS = £2.5k; GERS = £2.6k</li>
</ul>
4. It is worth noting that these are not qualified as National Statistics, but rather <i>Experimental Statistics</i><br />
<br />
5. It's worth noting that those costs which are shared on a population basis (mainly debt interest, defence and international aid) have no impact on this analysis - there is <i>by definition</i> zero difference between per capita costs allocated on a per capita basis!Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com9tag:blogger.com,1999:blog-1603438996450817644.post-26996899734760872932019-12-29T04:53:00.003-08:002019-12-29T07:08:33.056-08:00What GERS can and cannot tell us<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLCD7_tJms_VSB16obXHVO1Bwae_i8LYgtbIH55WOjsaUA3x-u51uputntk-neSy-PYdEVub_njn5lP-zMEqLYJ17alKhhn2MtpnZ6pumGJ9Pj-LTM2GrYIh81LnanyLjFdOw6tVJXC34/s1600/meme_gers_not_iScot.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="680" data-original-width="1124" height="241" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLCD7_tJms_VSB16obXHVO1Bwae_i8LYgtbIH55WOjsaUA3x-u51uputntk-neSy-PYdEVub_njn5lP-zMEqLYJ17alKhhn2MtpnZ6pumGJ9Pj-LTM2GrYIh81LnanyLjFdOw6tVJXC34/s400/meme_gers_not_iScot.jpg" width="400" /></a></div>
<br />
This meme is frequently shared by independence supporters as if it's some kind of "gotcha!". The quote comes from a <a href="https://ayerightradio.wordpress.com/2017/04/12/gers-with-john-beattie-kevin-hague-and-richard-murphy/?iframe=true&theme_preview=true" target="_blank">radio interview</a> I did with the <a href="http://chokkablog.blogspot.com/2017/08/i-see-professor-richard-murphy-has-been.html" target="_blank">perpetually confused</a> Richard Murphy. He was indulging in his usual schtick of dismissing the GERS figures as "made up" and criticising them for presenting actual historical figures instead of hypothesising some imagined future scenario of Scottish independence.<br />
<br />
Here is the verbatim extract, you can <a href="https://ayerightradio.wordpress.com/2017/04/12/gers-with-john-beattie-kevin-hague-and-richard-murphy/?iframe=true&theme_preview=true" target="_blank">check for yourself</a><br />
<br />
<blockquote class="tr_bq">
<b>Murphy</b>:<i> "[...] let's not pretend GERS gives any useful information to a politician in Scotland, because it doesn't, it's literally made up information from the the rest of the UK, we have no idea if it's accurate [...] GERS cannot tell us [...] whether Scotland can survive independently or not, this data is not fit for purpose"<sup>1</sup></i></blockquote>
<blockquote class="tr_bq">
<b>Hague</b>: <i>"Well, I mean first of all, the key thing is they are fit for purpose - the most important thing is understanding what that purpose is. So Richard finished his piece there by saying they can't tell us what an independent Scotland's finances would look like - that is of course absolutely true; what the GERS figures do tell us is, historically, how do Scotland's revenue and expenditure figures look as an integral part of the UK [...] as long as you understand the data, as long as you understand what the data can and cannot be used for, it is good data [...] But Richard is right on one point, which is all it tells is is where we start from, it tells us how the Scottish economy currently performs as an integral part of the UK - and that is all it can do, that is all it is expected to do"</i></blockquote>
<br />
The fact that the GERS figures are historical actuals that describe Scotland's economy as an integral part of the UK should hardly be a revelation to anybody, but the nature of online debate is such that this observation is somehow considered meme-worthy.<br />
<br />
If it needs spelling out any further<sup>2</sup>, then let me do so again here:<br />
<blockquote class="tr_bq">
The GERS figures describe Scotland’s historical finances, with Scotland raising taxes and incurring public spending (including reserved expenditure) as an integral part of the UK. From the perspective of hypothesising a possible future independent Scotland, we are looking at what in financial accounting terms would be considered <i>pro-forma accounts</i>.</blockquote>
<blockquote class="tr_bq">
So of course the figures do not tell us what the future accounts of an independent Scotland would look like - how could they? They do however describe the starting point (the “run-rate”) from where we can start to consider the possible impact and fiscal implications of independence.</blockquote>
<blockquote class="tr_bq">
Precisely how independence would change Scotland’s economy is of course a hugely complicated subject that require us to consider, amongst other factors;<br />
<ul>
<li>The outcomes of uncertain negotiations around inherited share of UK debt and potential EU membership</li>
</ul>
<ul>
<li>The challenges of either sustaining money-supply under Sterlingisation or of building the reserves requires to support a new independent Scottish currency [see <a href="https://www.these-islands.co.uk/publications/i330/choose_your_poison_the_snps_currency_headache.aspx" target="_blank">here</a>]</li>
</ul>
<ul>
<li>The explicit tax and spend choices that the government of an independent Scotland might make (inevitably constrained by the outcomes and decisions above) which would include choices around wealth redistribution, defence spending, industrial and economic policy, international affairs, debt and deficit management, social policy priorities and much more</li>
</ul>
<ul>
<li>The costs involved in replicating the delivery of services that currently rely on shared infrastructure with the rest of the UK (e.g DWP and HMRC functions)</li>
</ul>
</blockquote>
<blockquote class="tr_bq">
<ul>
<li>Depending on the outcome of EU membership negotiations, the possible impact of trade friction between Scotland and the rest of the UK (the destination for <a href="https://www2.gov.scot/Topics/Statistics/Browse/Economy/Exports/ESSPublication" target="_blank">60% of Scotland's exports</a>)</li>
</ul>
</blockquote>
<blockquote class="tr_bq">
<ul>
</ul>
<ul>
<li>The impact of factors outside the Scottish Government’s direct control such as how businesses and the labour force would respond (e.g. possible capital flight), the global oil price, international credit ratings and the cost of Scotland’s debt</li>
</ul>
<ul>
<li>The cumulative effect of all of the above (positive or negative) on Scotland’s economic growth</li>
</ul>
</blockquote>
<br />
Now look again at the beginning of the Murphy quote above: when he says <i>“l</i><i>et's not pretend GERS gives any useful information to a politician in Scotland, because it doesn't, it's literally made up information from the the rest of the UK, we have no idea if it's accurate" </i>he<i> </i>is insulting: the Scottish Government’s own economists who compile them; the National Statistics Authority who award them National Statistics accreditation; the authors of both the Independence White paper and the SNP's own <a href="https://www.these-islands.co.uk/publications/i301/growth_commission_response_executive_summary.aspx" target="_blank">Sustainable Growth Commission</a> who used the GERS figures as the basis for all of their analysis.<br />
<br />
In fact, there are no respected economists who dimiss the GERS figures as "bad data"<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4LuDy5qvy9taNByND73Ttz3U6Pg7EvLi6CsX-8KSgeN-5XRMzkH2Hyb-DYzK-_kZWgCwOEMxxHsniSAwpdQBuwRdDpk5PNos0Wc0s_FfpFZmU8P-quNrbkI6eW_wNZQE8lVf7E2vo9SE/s1600/gers_meme.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1065" data-original-width="1023" height="573" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh4LuDy5qvy9taNByND73Ttz3U6Pg7EvLi6CsX-8KSgeN-5XRMzkH2Hyb-DYzK-_kZWgCwOEMxxHsniSAwpdQBuwRdDpk5PNos0Wc0s_FfpFZmU8P-quNrbkI6eW_wNZQE8lVf7E2vo9SE/s1600/gers_meme.JPG" width="550" /></a></div>
<br />
<br />
I've dealt with the details of Murphy's publicity-seeking confusion over GERS before <a href="http://chokkablog.blogspot.com/2017/08/i-see-professor-richard-murphy-has-been.html" target="_blank">here </a>but- for completeness - let's remind ourselves what happened when a well-briefed politician challenged Murphy on some of his more extreme assertions in front of a Holyrood committee:<br />
<br />
<iframe allow="accelerometer; autoplay; encrypted-media; gyroscope; picture-in-picture" allowfullscreen="" frameborder="0" height="315" src="https://www.youtube.com/embed/Ni5dTPBgLKE" width="560"></iframe>
<br />
<br />
/ends/<br />
<br />
<b><u>Notes</u></b><br />
<br />
1. His opening ramble is over 2 minutes long - this is very much his style: he chucks out so many daft assertions in one go that it becomes impossible to refute them all in response without descending into a similarly lengthy and confusing statement. His objective is obfuscation and - give him his due - that's one thing he is good at it<br />
<br />
2. I really have been very consistent about this - the following from 2016 alone<br />
<blockquote class="tr_bq">
<i>"Nobody is arguing that things would remain the same. Those of us who argue for rational debate simply ask for those making the case for independence to actually explain coherently what the different "economic strategy" would actually be and provide a realistic assessment of how (and by how much) it would change the figures compared to those of Scotland being within the UK." - </i><a href="https://chokkablog.blogspot.co.uk/2016/08/wings-idiots-guide-for-gers-deniers.html" target="_blank">Chokkablog August 2016</a></blockquote>
<blockquote class="tr_bq">
<i>"We should be very clear about what this analysis of historical fiscal data can and cannot tell us. The figures only tell us how an independent Scotland’s finances would have looked if we had already been independent but were still raising taxes and incurring public spending (including reserved expenditure) as we have been as an integral part of the UK. We are looking at what in financial accounting terms would be considered pro-forma accounts. The figures do not tell us what the future accounts of an independent Scotland would look like. They do however describe the starting point (the “run-rate”) from where we can start to consider the possible impact and fiscal implications of independence." - </i><a href="http://chokkablog.blogspot.co.uk/2016/03/the-price-of-independence.html" target="_blank">Chokkablog March 2016</a></blockquote>
<blockquote class="tr_bq">
