Joan McAlpine, GERS Denier

On Wednesday (22/03/2017), SNP MSP Joan McAlpine used her column in the Daily Record to attempt to cast doubt on her own Scottish Government’s GERS figures, the official numbers that tell us how Scotland’s economy performs. When oil was booming, McAlpine and her SNP colleagues were quick to quote GERS figures as proof that Scotland was a wealthy country, so this U-turn might seem surprising.

If McAlpine’s column represents an approved party line, it looks an awful lot as if the SNP are trying to avoid an honest debate about the economic challenges an independent Scotland would now face.

It would be like the big tobacco companies who, when faced with solid evidence of the link between smoking and cancer, focused on questioning the science and placing doubt in peoples’ minds. When facts are your enemy, confusion and doubt are your friends.

To be fair, we’ve yet to see the leadership of the SNP suggest that we can’t trust our own government’s figures - but we’ve also yet to see them shut-down those within their own party who, like Joan, seem to be becoming GERS-deniers. Maybe the SNP hierarchy think a bit of doubt and confusion is helpful?

So let’s look at McAlpine’s claims more closely. She incorrectly refers to GERS as “the UK Treasury’s understanding” of Scotland’s economy; she really should know that in fact they represent the Scottish Government’s understanding.  So how can she suggest her own Government’s figures are “absurd”?

She relies entirely on the wild-eyed claims of one Professor Richard Murphy. He’s a chartered accountant and the self-proclaimed architect of “Corbynomics” - but let’s not worry about his CV, let’s worry about whether what he said is true.

Those hoping to foster confusion and doubt would be delighted for people like me to fill column inches explaining why Murphy is wrong. That way they stop us talking about what the figures actually tell us. McAlpine’s advice to people being presented with inconvenient truths was hardly subtle: “throw three words at them: Professor Richard Murphy”. Who needs to deal with facts when you’ve been taught the name of a tame professor who gives you permission to ignore them?

For what its worth, Murphy clearly doesn’t understand the GERS figures. He doesn’t realise that the Scottish Government compile our export data, so it isn’t “the UK Government making this up”. He fails to grasp that it’s the Scottish Government’s Chief Economist who decides on the assumptions behind the GERS figures, so nothing is “what the UK Government decides it should be”. I explain more of his mistakes here, but his biggest error is to claim that the figures can’t be trusted simply because estimates are used.

I asked a couple of exceptionally well qualified economics professors to comment on Murphy’s claims and you can see what they had to say below. Put simply: nearly all economic statistics are estimates, but to be qualified as National Statistics (as GERS are) the figures have to be shown to be trustworthy. End of discussion.

“As in practically any statistical exercise the GERS statistics depend on estimates, there is nothing unusual about that […] that is why mainstream economists, statisticians and commentators will continue to use these statistics."
Professor Ronald MacDonald, Research Professor in Macroeconomics and International Finance at the Adam Smith Business School

“All economic statistics involve sampling and estimates. But when the UK Statistics Authority designate figures as ‘National Statistics’ that’s hugely significant. This is a kite-mark showing they meet international statistical standards. Anybody who says these figures are “easily rigged” or “nonsense data” frankly doesn’t deserve to be taken seriously.”
Professor Angus Armstrong, Director of Macroeconomics at the National Institute of Economic and Social Research

So let’s focus instead on why some Yes supporters now want to deny the economic reality described in GERS - what are they so desperate to distract you from?

Well the figures effectively tell us four things:

1. Firstly they tell us how much tax revenue the Scottish economy generates from our current economic activity and the taxes we’re all used to paying: income tax, VAT, council tax and the like.
2. Secondly they tell us how much money is spent to deliver the public services we’re all used to receiving. So that’s things like health, education, pensions, social welfare, policing and so on.
3. Thirdly they show how much it costs us if we pay our population share of expenses incurred for the benefit of the UK as a whole - mainly defence, debt interest and international affairs.
4. Finally they show what happens if you take that revenue and subtract those costs. In the most recent year that shows we’d be in the red by £15bn – that’s the infamous £15bn “Scottish deficit”.