<i>"All I have been attempting to do is ensure we have clarity around our starting point. Were we to be independent or fiscally autonomous now, what would our pro-forma accounts look like? What is our economy's run-rate? This frames the debate, shows the size of the challenge. If we are all honest about this starting point then maybe we can have an interesting and constructive debate" - </i><a href="http://chokkablog.blogspot.co.uk/2015/06/stop-getting-gers-wrong.html" target="_blank">Chokkablog June 2016</a></blockquote>
<blockquote class="tr_bq">
<i>"This onshore deficit gap matters because it is revealed - it becomes real - as oil revenues decline. This is not to say that were Scotland to be independent this gap would remain; it might narrow, it might widen. It merely gives us an idea of the run-rate relative disadvantage we would be starting with if we sacrificed the benefits of UK-wide pooling and sharing (assuming the days of significant oil revenues are indeed behind us). If you like, it's the head-start we'd be giving to the rest of the UK</i>." - <a href="http://chokkablog.blogspot.co.uk/2016/02/whats-8bn-between-friends.html" target="_blank">Chokkablog February 2016</a> </blockquote>
<br />Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com10tag:blogger.com,1999:blog-1603438996450817644.post-12412678039838859842019-12-21T10:49:00.003-08:002022-06-27T06:02:07.345-07:00How Much of Scotland's Tax Revenue Does Westminster Keep?<b>tl;dr </b><br />
<br />
More spending occurs <i>in </i>Scotland than tax revenues raised <i>by</i> Scotland.<br />
<br />
In fact, more money is spent <i>in </i>Scotland than the sum of tax revenues raised by Scotland plus Scotland's per capita share of the UK's overall deficit (i.e. there is a fiscal transfer in Scotland's favour <i>after</i> allowing for Scotland's share of the increase in UK debt).<br />
<br />
Both the statements above are true even <i>before</i> taking into consideration Scotland's share of defence costs, international aid and debt interest.<br />
<br />
<b>It is simply not true to argue that Westminster "keeps" any of Scotland's tax revenues</b><br />
<b></b><br />
<hr />
<b>
</b>
<br />
A grievance persistently pushed by nationalists on social media is that "Westminster keeps" a chunk of Scotland's tax revenues - if you've been directed to this blog post, you may even have joined this merry gang yourself<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOnYoJUgGHwnnZc6k5MQbmiu7sth-XVKJP6j8Ut9QSrjLi46star2od7x0w9yj_ABWrlx7hSzXnisoB9MRJ2uMGdsFhaPCkSHXEVyMu1BSgE2K4wxwErPX9dB12q4TGI3RrLmHwIAaXKE/s1600/westminster_keeps.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="899" data-original-width="1600" height="310" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiOnYoJUgGHwnnZc6k5MQbmiu7sth-XVKJP6j8Ut9QSrjLi46star2od7x0w9yj_ABWrlx7hSzXnisoB9MRJ2uMGdsFhaPCkSHXEVyMu1BSgE2K4wxwErPX9dB12q4TGI3RrLmHwIAaXKE/s1600/westminster_keeps.png" width="555" /></a></div>
<br />
The numbers tend to differ because the people who make such claims tend not to be too interested in actual figures or data audit-trails, but the theme is consistent. For the purposes of illustration let me take one example that appeared in my timeline yesterday and quickly garnered over 1,000 likes<sup>1</sup><br />
<sup><br /></sup>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiABLqtkBjzry6psN9sCA0OfDfbZfstgeNpimCYxbhAvzy9DzbPHhmulsVXEyKdnLD59o3pkkwgj9QMbKKejwyUlz_hZ5mtVhwtTBEFw2IuE1IHiGbx2fxDVNaOO2Cklc5t3S5xfCacb5A/s1600/westminster_keeps1.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1427" data-original-width="1125" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiABLqtkBjzry6psN9sCA0OfDfbZfstgeNpimCYxbhAvzy9DzbPHhmulsVXEyKdnLD59o3pkkwgj9QMbKKejwyUlz_hZ5mtVhwtTBEFw2IuE1IHiGbx2fxDVNaOO2Cklc5t3S5xfCacb5A/s320/westminster_keeps1.jpg" width="252" /></a></div>
<br />
I'll use the format of the above tweet to walk through the actual figures, always with reference to <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers/" target="_blank">Scottish Government's GERS figures for 2018/19</a> . These are figures compiled by Scottish Government economists in St Andrews House and which qualify as National Statistics. In all cases I will reference page and table numbers from this <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers/" target="_blank">latest GERS report.</a><br />
<br />
<b><u>"We raise £63bn"</u> - </b>This is correct<br />
<br />
Scotland (including a full geographic share of oil revenues) raised £62.7bn of revenue in 2018/19 <i>[p4. Table S.3]</i><br />
<br />
<u><b style="text-decoration-line: underline;">"We keep £35bn"</b><b> </b></u>- This is<i> incorrect</i><br />
<br />
It's clear this figure is meant to be spending Scotland controls, because the other figures are money Westminster <i>"keeps" </i>or "<i>Spends [..] on our behalf".</i><br />
<b><br />
The correct figure is therefore £44.7bn, </b>this being money spent by "Scottish Government, LAs and Public Corporations"<i> [p33, Table 3.8]</i><br />
<i><br /></i>
<u style="font-weight: bold;">"Westminster keeps £28bn </u><u>[and]</u><u style="font-weight: bold;"> spends a further £12bn on our behalf"</u> - This is also <i>incorrect</i><br />
<i><br /></i>
The balance of spending allocated to Scotland that is spent by "Other UK Government" (aka Reserved spending) is in fact <b>£30.6bn </b><i>[p33, Table 3.8]</i><br />
<i><br /></i>
<br />
<hr />
<i><b>Sanity check opportunity: </b>above we've accounted for £62.7bn of revenue and £75.3bn [£44.7bn + £30.6bn] of expenditure - that explains a deficit of £12.6bn which was indeed the GERS deficit in 2018/19 [p2. Table S.1]</i><br />
<hr />
<br />
So we now have the correct figure for the attempted grievance: the £12.6bn GERS deficit includes £30.6bn spent by "other UK Government" on Scotland's behalf (aka "Reserved Expenditure").<br />
<br />
<hr />
<i><b>Sanity check opportunity:</b> "Devolved expenditure including housing benefit" [p45, Table 4.8] is shown as £44.7bn "before Scotland Acts 2012 and 2016" - this is consistent with our £44.7bn figure above, hence our £30.6bn "Other UK Government Spending" is what is also referred to as "Reserved Spending" (being that spending which is not devolved). Table 4.8 shows that, of currently Reserved expenditure, an additional £3.1bn will be devolved once these Acts are fully enforced - all of this £3.1bn is related to additional powers over Social protection, as detailed on p43, Table 4.6</i><br />
<hr />
<br />
All we need to do now is understand how that £30.6bn is spent and we can decide how aggrieved to feel.<br />
<br />
<b>I'll run through the detail at the foot of this blog, but of that £30.6bn Reserved Expenditure:</b><br />
<br />
<b>£20.0bn</b> is spent <i>in</i> and <i>for</i> Scotland, largely on Social Protection, but also Transport, Research Grants, Tax Credits etc.<br />
<br />
<b>£2.9bn</b> is spent <i>for</i> Scotland on things like DWP, HMRC, the BBC and Nuclear decommissioning costs which also involve spending <i>in </i>Scotland. While £0.1bn less than BBC expenditure allocated <i>for</i> Scotland is actually spent <i>in</i> Scotland, the reverse is true in the case of Nuclear Decommissioning costs and very likely the case for DWP and HMRC costs as well. Scotland gets the "fiscal multiplier" benefit of this spending already and would still need to fund delivery of these services if independent.<br />
<b></b><br />
<hr />
<b>
</b>
<i><b>Pause for breath:</b> At this point we have explained Scotland raising £62.7bn, having £44.7bn of Devolved Spending and receiving a further £22.9bn of Reserved Spending spent in Scotland - so that's £4.9bn more spent in Scotland than raised in Scotland. Scotland's population share of the UK's deficit is just £1.9bn, so we're already receiving an effective fiscal transfer of £3.0bn by this point</i><br />
<hr />
<br />
<b>£3.6bn</b> is Public Sector Debt Interest - the SNP's own Sustainable Growth Commission accepted the principle that an independent Scotland would need to service this debt<br />
<br />
<b>£3.2bn</b> is Defence Spending - in the most recent year this was 1.8% of Scottish GDP, compared with the NATO member target of 2.0%. Trident is likely to be responsible for just £0.2bn of this figure and of course some of that £3.2bn is spent in Scotland.<br />
<br />
<b>£0.9bn</b> is International Services (basically Foreign Aid) and again: the SNP's own Sustainable Growth Commission accepted the principle of maintaining this expenditure.<br />
<i></i><br />
<hr />
<i>
</i>
<i><b>Check this all adds up:</b> we'd got to a £4.9bn deficit, now we've explained the remaining £7.7bn that gets us to the correct £12.6bn GERS deficit</i><br />
<hr />
<br />
So people can have a bun-fight about what these figures would look like for an independent Scotland, but it's simply nonsensical to suggest that under current arrangements Westminster in any way "keeps" any of the tax money Scotland raises.<br />
<br />
More is spent <i>in</i> Scotland than Scotland raises in taxes and the big sums that are spent <i>for</i> but not <i>in</i> Scotland are (with the possible exception of some defence spending) costs that an independent Scotland would still expect to incur.<div><br /></div><div><b style="background-color: #fff2cc;">Addendum: I have now analysed in more detail how much reserved spending takes place in Scotland, and the answer is over £24 billion [see Addendum 2 <a href="https://chokkablog.blogspot.com/2021/01/whats-7-billion-between-friends.html" target="_blank">here</a>]</b><br />
<br />
<div style="text-align: center;">
****</div>
<div style="text-align: center;">
<b><br /></b></div>
<div style="text-align: center;">
<u><b>The Painful Detail, for the super-keen</b></u></div>
<br />
<b>The Bad News</b><br />
To do this properly you need to go through the <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-gers/pages/12/" target="_blank">GERS Supplementary Data: Detailed Expenditure Database</a>. For each of the line-items in Table 3.8 you can see there the detail broken down as per the UK Government Country and Regional Analysis (CRA) Categories - you'll be surfing a database with 4,225 rows. In each case you can then see which items of expenditure are considered "Identifiable" (that is expenditure that can be clearly allocated to Scotland as having been spent for the benefit of Scotland) and which are not (aka "ID" vs "Non-ID"). Just because expenditure is considered "Identifiable" doesn't mean that expenditure is necessarily spent <i>in </i>Scotland - but you can then email the Chief Economic Adviser to the Scottish Government and ask for some help.<br />
<br />
<b>The Good News</b><br />
I've already done this so can now summarise it for you.<br />
<br />
<br />
<br />
The full audit-trail is only available for 2017-18 (because of the timing of CRA data and GERS data publications) - but fortunately Reserved Expenditure in 2017-18 was <b>£30.7bn,</b> so almost identical to the most recent year.<br />
<br />
Of that £30.7bn, <b>£20.1bn</b> is considered Identifiable (spent for the benefit of Scotland):<br />
<br />
£17.4bn = Social Protection (Pensions, Tax Credits, Allowances and Benefits)<br />
£1.1bn = Transport (mainly Network Rail expenditure <i>in</i> Scotland)<br />
£0.5bn = Science & Technology (Renewable Heat Incentive and various Research Council grants)<br />
£0.4bn = Enterprise & Economic Development (mainly Tax Reliefs & Tax Credits)<br />
£0.2m = Employment Policies (Department of Work & Pensions)<br />
£0.5bn = Other (Lottery Grants, Medical Research Council, NERC, etc. etc.)<br />
<br />
But what about expenses that are included in this £20.1bn of "Identifiable" expenditure that people might challenge as being "fair" or "appropriate" to allocate to Scotland? Well I've been through the detail and I'm used to the examples most often raised, so let's cover them off here. Of that £20.1bn considered "Identifiable" expenditure <i>for</i> Scotland, the following costs are not spent <i>in</i> Scotland:<br />
<br />
£57m = High Speed 2 (based on Scotland's expected share of the economic benefit)<br />
£35m = House of Commons and House of Lords<br />
<br />
That's it - if you don't believe me go and look for yourself. So frankly those costs are no more than a rounding error: we can say with confidence that £20bn of Reserved Expenditure is considered as Identifable expenditure <i>for</i> Scotland and is money spent directly <i>in</i> Scotland.<br />
<br />
So where does that get us to?<br />
<br />
Revenue Raised = £62.7bn<br />
Devolved Expenditure = £44.7bn<br />
Reserved Expenditure For and In Scotland = £20.1bn<br />
<br />
So at this point Scotland has a deficit of £2.1bn - so where does the other £10.5bn of deficit come from?<br />
<br />
The big figures are well known - these are UK costs that are allocated to Scotland on the basis of Scotland's population share:<br />
<br />
Public Sector Debt Interest = £3.6bn<br />
International Services = £0.9bn (almost entirely Foreign Aid)<br />
Defence Expenditure = £3.2bn<br />
<br />
The first two figures were accepted by the SNP's own Sustainable Growth Commission, who proposed an annual "Solidarity Payment" to be paid to rUK by an independent Scotland of £5bn pa. They explained this £5bn pa as being: <i>"debt servicing contributions, 0.7% of GNP for Foreign Aid and a further £1bn set aside for shared services"<sup>2</sup>.</i><br />
<br />
The defence expenditure figure works out as 1.9% of GDP (1.8% in 2018-19) which should be compared with the 2.0% target expenditure level for NATO members. A common refrain at this point is "but Nukes" or "what about Trident" - well there are plenty of debates to be had there, but focusing purely on the economics: the annual cost of Trident included in this defence expenditure figure for Scotland is likely to be just £0.2bn<sup>3</sup>.<br />
<br />
Of course Scotland could choose to spend less on defence - maybe choose not be a NATO member - those arguing the case for independence are free to make their case for what that £3.2bn cost would be replaced by in an iScotland.<br />
<br />
The SNP's Growth Commission was clear that an iScotland would service its population share of UK debt (while trying to build credibility on the international stage and preparing to launch its own currency) and would continue to be a provider of foreign aid. But again: those arguing the case for independenec are free to make alternative arguments.<br />
<br />
So what are we left to make up the "other" £2.8bn of non-identifiable expenditure allocated to Scotland in GERS?<br />
<br />
£0.5bn = Social Protection: This is DWP benefit delivery and what appears to be some legacy pension costs - as my colleague <a href="https://twitter.com/staylorish/status/1107561127825850368?s=20" target="_blank">@staylorish has pointed out before</a>, 12.4% of DWP employees are in Scotland, so there is probably more DWP benefit delivery cost spent <i>in</i> Scotland than allocated <i>to</i> Scotland (based on population share in GERS)<br />
<br />
£0.5bn = Public and Common Services: this includes £299m of HMRC costs and - again <a href="https://twitter.com/staylorish/status/1107561127825850368" target="_blank">as @staylorish points out</a> - 14.2% of HMRC employees are in Scotland so again probably more HMRC cost is spent <i>in </i>Scotland than allocated <i>to </i>Scotland (based on population share in GERS). The £0.5bn figure also includes c.£0.2bn of Cabinet Office, DfID etc. costs.<br />
<br />
<hr />
<div style="text-align: center;">
<b>** Correction / Clarification **</b></div>
<b><br /></b>
<b>Mea culpa: the 12.4% and 14.2% figures above are incorrect</b>. They form no part of the analytical audit trail, but were wrongly used to illustrate my point that "<i>probably </i>more is spent in Scotland than allocated to scotland" in those areas. This is hardly a material issue, but I care about getting things right, so here we go:<br />
<br />
As Sam Taylor points out in the thread I link to above, he made a (quickly corrected) error in his intitial calculation which I mistakenly quoted - he has subsequently updated the analysis anyway (see <a href="https://twitter.com/staylorish/status/1236290303772016640" target="_blank">here</a>) and t<b>he correct figures for share of employees are DWP 10.3% and HMRC 11.7%.</b><br />
<br />
In both cases these percentatge are still materially greater than 8.2% (the population share of the non-Identifiable elements of these costs allocated to Scotland in GERS) so I think my "<i>probably </i>more is spent in Scotland than allocated to scotland" point still stands - but I'm happy to <b>hold my hands up, admit to the error on those specifc figures and offer the correct figures here</b> - it's what I've always said I'll do if an error is spotted on Chokkablog,<br />
<br />
In addition, some confusion seems to have arisen because at this point I am discussing the <i>non-identifable</i> element of DWP benefit delivery costs, which are as I correctly say allocated on a population share basis. In GERS there are also <i>identifiable </i>DWP benefit delivery costs (as shown in the first of the back-up tables below) of which 10.3% are allocated to Scotland in GERS. This means that of <i>all</i> DWP benefit delivery costs (ID and non-ID), Scotland is allocated an 8.98% share.<br />
<br />
I accept that my slip above did overstate the share of DWP and HMRC FTEs in Scotland and could have led a careless reader to believe that all DWP delivery costs are allocated on a population share basis.<br />
<br />
Somebody got very excited on Twitter about this, claiming that spotting this slip was "sufficient to defeat your point". This is like dancing on the head of a pin while steel girders are falling about your ears, but for those who might not have grasped the materiality here;<br />
<ul>
<li>The difference between 8.2% (the non-ID allocation) and the 9.0% (the total of ID and non-ID allocation) for DWP delivery costs being discussed here is just £21m</li>
<li>The point still stands that a greater proportion of HMRC and DWP employees are in Scotland than the share of HMRC and DWP costs allocated to Scotland in GERS</li>
<li>Before considering <i>any</i> of these non-ID costs, per the audit-trail above Scotland is already receiving £2.0bn more in expenditure than it "sends to Westminster"</li>
<li>The "we send more to Westminster than we get back" nonsense involves ignoring £20.0bn of Identifiable expenditure and <i>all</i> non-identifiable expenditure - even if the above observations don't convince you that "there is <i>probably </i>more DWP benefit delivery cost spent <i>in</i> Scotland than allocated <i>to</i> Scotland", nobody can credibly argue that <i>none</i> of these cost are spent in Scotland</li>
</ul>
<hr />
<br />
<br />
£0.3bn = Recreation, Culture and Religion: this includes £0.3bn for BBC of which £0.2bn is spent <i>in</i> Scoltand<br />
<br />
£0.2bn = Environment Protection: mainly £197m allocated Nuclear decommissioning costs - in fact £57m <i>more </i>than that is spent <i>in </i>Scotland<i> [GERS Table A.6]</i><br />
<i><br /></i>
£0.7bn = Accounting adjustments - this is just technical stuff to get the figures in comparable format with other National Statistics<br />
<br />
£0.2bn = EU Transactions - let's not go there<br />
<i><br /></i>
£0.4bn = "Other" - I'm getting tired and bored of this, so see the tables below if you have the enthusiasm to chase this detail down futher (I have and can assure you there's nothing exciting to see)<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsDOPvQmYbhoG1bKg6ygKNREDBRB10-iM0oCr1gAoEuF9-DQo-UISdDRPVOz3vOFGiaPI2UhTL3FKheAoX80JI7t2WlkTsKcOaLPK_P3FTmeG2w4A0T64dtTEFJgLH5j0tsudPPa7-b88/s1600/reserve_detail.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="541" data-original-width="650" height="457" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjsDOPvQmYbhoG1bKg6ygKNREDBRB10-iM0oCr1gAoEuF9-DQo-UISdDRPVOz3vOFGiaPI2UhTL3FKheAoX80JI7t2WlkTsKcOaLPK_P3FTmeG2w4A0T64dtTEFJgLH5j0tsudPPa7-b88/s1600/reserve_detail.png" width="550" /></a></div>
<br />
The following tables back-up each rows of the table above based on querying the GERS supplementary expenditure database - column headings are Total, ID and non-ID:<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4nIei54HrFh8H-R5jcb1DpfTGI9-R9XQyaPluoPSWo6-UPJoEhEu5fJujYO78fpr7PtpYDDK8AHM4D5QYxCjj1Igek-4kNToqLqwI6zC7bJdMKRnQs7twLaja4HM8JPPOLfketi3LEVc/s1600/tabs1.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="561" data-original-width="920" height="335" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi4nIei54HrFh8H-R5jcb1DpfTGI9-R9XQyaPluoPSWo6-UPJoEhEu5fJujYO78fpr7PtpYDDK8AHM4D5QYxCjj1Igek-4kNToqLqwI6zC7bJdMKRnQs7twLaja4HM8JPPOLfketi3LEVc/s1600/tabs1.png" width="550" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZNGg5kE20u-xSPpof5nmTRVpOMtaUzhbC8o8Mh3LrUgYn3Qg6GVxUE1lTsF-V_3p5NXsy1OYi_lCfMkL0QXJq56ESKntRj1vOYt5_wxJbXNJfE8QgdJipGsVLH2eUnj1bcdQltA02HuQ/s1600/tabs2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="742" data-original-width="922" height="442" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjZNGg5kE20u-xSPpof5nmTRVpOMtaUzhbC8o8Mh3LrUgYn3Qg6GVxUE1lTsF-V_3p5NXsy1OYi_lCfMkL0QXJq56ESKntRj1vOYt5_wxJbXNJfE8QgdJipGsVLH2eUnj1bcdQltA02HuQ/s1600/tabs2.png" width="550" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaVJMuAcm8RJXHM2mW5MziBDMkfp8euXWK5gpW9goac9ZgolgCJ3OhbcEiOk8oBQ7TWaqdnGTqePj2XGtdEm8bHvL_1QEPLo3HfyDGI0FXm0ZFuSPXvRFBRwphrrUagLYIoSBQSQ_6CUw/s1600/tabs3.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="461" data-original-width="920" height="275" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgaVJMuAcm8RJXHM2mW5MziBDMkfp8euXWK5gpW9goac9ZgolgCJ3OhbcEiOk8oBQ7TWaqdnGTqePj2XGtdEm8bHvL_1QEPLo3HfyDGI0FXm0ZFuSPXvRFBRwphrrUagLYIoSBQSQ_6CUw/s1600/tabs3.png" width="550" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tuNrg1QXEbzXkQgsle-_zWRvZw07M3DACCYgHvs1N57u0W-DCdJIHR5sz322DvxYQUSiDutEleCTDQAqc99s80Ypxt4d5wGT8VtLAgTDbwNF1FTvRjLBhKmolVZmKvFXxEj60OXKeuw/s1600/tabs4.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="401" data-original-width="920" height="239" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh_tuNrg1QXEbzXkQgsle-_zWRvZw07M3DACCYgHvs1N57u0W-DCdJIHR5sz322DvxYQUSiDutEleCTDQAqc99s80Ypxt4d5wGT8VtLAgTDbwNF1FTvRjLBhKmolVZmKvFXxEj60OXKeuw/s1600/tabs4.png" width="550" /></a></div>