Of course that wouldn’t actually be Scotland’s deficit if we were independent, but all credible economists and responsible politicians (and even the SNP) use the GERS figures as the starting point to work out what an independent Scotland’s figures might look like.

So, for example, we could assume we’d spend £0.6bn less than we’re currently allocated of UK-wide costs (like defence) and we could assume we’ll generate £7.9bn a year of oil revenue. That’s what the SNP’s Independence White Paper did last time round. They based our ability to maintain public spending on a reckless gamble about oil revenues. In fact, oil revenues this year will be approximately zero.

If you understand GERS the implication is clear: to survive as an independent country, Scotland would have to make dramatic spending cuts, cuts far more painful than any “Westminster austerity” we’ve seen to date.

Are the SNP prepared to be honest about the price we’d all pay for independence? If they allow high profile MSPs like Joan McAlpine to publicly rubbish their own figures, it’s surely not a good sign.

In the interest of honest and informed debate, let’s hope the SNP leadership condemn those who pretend we don’t know basic facts about our economy and instead face the difficult truths those facts reveal.

Why we should be glad we voted No

On Tuesday the Scottish Government published the Government Expenditure and Revenue Scotland (GERS) figures that show how our economy performed in 2014-15. The numbers make sobering reading when you consider that, if Scotland had voted Yes, the SNP’s proposed “Independence Day” would be just two weeks away.

The figures show Scotland ran a deficit of £14.9bn in 2014-15. This means that the taxes we raised in Scotland fell £14.9bn short of covering the public spending we received.

Of course these numbers only show us where an independent Scotland would have started from, what our deficit would have been if we’d kept paying taxes and receiving public spending at the rates we’re used to. In fact they show us that this simply wouldn’t have been possible.

It’s true that most countries run deficits, but the scale of an independent Scotland’s deficit relative to its economy would be a problem. We measure this by looking at deficit as a percentage of Gross Domestic Product (GDP). On this measure, in 2014-15 the UK’s deficit was 4.9% but Scotland’s was 9.7%. This would be unsustainable. There isn’t a single country in the EU with a deficit as high as this. In fact the EU sets an “excessive deficit threshold” of 3.0% beyond which member countries have to be seen to be taking corrective action. Since 2001, only Greece and Ireland have reported deficits of greater than 9.7% in consecutive years and they had to adopt extreme austerity measures as a result.

These figures are not an unrepresentative snap-shot. If we take oil revenues out of the picture, the GERS figures show that Scotland’s deficit would have exceeded 10% of GDP in every single one of the last 13 years. Oil revenues have obscured a consistent underlying onshore deficit, their decline simply reveals it.

This is why the SNP’s independence referendum claim that “oil is just a bonus” was always ridiculous. It’s why the independence White Paper had to assume annual oil revenues of £7.9bn. The truth is now out. Our oil revenues in 2014-15 were just £1.8bn and we know that in 2015-16 they will be nearer £0.1bn. It’s clear that without past levels of oil revenue Scotland simply wouldn’t be able to support the public spending we’ve become used to.

Some see the fact that Scotland’s 2014-15 deficit per head of £2,800 was twice as bad as the UK’s £1,400 as evidence that the UK has somehow failed Scotland’s economy. Dig a little deeper though and we see that Scotland generated the same tax revenue per head as the rest of the UK but enjoyed £1,400 more in public spending. So Scotland’s economy was as tax productive as the rest of the UK but we got to spend £1,400 more per person on public services. This higher per person spend in Scotland is a long-term trend and largely due to of our lower population density and older average population. It’s hard to see how that means the UK is failing Scotland.

This does of course mean that the rest of the UK is currently supporting Scotland by about £1,400 per person, but we shouldn’t forget that during the oil boom of the 1980’s the money flowed the other way. We’re simply experiencing the upside of pooling & sharing resources over time.