<br />
<i><br /></i>
<b><u>NOTES</u></b><br />
<br />
1. I replied with a <a href="https://twitter.com/kevverage/status/1207961754048909312" target="_blank">brief thread</a> explaining why that tweet (which had been retweeted by high profile campaigners for Scottish independence including at least 1 SNP MP) was wrong - it has since been deleted so I am not including the twitter handle in the screen cap<br />
<br />
2. <a href="https://static1.squarespace.com/static/5afc0bbbf79392ced8b73dbf/t/5b0a988c352f53c0a5132a23/1527421195436/SGC+Full+Report.pdf" target="_blank">Sustainable Growth Commission report</a>, p37, 3.139<br />
<br />
3. <a href="https://fullfact.org/economy/trident-nuclear-cost/" target="_blank">According to Full Fact,</a> the annual running cost of Trident is c.£2bn, of which Scotland's population share would be just £0.2bn</div>Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com90tag:blogger.com,1999:blog-1603438996450817644.post-70564935818177999312019-12-05T11:55:00.005-08:002019-12-06T07:40:12.167-08:00Dissecting a Deception<br /><b><u>tl;dr</u></b><br />Nicola Sturgeon keeps trying to mislead people by repeating a demonstrably false assertion. The truth is that if the SNP's Growth Commission recommendations had been applied to the conditions as they actually were a decade ago, Scotland would have suffered far greater austerity over the last 10 years - <b><i>and we can prove it</i></b><br /><br /><div style="text-align: center;">
***</div>
<hr />
<i>That Ming-bearded mind-botherer<sup><span style="font-size: xx-small;">TM</span></sup> Derren Brown<sup>1</sup> is fond of telling his audiences that he achieves the seemingly impossible via a combination of "suggestion, psychology, misdirection and showmanship".</i><br />
<hr />
<br />
There's an assertion being repeated so often by Nicola Sturgeon that I'm amazed none of the mainstream fact-checking organisations have bothered to check it. It goes like this:<br />
<blockquote class="tr_bq">
<i>"if the [SNP] Growth Commission recommendations on spending in an independent Scotland had been applied over the past 10 years, Scotland wouldn't have suffered the austerity cuts to our budget that we have suffered." </i>- Nicola Sturgeon</blockquote>
That quote is lifted directly from her recent <a href="https://www.bbc.co.uk/iplayer/episode/m000bqs0/the-andrew-neil-interviews-election-2019-nicola-sturgeon" target="_blank">interview with Andrew Neil on BBC1</a> - she made the same asssertion to <a href="https://twitter.com/itvpeston/status/1202375150949158913?s=20" target="_blank">ITV's Robert Peston</a><sup>2</sup> as well repeating it during the <a href="https://player.stv.tv/episode/3v6a/stv-leaders-debate" target="_blank">STV leaders' debate</a><sup>3</sup> and, although I didn't listen to her call-in with Nicky Campbell on BBC Radio 5 Live, I'm told she repeated it there as well.<br />
<br />
To understand the history of this assertion and how the SNP have tried to defend it is to understand how confident they are that "misdirection and showmanship" can allow them to claim the seemingly impossible.<br />
<br />
The first time I heard this claim being made was by SNP MSP Kate Forbes (a member of the Growth Commission) on <a href="http://chokkablog.blogspot.com/2018/06/kate-forbes-snp-msp-question-time-claim.html" target="_blank">Question Time back in May 2018</a>:<br />
<blockquote class="tr_bq">
<i>"Over the last 10 years the Scottish Budget has been cut by 8.5%; in contrast, this report predicts that if we had been an independent country our spending could have increased by 5% over those 10 years. Minus 8 to plus 5." </i>- Kate Forbes</blockquote>
I then discovered that on the same day, <a href="https://www.scottishparliament.tv/meeting/first-ministers-questions-may-31-2018" target="_blank">during FMQ's in Holyrood</a>, Nicola Sturgeon had told the chamber:<br />
<blockquote class="tr_bq">
<i>"<b>I've got some analysis</b> here which I'm going to share with the chamber, and hopefully it'll be ... it'll be of embarrassment to the Tories, hopefully it'll be of interest to Labour. <b>If the spending recommendations of the Growth Commission had been applied over the past ten years, the £2.6bn real-terms cuts imposed on the budget of the Scottish government by Tory governments at Westminster would have been completely wiped out, it would have eradicated austerity in Scotland</b>. That is the reality." </i>- Nicola Sturgeon</blockquote>
Then the report's author, Andrew Wilson, used his <a href="https://www.thenational.scot/news/16265238.growth-report-author-unionists-think-independence-case-is-now-stronger/" target="_blank">column in the National</a> a few days later to repeat the claim again:<br />
<blockquote class="tr_bq">
<i>"If the model we have suggested for reducing the deficit was applied to the last 10 years, it would have eliminated the Tory austerity cuts to the Scottish Budget." </i>- Andrew Wilson</blockquote>
I think we can safely say that the SNP have been committed to this line for some time now - and they've decided that this general election campaign is the right time to crank up the volume.<br />
<br />
Back in June 2018 I pointed out that those assertions were completely at odds with the Growth Commission's actual recommendations (I blogged on the subject <a href="http://chokkablog.blogspot.com/2018/06/kate-forbes-snp-msp-question-time-claim.html" target="_blank">here </a>and <a href="https://chokkablog.blogspot.com/2018/06/andrew-wilsons-doublethink-masterclass.html" target="_blank">here</a>). This matters, because as a direct result we know how the SNP seek to justify themselves on this.<br />
<br />
First of all let's be clear about what the Growth Commission actually recommended. I covered this in great detail in a report that was reviewed and endorsed by senior economists at the time [<a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">These Islands Growth Commission Response: The Truth About Austerity</a>], but in essence their recommendation is simple (emphasis mine):<br />
<blockquote class="tr_bq">
<i>"real increases in public spending should be limited to <b>sufficiently less </b>than GDP growth over the business cycle to <b>reduce the deficit to below 3% </b>within 5 to 10 years"</i> - Growth Commission 3.187</blockquote>
This isn't a selective quote - the recommendation is repeated four times<sup>4</sup> in the report and every time it's made clear that spending growth must be<b> sufficently less</b> than GDP growth to reduce the deficit to 3% within 10 years<sup>5</sup>.<br />
<br />
Even before we look at how the SNP attempt to justify their "<i>we'd have escaped Tory austerity</i><i><sup>2</sup></i><i>"</i>claim, it should already be obvious that their assertion is false: the Commission's recommendation is to get the deficit under control within a 10 year period entirely through spending restraint<sup>6 </sup>- so if the current deficit is still above 3%, then over the last 10 years their recommendations would have required Scotland to have reduced spending by more than has been the case.<br />
<br />
Scotland's deficit in 2018-19 was in fact £12.6bn or 7.0% of GDP<sup>7</sup>. For that to have been reduced to 3.0% through spending constraint alone over the prior decade, annual spending now would have to be £7.2bn less - that implies a 9.6% reduction to Scotland's current Total Managed Expenditure<sup>8</sup>.<br />
<br />
It's patently obvious that applying the Growth Commission's rules over the past decade would have led to far deeper austerity than "Tory austerity".<br />
<br />
So let's see how the SNP try to justify their transparently indefensible claim.<br />
<br />
<br />
<b><u>Justification Attempt No. 1</u></b><br />
<br />
The first justification was offered directly by Kate Forbes herself, who had the good grace to reply to me when I challenged her about what she'd said on BBC's Question Time. She DM'd me the following <sup>9</sup> (remember: she was a member of the Growth Commission):<br />
<blockquote class="tr_bq">
<i>"its v simplistically based on what the GC recommends in terms of increasing public spending in Scotland over a 10 year period (by 0.5% per year (5.1% compounded))."</i></blockquote>
The obvious problem here is that the 0.5% figure is arrived at based on two key assumptions<br />
<ol>
<li><b>The starting deficit position</b> - to determine by how much less than GDP growth spending would need to grow to get the deficit to 3% within 10 years (let's call it the "spending lag")</li>
<li><b>Real annual GDP growth</b> - to determine what real spending growth would be if it was <i>suffciently less than </i>GDP growth</li>
</ol>
To get to the 0.5% figure the Growth Commission assumed<br />
<ol>
<li>An onshore deficit starting position of <b>5.9%</b><sup>10</sup> which - as they modelled it<sup>11</sup> - meant that spending growth would have to lag GDP growth by 1.0% to get to the 3% target after 10 years.</li>
<li>Real GDP growth at a "long-term trend" rate of <b>1.5% </b>- so spending lagging this by 1.0% would mean real spending growth of 0.5% pa.</li>
</ol>
<div>
Now it's surely obvious that you can't apply the 0.5% figure to the last 10 years, because the starting position 10 years ago was a worse deficit and GDP growth was of course slower than "long-term trend" - that's why austerity was deemed necessary in the first place.<br />
<br />
So Justification Attempt No. 1 is clearly nonsense - and although it's not really our job, for fun let's try and see what happens if we apply the actual figures</div>
<div>
<ol>
<li>10 years ago, Scotland's onshore defict was <b>8.8%</b><sup>12</sup>. Using a recreated version of the GC's model suggests that spending growth <b>would have to lag GDP growth by 1.5 - 1</b><b>.9</b><b>%</b> to get to the 3% deficit target after 10 years<sup>13</sup>.</li>
<li>Actual real GDP growth for Scotland over that 10 year period was<b> 1.0%</b><sup>14</sup> - so spending lagging this by 1.5 - 1.9% would mean <b>a real spending <i>decline </i>of (0.5) - (0.9)% pa</b></li>
</ol>
</div>
<br />
Depending how you choose to define "the last 10 years", average annual real spending growth (TME<sup>8</sup>) for Scotland within the UK has been 0.9% (06/07 to 16/17), 0.6% (07/08 to 17/19) or 0.4% (08/09 to 18/19).<br />
<br />
So however you cut it, the reality of the last 10 years hasn't been anything like as bad as a 0.5 - 0.9% real annual spending decline. Of course it hasn't - if it had been Scotland's deficit would now already have been reduced to below 3%.<br />
<br />
<br />
<u style="font-weight: 700;">Justification Attempt No. 2</u><br />
<br />
Freedom of Information requests are funny things. I stumbled across <a href="https://www.gov.scot/binaries/content/documents/govscot/publications/foi-eir-release/2018/09/communication-relating-to-sustainable-growth-commission-report-foi-release/documents/foi-18-02078---related-email-correspondence/foi-18-02078---related-email-correspondence/govscot%3Adocument/FOI-18-02078%2B-%2Brelated%2Bemail%2Bcorrespondence.pdf" target="_blank">this one</a> a while back and it is extremely revealing. It includes emails that were being exchanged with the SNP on the same day that our <a href="https://www.these-islands.co.uk/publications/i312/growth_commission_response.aspx" target="_blank">These Islands response to the Growth Commission</a> was released. The following caught my eye:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3CliU42OC1qudKNSeUUBz5A-rirT0Vh65bZJEQGOwtnOiSMcYqPbhtNLHhl4v9KagTsIWiXNlUmfyX9tkUIJrUzu8flANlw0i96ahBya0Uq-vW1MS7e3g4eZe43yTwf-KeLCGHB72zYo/s1600/foi_email.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="730" data-original-width="675" height="597" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh3CliU42OC1qudKNSeUUBz5A-rirT0Vh65bZJEQGOwtnOiSMcYqPbhtNLHhl4v9KagTsIWiXNlUmfyX9tkUIJrUzu8flANlw0i96ahBya0Uq-vW1MS7e3g4eZe43yTwf-KeLCGHB72zYo/s1600/foi_email.png" width="550" /></a></div>
<br />
It's nice to know that "Special Adviser to the First Minister" Callum McCaig was paying attention (*waves*) - I wonder who the redacted recipient of this email could possibly have been?<br />
<br />
But what should interest us most here is what this tells us about the analysis they used (internally) to justify their claim - presumably this is the <i>"I've got some analysis"</i> that Sturgeon referred to in the Chamber.<br />
<br />
First of all, we have the familiar SNP trick of playing fast and loose with the concept time.<br />
<br />
We've recently (November 2019) seen Ian Blackford referring to "the last 40 years" when <a href="http://chokkablog.blogspot.com/2019/12/the-snp-living-in-past.html" target="_blank">he's actually talking about a 32 year period up to 2011-12</a>. Now we discover that in July 2018 when Sturgeon referred to "the last 10 years" she was actually referring to a period that included 2 years into the future!<br />
<br />
But the SpAd is right when he says that the starting year makes a difference - what they've done is ignore 3 years of generous spending increases which, needless to say, had they been applying the Growth Commission's recommendations then Scotland wouldn't have seen. Over the three years they conveniently ignore, average real expenditure (TME) increased by 2.4% pa which was an average of <b>3.4% pa <i>more </i>than GDP growth</b> (because recession)<br />
<br />
["bailing out the banks" is a red-herring - GERS only sees a per capita share of the "P&L" impact of the bail-outs (see <a href="https://www.thetimes.co.uk/article/gers-a-misnomer-knkcqj0mz9w" target="_blank">here</a>) - the impact in 2010 GERS was just £0.7bn or 0.5% of GDP, hardly significant in the context of the numbers we're considering]<br />
<br />
What they apparently <i>have</i> now done is applied the 1.0% "spending lag" to the <i>actual </i>GDP growth rates over their "last 7 years plus the next 3 years forecast" definition of the last 10 years (i.e. instead of blindly applying the 0.5% real growth as per Justification Attempt No. 1) .<br />
<br />
But there's a huge problem here - they've applied that spending lag of 1.0% which was calculated based on starting deficit of 5.5%. <b>The actual onshore deficit in their chosen base year </b>of 2010/11 - precisely because of those years of spending growth they've conveniently ignored - <b>was 13.2%</b> <sup>14</sup><br />
<b><br /></b>
If you're following what's going on here the issue is obvious: with that starting deficit, to get the deficit down to 3% within a decade (the Growth Commission's First Fiscal Rule) would require a "spending lag" of far greater than 1.0%.<br />
<br />
So we've shown that Justification Attempt No. 2 is also nonsense - and again, althought it's not really our job, for fun we can have a quick go at estimating the "spending lag" required to get from a 13.2% deficit to a 3.0% deficit in 10 years. I have had a go (using the Growth Commission's modelling methodology) and I reckon the figure becomes something like a 3.0% spending lag required.<br />
<br />
So even taking the "long-term trend" GDP growth rate of 1.5% pa, I estimate that applying the Growth Commission's model to the 2010/11 starting conditions would imply real terms spending cuts of 1.5% pa for a decade. Even allowing for "through the business cycle" caveats, it's clear that this would have been far more extreme austerity than Scotland has actually suffered.<br />
<br />
Now whether my quick attempts to correct the SNP's assertions are right or not could be open to debate, but that's not really the point - what is clear is that the justifications they've offered (or that we've found out they're using internally) are clearly nonsense.<br />
<br />
Nicola Sturgeon is frequently repeating the same false assertion - in the Chamber; on BBC1 and ITV; in interviews and in debates - and she should be held to account.<br />
<br />
No amount of suggestion, psychology, misdirection, showmanship (or even bending of the concept of time) should be allowed to distract from this simple fact: Sturgeon's claim that applying the Growth Commission's recommendations on spending over the last decade would have spared Scotland from austerity is as shonky* as hell.<br />
<br />
<br />
*shonky: dishonest, unreliable, especially in a devious way.<br />
<br />
<div style="text-align: center;">
***</div>
<br />
<br />
<b><u>Notes</u></b><br />
<br />
1. I'm a fan - that description is his own from the dust-jacket of "Tricks of the Mind" (which I highly recommend)<br />
<br />
2. <i>"If [the Growth Commission's] recommendations had been implemented retrospectively we'd have escaped Tory austerity over the last decade"</i><br />
<i><br /></i>
3. See <a href="https://player.stv.tv/episode/3v6a/stv-leaders-debate" target="_blank">exchange with Richard Leonard at 47:20</a>: <i>"In fact if we'd had the Growth Commission's recommendations implemented over the past decade, we wouldn't have had the austerity that we've suffered under the Tories, that's the reality"</i><br />
<br />
4. Directly from the Sustainable Growth Commission report:<br />
<br />
<div style="text-align: center;">
<u>page 42</u></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFMJV3yvwC5wlk-gVlSgGsEOsufwDGsZILVShBbymk99H_Dj29iRIw7A8TLQED7wMAFL45JYSKlwn0b9P95QEv9Y0IoORt_xM4wMK8HlSXXVhbJU4RLHGyd1ZzIDpl9xUozy0YcsGakw8/s1600/IMG_8283.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="395" data-original-width="1600" height="131" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFMJV3yvwC5wlk-gVlSgGsEOsufwDGsZILVShBbymk99H_Dj29iRIw7A8TLQED7wMAFL45JYSKlwn0b9P95QEv9Y0IoORt_xM4wMK8HlSXXVhbJU4RLHGyd1ZzIDpl9xUozy0YcsGakw8/s1600/IMG_8283.jpg" width="550" /></a></div>
<div style="text-align: center;">
<u>Page 45</u></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKu9f_c-5SZGYVPxH_ahj5gD4fuX45i26A-81XKtBUhgloEIr5YNccJbPXID8HubugShOphKKkB9dvCTmTuHOF_PVzlEwFMz_Ho9LckwdvXCl84Jx3kPuxoISaJiD5Ax39HhL7sNkdv7I/s1600/IMG_8285.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="366" data-original-width="1600" height="125" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhKu9f_c-5SZGYVPxH_ahj5gD4fuX45i26A-81XKtBUhgloEIr5YNccJbPXID8HubugShOphKKkB9dvCTmTuHOF_PVzlEwFMz_Ho9LckwdvXCl84Jx3kPuxoISaJiD5Ax39HhL7sNkdv7I/s1600/IMG_8285.jpg" width="550" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<u>Page 92</u></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB4DM-1wZLn2KjYjoONbLZC4wLsiHk0XB0u4W9NqJ_FseIAWuotClJQxuSP3sSZNthvWLYUYWAjcPDei7uZ7DBjj4Nh135-ITZXGqO5qXzPeATuPk5bl4g_zkCiUnaxWeT_13BBDWpoZs/s1600/IMG_8287.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="405" data-original-width="1600" height="138" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiB4DM-1wZLn2KjYjoONbLZC4wLsiHk0XB0u4W9NqJ_FseIAWuotClJQxuSP3sSZNthvWLYUYWAjcPDei7uZ7DBjj4Nh135-ITZXGqO5qXzPeATuPk5bl4g_zkCiUnaxWeT_13BBDWpoZs/s1600/IMG_8287.jpg" width="550" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<u>Page 101</u></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaxyLm7nIvPpvRhoBOMQnw9cjn7w4_RGWJm-JG97fAO52FIFvHrRSiHT9bt3it8j__w2HM3GP26vknI7VZIKnfREZxhdLDhWXuw8N6U4WLjIomL5oUwtBG0rbDF2w428Q879eQIe600UY/s1600/IMG_8292.JPG" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="303" data-original-width="1024" height="161" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhaxyLm7nIvPpvRhoBOMQnw9cjn7w4_RGWJm-JG97fAO52FIFvHrRSiHT9bt3it8j__w2HM3GP26vknI7VZIKnfREZxhdLDhWXuw8N6U4WLjIomL5oUwtBG0rbDF2w428Q879eQIe600UY/s1600/IMG_8292.JPG" width="550" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<br />
<i>5. </i>The report used the phrase "within 5 to 10 years" which is just the same as saying "within 10 years" (unless anybody is going to suggest that they're implying they wouldn't want to have the deficit below 3% of GDP in less than 5 years?)<br />
<br />
6. It's important to note that when modelling deficit reduction over a 10 year period, the Growth Commission simply use "trend GDP growth" (which given the inevitable economic disruption that separating from the UK would cause - leaving the UK single market, leaving the Sterling currency union, losing the fiscal transfer from rUK - is arguably a very optimistic assumption). More importantly: as we see in the two attempts to justify these assertions, at no point do the SNP present a case that suggests they'd have changed historical rates of GDP growth.<br />
<br />
7. Source <a href="https://www2.gov.scot/Topics/Statistics/Browse/Economy/GERS" target="_blank">GERS</a> (the same base data the Growth Commission used) for 2018-19<br />
<br />
8. The sound-bites offered by the SNP tend to refer to the "Scottish Budget" - of course the Growth Commission's recommendations relate to Scotland's total expenditure ("Total Managed Expenditure" in GERS terminology) which includes rather important costs that are outside Scotland's Budget, not least Social Welfare costs including pensions. It's impossible to read across from the Growth Commission's spending restraint recommendation to specifically what that would mean for only those costs in the Scottish Budget, as the GC make no specific recommendations about Social Welfare spending (for example).<br />
<br />
9. I considered sharing a screen cap of the DM but that feels like crossing a line - but if any journalists or fact-checkers want to see confirmation of this I would happily provide<br />
<br />
10. This is in itself a hugely optimistic assumption based on some highly questionable analysis - but I don't want to get bogged down in those arguments which were covered in <a href="https://www.these-islands.co.uk/publications/i306/gc_4_a_reality_check.aspx" target="_blank">These Islands Growth Commission Response: A Reality Check</a>. Similarly the target of a deficit of 3% of GDP within a decade is insufficiently aggressive on the Growth Commission's own terms, as covered in the <a href="https://www.these-islands.co.uk/publications/i308/gc_6_aiming_too_low.aspx" target="_blank">These Islands Growth Commission Response: Aiming Too Low</a>, but I'm trying to avoid this blog re-running too much ground that's already been covered<br />
<br />
11. There is a wrinkle in their model which (<a href="https://www.sustainablegrowthcommission.scot/report" target="_blank">see B12.19</a>) in that they assume <i>"savings of 0.3% GDP associated with investment in best-in-class institutions realised over a three year period from year 5" </i>- that basically makes it easier for them to get to the 3% figure in 10 years. Bar that wrinkle and the impact of assumed debt interest on new debt, the model is incredibly simple: revenue grows with GDP, Spending grows more slowly (by the "spending lag") and hence the deficit must come down.<br />
<br />
12. As we'll come on to see, the definition of "10 years ago" will become important. Here I have used 2007/08 as the starting position: this is the year the SNP came to power and - given these initial assertions were being made in May 2018 so we'd just completed year 2017/18 - that seems like 10 years ago to me. The second definitional issue we have is "onshore deficit" at that time (the onshore deficit is the figure the Growth Commission consistently use) - per most recent GERS (so dealing with any historical restatements) the 2007/08 onshore deficit was £12,774m. If we divide that by onshore GDP of £120,929m we get a figure of 10.6%; if we divide it by total GDP of £145,372 we get a figure of 8.8%. To err on the side of caution, I have taken the lower figure.<br />
<br />
13. The <a href="https://www.these-islands.co.uk/publications/i307/gc_5_the_truth_about_austerity.aspx" target="_blank">previous conclusion we drew</a> when modelling this was that a lag of 1.5% would be required - the analytical challenge relates to what one assumes in terms debt costs for the counter-factual historical case. The higher figure comes from simply taking the forward model (as per our recreated Growth Commission model), changing the "legacy deficit" assumption to be as per the historical deficit and then working out what the lag would need to be to get to the deficit to 3% after 10 years - that gives the higher end of the range (basically because we're having to service more incremental debt in the future model because we're no longer sharing our deficit with the rest of the UK)<br />
<br />
14. This gets a little tricky as at the time Kate Forbes and Sturgeon first made their assertions, the latest GERS figures available were for 2016-17; since then 2017-18 and 2018-19 figures have been published and of course these will include historical restatements / corrections. Taking the most recent 2018-19 version of the figures, over either of the 10 year periods from 06/07 to 16/17 or 07/08 to 17/18 gives the same answer of 1.0% annual GDP growth [the 10 years to 18/19 would now give us a 1.2% average]<br />
<br />
15. Again using the latest (2018-19) GERS report: the onshore deficit in 2010-11 was £19,607, onshore GDP was £124,611m and total GDP was £147,983 - again I'm erring on the side of generosity by using total GDP as my onshore deficit denominatorKevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com5tag:blogger.com,1999:blog-1603438996450817644.post-50913339566831722322019-12-03T11:55:00.000-08:002019-12-04T02:46:42.727-08:00The SNP: Living in the PastThe SNP's Ian Blackford recently made the following statement (presumably to Adam Boulton) on <a href="https://www.express.co.uk/news/politics/1210013/election-2019-snp-ian-blackford-scotland-uk-union-net-beneficiary" target="_blank">Sky News</a>:<br />
<blockquote class="tr_bq">
<i>"But the simple fact of the matter, Adam, is that if you look back over the course of the last 40 years, UK Government figures make it absolutely clear that Scotland has subsidised the rest of the UK in most of the last 40 year period.”</i></blockquote>
This set alarm bells ringing for those who pay attention to this sort thing, because it is a statement dramatically at odds with the Scottish Government's own data.<br />
<br />
Following a minor Twitter storm, Channel 4's <a href="https://twitter.com/FactCheck" target="_blank">@FactCheck</a> had a look at it and <a href="https://www.channel4.com/news/factcheck/factcheck-has-scotland-subsidised-the-rest-of-the-uk" target="_blank">published a Fact Check</a> which concluded that it was <i>"impossible for us to stand up Mr Blackford’s claim at the moment". </i>Some of us thought that was an extremely generous conclusion and this blog will, I hope, explain why.<br />
<br />
<hr />
<i>An aside on Channel 4's FactCheck: I have spoken with one of their team who took the time to call me and explain why they had written what they have. I appreciate that they have a policy of not doing analysis, but rather following the audit-trail offered to them for any claims made. Whilst I will come on to show why the audit trail they were sent down was perhaps a dodgy path, I want to be clear that this blog is a criticism of Blackford's claim, not of Channel 4's FactCheck. Heaven knows, given the breadth of issues they have to cover, we can't expect them to be as familiar with the intricacies of Scotland's economic data as sad souls like me who have buried ourselves in this topic for more than 5 years now.</i><br />
<hr />
<br />
What's particularly useful about Channel 4's FactCheck is that they have clearly spoken with the SNP (as of course they should) and been told how they attempt to justify the claim. FactCheck quote an SNP spokesman (*waves*) as saying:<br />
<blockquote class="tr_bq">
<i>"We have demonstrated to you using official government statistics that Ian Blackford’s comments are correct. The evidence shows that tax revenues per head in Scotland have been considerably higher than the UK – that has unquestionably subsidised UK public spending over the period."</i></blockquote>
We'll come back to this statement, but first let's clarify what's going on here.<br />
<br />
According to FactCheck, the claim is based on a <a href="https://www2.gov.scot/Resource/0041/00418381.pdf" target="_blank">publication in April 2013</a> which relied on "<a href="https://www2.gov.scot/Topics/Statistics/Browse/Economy/GERS/RelatedAreas/LRfiscalbalances2013" target="_blank">An Experimental series of historical fiscal balances for Scotland 1980-81 to 2011-12</a>". We'll refer to this data source from here forward as the SNAP data (as it's colloquially known<sup>1</sup>).<br />
<br />
So here's the first point, as rightly made by FactCheck: <i>"The stats only cover 1980/81 to 2011/12 (that’s 32 years), and recent years are missing".</i><br />
<i><br /></i>
Pause for a moment.<br />
<br />
So when Blackford said <b>"the last 40 years"</b> he was actually referring to "the 32 years up to 2011/12"?<br />
<br />
That's<b> a 32 year period that ended 7 years ago!</b><br />
<b><br /></b>
Fun fact: in 2011/12 that SNAP data showed income from North Sea oil for Scotland of £7.9bn. Anybody with even a passing familiarity with what's been happening to tax revenues from the North Sea will immediately see the issue that's coming here - but let's step our way there carefully.<br />
<br />
<hr />
<i>Here's another area where I have sympathy with Channel 4's FactCheck - I've followed enough audit-trails offered by the SNP to be familiar with their shoddy approach to data sources. In fact those SNAP figures were updated to cover the 33 year period to 2012/13 [<a href="https://www2.gov.scot/Topics/Statistics/Browse/Economy/GERS/RelatedAreas/LRfiscalbalances2014" target="_blank">here</a>] so from here forwards the most recently available SNAP figures are the ones I'll use. I presume the information FactCheck link to was as given to them by the SNP - and it's perhaps not unreasonable for them to assume they'd been pointed at the most recent data by the people attempting to justify Blackford's claim.</i><br />
<hr />
<br />
OK, so let's see what that SNAP data shows us (before we come on to the SNP's attempted debt-dodge).<br />
<br />
First we need to understand how we can identify when Scotland could be considered to be "subsidising" the rest of the UK.<br />
<br />
Scotland is allocated a population share of the UK's debt costs both in the SNAP data and in the more up-to-date and accurate GERS data that we'll come on to consider. This means that Scotland is considered a net contributor to the rest of the UK when it's per capita deficit is lower than the UK's per capita defict (and vice-versa).<br />
<br />
A corollary of this is that - assuming Scotland is accruing responsiblity for a population share of the UK's debt - when Scotland is responsible for less than its population share of growth in that debt, it's net contributing to the rest of the UK<sup>2</sup>.<br />
<br />
So let's graph that SNAP data and see what's going on - this is the difference between Scotland's SNAP deficit per capita and the UK's deficit per capita (from the same source):<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPcB2GmOnw0YzZStBtznyNU8ckiKTutZqRubArcAxyT4QnDFCw_nvFzT3o5559zW2sk6CkApJ9fUm2m-zuCiBHlS5GLm91hvxc9is3roCbk4JuOcq2AMHpV9Zx6Rmn3JKkHCd9RscQWrs/s1600/SNAP.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="901" data-original-width="1360" height="331" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhPcB2GmOnw0YzZStBtznyNU8ckiKTutZqRubArcAxyT4QnDFCw_nvFzT3o5559zW2sk6CkApJ9fUm2m-zuCiBHlS5GLm91hvxc9is3roCbk4JuOcq2AMHpV9Zx6Rmn3JKkHCd9RscQWrs/s1600/SNAP.png" width="500" /></a></div>
<br />
<span style="font-size: x-small;"><i>[note: "1980" = 1980/81 (and so on) and all figures are deflated using the UK GDP deflator]</i></span><br />
<br />
When that line is above the axis, Scotland was a net contributor to the rest of the UK, when it's below it was a net beneficiary.<br />
<br />
So immediately we can see a profile which will be familiar to regular visitors to Chokkablog: Scotland was a massive net contributor to the UK when oil boomed in the 1980's but - according to the experimental data as presented by the Scottish Government in 2014 - from 1998 onwards we pretty much just paid our way.<br />
<br />
So far so good. <i>If </i>we accept setting the clock running just as we strike oil and <i>if </i>we accept that Scotland gets to "keep" oil revenues from oil fields in Scottish waters (which is what these figures assume) then the SNAP data shows Scotland being a material net contributor to the UK over the 32 years between 1980 and 2012.<br />
<br />
In fact if we accept these assumptions and add the annual numbers together, it works out at a <i>cumulative</i> net contribution <i>from</i> Scotland of nearly £16,000 per person. It's Grievo-Max time and perhaps one can see why Ian Blackford wishes that's where we still were.<br />
<br />
But let's remind ourselves what Blackford actually said: "<i>UK Government figures make it <b>absolutely clear</b> that Scotland has subsidised the rest of the UK <b>in most of the last 40 year period</b>."</i><br />
<i><br /></i>
Well it's only "absolutely clear" that Scotland "subsidised" the rest of the UK when that line is above the axis - and you'll find that's the case in just 15 of the 33 years shown. So even using this extremely out-of-date data (that conveniently stops just when oil revenues crashed) the statement "in most of the last 40 year period" is not supported.<br />
<br />
But more importantly, <b>we're not still in 2012</b>.<br />
<br />
Time doesn't stand still, oil reserves are finite and we have both more recent figures and a better handle on the figures for some of the years covered by SNAP - we have GERS.<br />
<br />
GERS [<a href="https://www2.gov.scot/Topics/Statistics/Browse/Economy/GERS" target="_blank">Government Expenditure and Revenue Scotland]</a> figures are compiled by Scottish Government economists in St Andrew's House and - unlike the experimental SNAP data - they qualify for the <a href="https://www.ons.gov.uk/" target="_blank">National Statistics</a> Kitemark. Thankfully we don't need to re-run the tired old arguments put forward by <a href="http://chokkablog.blogspot.com/2016/07/gers-deniers.html" target="_blank">GERS-deniers</a> to be able to agree that GERS is better data than SNAP - that point at least should be beyond dispute.<br />
<br />
Now FactCheck baulked when they realised that the GERS data only goes back as far as 1998/99. I guess that's fair enough; they wouldn't necessarily know how or if GERS figures reconcile with SNAP figures - and you'd need to be familiar with the reporting history to understand how to explain the apparent inconsistencies.<br />
<br />
But fortunately we can deal with those issues because we've been down this road (so many times) before.<br />
<br />
It's easy to plot the two sets of data and see how they overlap:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnmuMvWW8NG5kKPirbAhHbn1WfHsjkMtQhzku7ZVkOMKCu7y-j-PmEeISJ4qiM4XJ8eVQ1bjU-58Iu2ReANardrbD6XifzcwL7mMZUpukw9r4YuHRtQZ8WMWzbqIr5pD4wqnaXdxI-9aM/s1600/SNAP_GERS.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="870" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgnmuMvWW8NG5kKPirbAhHbn1WfHsjkMtQhzku7ZVkOMKCu7y-j-PmEeISJ4qiM4XJ8eVQ1bjU-58Iu2ReANardrbD6XifzcwL7mMZUpukw9r4YuHRtQZ8WMWzbqIr5pD4wqnaXdxI-9aM/s1600/SNAP_GERS.png" width="500" /></a></div>
<br />
So immediately we can see that where the data overlaps the more recent and more accurate GERS figures show a (slightly) worse picture for Scotland than the SNAP data.<br />
<br />
The simple explanation is that revisions made by the Scottish Government's own economists to the historical figures reduced the amount of North Sea oil revenue that they believe should be attributed to Scotland. The most dramatic adjustments were made in the 2016-17 GERS figures - <a href="http://chokkablog.blogspot.com/2017/08/latest-gers-figures-quick-summary.html" target="_blank">I highlighted this at the time</a>. To avoid getting bogged down in the detail of that here, see note 3 below.<br />
<br />
Of course even more significant than the correction downwards in the overlapping years is the dramatic shift to Scotland becoming a large net beneficiary of the UK in the last 7 years (as North Sea oil revenues have declined).<br />
<br />
So if we use the best available data (GERS after 1998, SNAP before) we can create a full time series against which we can fairly judge Ian Blackford's claim:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrZslwvpSHRGOCE9p3ug6vy63jLegQ-VHXK2rfZVzQqpGcWCQinvgTiXpmipzNF5dYwNQvOFQHFOe_OKdKYpUvJNEiCyHZ-kNHUzeF_yJV53FtA0OgrcrEH39s4lCM3CjcCNxALtcoEYY/s1600/snap_GERS_hybrid.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="870" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgrZslwvpSHRGOCE9p3ug6vy63jLegQ-VHXK2rfZVzQqpGcWCQinvgTiXpmipzNF5dYwNQvOFQHFOe_OKdKYpUvJNEiCyHZ-kNHUzeF_yJV53FtA0OgrcrEH39s4lCM3CjcCNxALtcoEYY/s1600/snap_GERS_hybrid.png" width="500" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<br />
Remember: when that line is above the axis, Scotland is a net contributor to the UK, when it's below Scotland is a net beneficiary.<br />
<br />
You can see why Ian Blackford <i>wishes </i>the world had stood still in 2013 (and that he could ignore Scottish Government data corrections), but I don't think that makes it acceptable that he makes assertions assuming that were the case.<br />
<br />
The more eagle-eyed among you will have spotted this is in fact a 39 year time period, but that's by-the-by (it's closer to 40 than 32 is!). Now let's check Blackford's statement against this best available data:<br />
<blockquote class="tr_bq">
<i>"UK Government figures make it absolutely clear that Scotland has subsidised the rest of the UK in most of the last 40 year period"</i></blockquote>
In fact these figures (which come from the <i>Scottish </i>Government, albeit they <i>include </i>UK Government figures) show that - to adopt Blackford's own terminology - <b>Scotland has subsidised the rest of the UK in only 12 of the last 39 years.</b><br />
<b><br /></b>
So not "in most of" them then - that's simply wrong.<br />
<br />
But more importantly, unless we believe a time-machine is going to be an option in any future referendum<sup>4</sup>, we really should look at the more recent run-rate. That shows us that <b>in every one of the last 10 years Scotland has been a net beneficiary of UK-wide pooling and sharing, in recent years to the order of £2,000 a year for every man woman and child in Scotland.</b><br />
<br />
That figure shouldn't suprise anybody paying attention: £2,000 x a population of 5.4m = £10.8bn - that is the effective fiscal transfer that people like me have been banging on about ever since 2014/15<sup>5</sup>, when we could see that this would be the result of oil revenues falling away.<br />
<br />
What about that cumulative figure that showed Scotland having net contributed £16,000 per person between 1980 and 2012 (per the SNAP data)? Well that figure now (using the best available an dmost up-to-date data) works out to now be just £2,000 per person as of 2018.<br />
<br />
Given we're well into 2019/20 and we can be confident that the fiscal transfer (I don't like "subsidy") this year is going to be similar to the last few years, as we sit here today it's fair to say that, in real terms, Scotland has got back from pooling and sharing as much as it has paid in since 1980.<br />
<br />
Isn't that great? Pooling and sharing since 1980 has worked out to be pretty much neutral for Scotland and - as long as Scotland remains in the UK - the fact that going forwards Scotland looks set to continue to be a net beneficiary is nothing to be embarrassed about: what goes around comes around.<br />
<br />
It's not a "subsidy" - its UK-wide pooling and sharing in action.<br />
<br />
But wait: remember I said all this was before the SNP's debt-dodge?<br />
<br />
Well this is based on an extremely dubious interpretation of a thought-experiment that Prof Brian Ashcroft proposed way back in 2013. At that time he hypothesised that (again: if the clock had started in 1980, if Scotland could have kept it's geographic share of oil revenue) then Scotland could have been debt free - so what if Scotland didn't pay for a population share of the UK's debt?<br />
<br />
Apart from the obvious point I've already made (we don't have a time-machine option) the flip-side of that assumption is that now Scotland is contributing far <i>more</i> than it's population share to the UK's debt, you'd need to be allocating <i>more</i> than a population share of the interest costs of that incremental debt. I'm sorry but this really does start to get a bit silly.<br />
<br />
But you know what? Let's see what the figures would have looked like if Scotland paid <b><i>nothing</i></b> towards the UK's debt costs over that time (i.e. this is a debt-free Scotland vs a debt-burdened UK):<br />
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvjYGejpszahvAPTxUv2Nij0Vu3wHL0qf5r7EoRqS677oZfCNm4VurmZt2kgvz1BCEG-WoHzdUTBh49PHJ9LxryeqGbJC9d2nmfNYN5c_XOiXzR-cIrS94txGWgQA1QxVL-zKJLXYEWOQ/s1600/no_debt.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="870" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgvjYGejpszahvAPTxUv2Nij0Vu3wHL0qf5r7EoRqS677oZfCNm4VurmZt2kgvz1BCEG-WoHzdUTBh49PHJ9LxryeqGbJC9d2nmfNYN5c_XOiXzR-cIrS94txGWgQA1QxVL-zKJLXYEWOQ/s1600/no_debt.png" width="500" /></a></div>
<br />
So even with this frankly outrageous assumption [i.e. that we're running a massive deficit and paying no debt costs because we've somehow jumped in a time machine and created an oil fund instead of pooling and sharing with the rest of the UK] we'd still be in a situation where Scotland is now a significant beneficiary from UK-wide pooling and sharing, even if we pay <i>nothing</i> towards the UK's debt costs.<br />
<br />
Now of course you could start arguing that <i>in the time-machine scenario</i> Scotland would have invested in an oil fund which by now would ..... ahhgggghhhhhh make it stop!<br />
<br />
We can't change the past: decisions we make <i>now</i> should be based on where we are <i>now</i> and reflect what we can see is happening to revenues <i>going forward</i>s not looking backwards.<br />
<br />
But let's finish where we started: with Ian Blackford's claim and the statement made by the SNP spokesman:<br />
<br />
Firstly:<br />
<blockquote class="tr_bq">
<i>"We have demonstrated to you using official government statistics that Ian Blackford’s comments are correct."</i></blockquote>
Well given this was by reference to 32 years of SNAP data that stopped in 2011-12 and did include a population share of UK debt costs ... no you haven't.<br />
<br />
Secondly:<br />
<blockquote class="tr_bq">
<i>"The evidence shows that tax revenues per head in Scotland have been considerably higher than the UK ..."</i></blockquote>
For what it's worth that is true, but only "considerably higher" because of oil revenues (which is why it hasn't been true for the last 5 years) ...<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhciu4HGb7GkcwzbKXWCeJ5rEygS-4g58th38jQLsNWPUuHaUMRAr4Zx3KUIX_9vZEbowv4LzjBjHJbd6MbrCZSifmn0IShW83iOnjob4eEkbMyyHX7DVbrvRnOz4tFzuXEDOg3J-AG8vQ/s1600/rev_on_off_hybrid.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="596" data-original-width="870" height="342" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhciu4HGb7GkcwzbKXWCeJ5rEygS-4g58th38jQLsNWPUuHaUMRAr4Zx3KUIX_9vZEbowv4LzjBjHJbd6MbrCZSifmn0IShW83iOnjob4eEkbMyyHX7DVbrvRnOz4tFzuXEDOg3J-AG8vQ/s1600/rev_on_off_hybrid.png" width="500" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<i><span style="font-size: x-small;">[note: green = onshore reve</span></i><i><span style="font-size: x-small;">nue only, black = inc geographic share of oil revenues; for SNAP/GERS overlap see note 6.]</span></i><br />
<br />
... and of course that observation fails to consider the impact of higher per capita <i>spending levels </i>in Scotland, which <i>have</i> "been considerably higher than UK" for every one of the last 39 years (and that gap in spending is actually <i>growing </i>significantly - thank you <a href="https://www.these-islands.co.uk/publications/i265/how_does_the_barnett_formula_actually_work.aspx" target="_blank">Joel Barnett</a><i>)</i><br />
<i><br /></i>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKaF4voz3UF4XqFxLkuNRgJTQX5xJK4ZlAstbVg8SXMXrLrZgrrCLvykuHEDvWM_3vNMuIAavkG58wZjqaZ-T-hHswmlR4VW1JfwhBXNTx-6p5Y7sQxbfOW38WLZnaBcrEiFJ_Q7bksEs/s1600/spend_cap_hybrid.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="870" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiKaF4voz3UF4XqFxLkuNRgJTQX5xJK4ZlAstbVg8SXMXrLrZgrrCLvykuHEDvWM_3vNMuIAavkG58wZjqaZ-T-hHswmlR4VW1JfwhBXNTx-6p5Y7sQxbfOW38WLZnaBcrEiFJ_Q7bksEs/s1600/spend_cap_hybrid.png" width="500" /></a></div>
<i><span style="font-size: x-small;">[note: for SNAP/GERS overlap </span></i><i><span style="font-size: x-small;">see note 6.]</span></i><br />
<i><br /></i>
Finally:<br />
<blockquote class="tr_bq">
<i>"... that has <b>unquestionably </b>subsidised UK public spending over the period."</i></blockquote>
Well I'm sorry, but if anybody has read all of the above and believes that statement is an accurate representation of reality ... well I give up.<br />
<br />
<div style="text-align: center;">
******</div>
<br />
<br />
<b><u>Notes</u></b><br />
<i><br /></i><b>
1. </b>Among people who are sad enough to need colloquial short-hands for different Scottish Government data sources - in this case it refers to the <a href="https://www2.gov.scot/snap" target="_blank">Scottish National Accounts Project</a><br />
<br />
<b>2. </b>This is not a controversial assumption and is consistent with base approach taken by Prof Brian Ashcroft whose <a href="https://www.scottisheconomywatch.com/brian-ashcrofts-scottish/2013/07/has-scotland-already-spent-its-oil-fund.html" target="_blank">analysis <b>from 2013</b> </a>is cited by FactCheck (I presume having been pointed in that direction by the SNP's spokesman). It's perhaps only fair to point out that Prof Ashcroft has reviewed and approved my analysis in this area before (see <a href="https://www.these-islands.co.uk/publications/i313/gc_endorsements.aspx" target="_blank">here</a>).<br />
<br />
<b>3. </b>Extracts from <a href="https://www.gov.scot/publications/government-expenditure-revenue-scotland-2016-17-9781788511612/" target="_blank">GERS 2016-17</a>: there are of course other adjustments every year, but this North Sea revenue adjsutment was the one that had the most dramatic impact on the historical view of Scotland's deficit<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUci9MZJ44U4rkEfedqkme8pwVRy2EY0tU6nlEo8fCBwT5yiTj66L2bpUtmr3CiUuSBWUbDqK1qHjY_PxlQHwWGrtdh0oOfKSO4iMZwzHlhE-LtiLGbujk_QKt-8MSujtfhk4VO_y4QXE/s1600/oil_revisions+1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="381" data-original-width="1282" height="163" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhUci9MZJ44U4rkEfedqkme8pwVRy2EY0tU6nlEo8fCBwT5yiTj66L2bpUtmr3CiUuSBWUbDqK1qHjY_PxlQHwWGrtdh0oOfKSO4iMZwzHlhE-LtiLGbujk_QKt-8MSujtfhk4VO_y4QXE/s1600/oil_revisions+1.png" width="550" /></a></div>
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjweN87XT7MQIeFP_Z7S0C_95ygxGq3G3lv2yEzgwG6meHRJZHYbi-zfG__CfGukvLs_YekHcDp0RfaTAEO96hOkKLTdMJfBja5SrsioGXw14BsAcLts6lfob-ji-cBdCBuuwp4zvkykVQ/s1600/oil+revisions+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1003" data-original-width="1062" height="519" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjweN87XT7MQIeFP_Z7S0C_95ygxGq3G3lv2yEzgwG6meHRJZHYbi-zfG__CfGukvLs_YekHcDp0RfaTAEO96hOkKLTdMJfBja5SrsioGXw14BsAcLts6lfob-ji-cBdCBuuwp4zvkykVQ/s1600/oil+revisions+2.png" width="550" /></a></div>
<div class="separator" style="clear: both; text-align: left;">
<b>4.</b> It isnt - at least not one that allows people to travel back in time, otherwise they'd be here now telling us about it</div>
<div class="separator" style="clear: both; text-align: left;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
<b>5.</b> Readers of this blog will have <a href="http://chokkablog.blogspot.com/2015/04/full-fiscal-autonomy-for-dummies.html" target="_blank">seen this graph in April 2015</a> - it shows how the "onshore deficit gap" (the difference between the blue line of relative onshore per capita revenue generation and the red line of relative per capita spending ) was fairly constant at around £9bn pa ... and that this gap was sometimes "washed away"by North Sea oil revenues (the black line adds oil revenue per capita difference to onshore revenue)</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjpCXYedszvefKo9ypw1Y0scnfWyxV-gziDAkvpNOT0PptQW3sIQxyphElOjjTLAw91qrgzVh6YDBVfHKH-1Bhb7hg68Qy-0tBYLvshQE9tUx_kWlPvnEQ-Z27fsG8EqZ624_AzH1ZNcE/s1600/pretty_summary_old.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="902" data-original-width="1561" height="288" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjjpCXYedszvefKo9ypw1Y0scnfWyxV-gziDAkvpNOT0PptQW3sIQxyphElOjjTLAw91qrgzVh6YDBVfHKH-1Bhb7hg68Qy-0tBYLvshQE9tUx_kWlPvnEQ-Z27fsG8EqZ624_AzH1ZNcE/s1600/pretty_summary_old.png" width="500" /></a></div>
<br />
We can bring this right up-to-date now (with GERS data that now corrects the historical over-statement of oil revenues) and we can see that even <i>including </i>current oil revenue the <i>deficit gap</i> has grown to over £11bn (because of the widening gap between per capita spending in Scotland and rUK).<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg12nhMSDl0MfYYbJFTzxYJk7PyPw7TNC7HWpENw8jtsOUU-BD9v15S69mlTdiCXANldu7ADO5c2I0BmIQXIv-GilgkhD1vAeZx6Pso825N9Wq_ScZz4Cv-Qqn7cJTzrmoEM3Vy4Q24u6g/s1600/the_answer_19.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="664" data-original-width="947" height="350" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg12nhMSDl0MfYYbJFTzxYJk7PyPw7TNC7HWpENw8jtsOUU-BD9v15S69mlTdiCXANldu7ADO5c2I0BmIQXIv-GilgkhD1vAeZx6Pso825N9Wq_ScZz4Cv-Qqn7cJTzrmoEM3Vy4Q24u6g/s1600/the_answer_19.png" width="500" /></a></div>
<br />
I know people get confused by the difference between the <b>deficit</b>, the <b>deficit gap</b> and the <b>effective fiscal transfer</b>, so here's a simple summary:<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5FuSRRxA6Lo_2geiFGEDcDAHNH7E7_c1cmLWx_1Dr-Man47eMEqBjLetF9_4rk8YcjPjuvu-ZAVi1OcRqKhsJB4ew9sqP2yqN12_FYVghm1Q8EsWTXoovjucEWwb6yzsbTdqYN0nQenU/s1600/deficits_explained.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="883" data-original-width="1410" height="344" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5FuSRRxA6Lo_2geiFGEDcDAHNH7E7_c1cmLWx_1Dr-Man47eMEqBjLetF9_4rk8YcjPjuvu-ZAVi1OcRqKhsJB4ew9sqP2yqN12_FYVghm1Q8EsWTXoovjucEWwb6yzsbTdqYN0nQenU/s1600/deficits_explained.png" width="550" /></a></div>
<br />
<b>6.</b> For completeness, these graphs show the overlapping SNAP and GERS data, so you can see how the SNAP data compares when more accurate GERS figures are available.<br />
<br />
On the revenue figures it's clear that the big correction is the (Scottish Government economists') downwards revision in assumptions about oil revenues attributable to Scotland - it would be interesting to see the same corrections applied back to 1980, but I suspect there isn't much political will to get that done<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQErywDdeoTaR6ci8hBlmkSloaym9jlhm8Yo2bIiOE9B8BSEGqtNQHvuAHCM-arUKtcxXxHB711-O9oBSr2-C_TI7ad8-04X2EvFv2UE1_jHBOvZdT2Gy9a-8gYIXAmojknj3euqkRv5k/s1600/revenue_overlap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="595" data-original-width="870" height="341" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgQErywDdeoTaR6ci8hBlmkSloaym9jlhm8Yo2bIiOE9B8BSEGqtNQHvuAHCM-arUKtcxXxHB711-O9oBSr2-C_TI7ad8-04X2EvFv2UE1_jHBOvZdT2Gy9a-8gYIXAmojknj3euqkRv5k/s1600/revenue_overlap.png" width="500" /></a></div>
<br />
On the cost figures (note the left-hand scale is much smaller than on the revenue graph) the effect of the SNAP/GERS revisions are fairly marginal<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwpG_Vf52DsN6TolBEglaFJOI44SnETfjPM5Cqvb55NhiRcShuzQliXEcQSXiSn5XcrpoDS1Ns3HX7WLs4uHfJuF5DgFChS1G-v7T7IJFbOTymPCbquKLg2ltcGP1gyQExm4T-m0OTxUM/s1600/spend_overlap.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="576" data-original-width="870" height="330" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhwpG_Vf52DsN6TolBEglaFJOI44SnETfjPM5Cqvb55NhiRcShuzQliXEcQSXiSn5XcrpoDS1Ns3HX7WLs4uHfJuF5DgFChS1G-v7T7IJFbOTymPCbquKLg2ltcGP1gyQExm4T-m0OTxUM/s320/spend_overlap.png" width="500" /></a></div>
<br />
<br />Kevin Haguehttp://www.blogger.com/profile/14587343060415859159noreply@blogger.com4