If we’d voted yes, an independent Scotland would be using these latest GERS figures as the basis for our negotiations with the EU about membership, the UK about possible currency sharing and international debt markets about borrowing. It’s inconceivable that any of these negotiations could succeed without a credible plan being in place to rapidly reduce Scotland’s deficit. It’s pretty clear we couldn’t have afforded to simply assume we’d grow our way out of it or hoped for another oil boom, we’d have needed to take action by dramatically reducing public spending and/or raising taxes.

In the aftermath of the financial crisis which saw the UK deficit peak at 10.2% in 2009-10, the UK adopted an austerity strategy that’s reduced that deficit to 4.9%. Unfortunately Scotland’s deficit of 9.7% is after taking our share of those austerity measures, so we’d need more. A lot more.

For an independent Scotland to share sterling we’d likely be required to run a similar level of deficit to the UK. This would mean finding about £8bn a year through some combination of higher taxes or lower spending. The White Paper assumed that we’d save £0.5bn a year mainly though Trident and other defence cuts. Scottish Labour’s proposal to raise income tax by 1p would have raised £0.5bn a year. This year’s draft Scottish Budget includes £0.5bn of cuts. In this context we can see that saving £8bn a year would lead to economic hardship far beyond anything currently being contemplated while we remain in the UK.

We should probably be glad we voted No.

This article appeared in the Daily Record on March 11, 2016

For detailed analysis underpinning the figures quoted please see 2014-15 GERS: Reasons to be Cheerful

Joan McAlpine in the Daily Record

I wrote an intemperate rant on Facebook today as I didn't have the the time to write a blog post in my normal (I hope) more reasoned style. I've now taken the time to tidy it up and add in the data graphs that illustrate my points.

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I had my attention drawn to this piece by SNP MP Joan McAlpine in today's Daily Record

She says politicians are mocking Scotland over the fall in oil prices. Mocking the SNP is not mocking Scotland; it's mocking the SNP. The SNP deserve mockery for basing the economic case for an independent Scotland on oil revenues of £6.8 - 7.9bn a year (when in fact we're now looking at £0.1 - 0.2bn a year).

She suggests Scots deserve an apology. We do - an apology from the SNP for trying to win a Yes vote on the basis of a demonstrably false prospectus.

She says Kez Dugdale appears to blame the SNP for the falling oil price. Kez was actually blaming the SNP for trying to win a Yes vote by making demonstrably (at the time) unrealistic oil revenue projections.

She asserts Scotland will - over a decade - have "lost" £3.9bn under the Tories as we take our share of austerity cuts. The alternative would be of course for us to increase our share of the debt by £3.9bn (at least in the short term - we can debate the pros and cons of Tory austerity another day). The difference between the White Paper "low case" oil forecast and current OBR forecasts over the next decade is c. £67bn (that's right - I haven't missed a decimal point there) - an issue which is literally an order of magnitude bigger than "Tory austerity".

She asks why Labour don't have more to say about that "vindictive attack on our people" - whilst spending the majority of her article attacking Scottish Labour. Joan being Joan we can infer that by "our people" she means Scots - neglecting the fact that we are simply taking our share of the UK's pain. Scots are not suffering more than the rest of the UK, so there's nothing "vindictive" about it. Of course because of Barnett, because of "pooling and sharing", we are suffering far less than we would if her party had fooled us into voting Yes.

She says the "unionist parties" claim the oil slump makes independence impossible. Nobody claims it makes independence economically impossible, merely that the (now undoubted) economic hardship it would cause makes it politically extremely unlikely.

She says "wealth per head in Scotland would be similar to the UK without including oil" and the Yes campaign "always said oil was just a bonus". We surely all see through this by now? By "wealth" she means GDP, from whence our taxes generate revenue. But she ignores the spend per head that (per the Scottish Government's own GERS figures) show us consistently c.£1,700 per head worse off than the rest of the UK without oil. That grosses up to £9bn a year.

We are used to high levels of public spending in Scotland that we simply couldn't sustain were we independent without booming oil revenues. If Joan thinks austerity cuts of £0.4bn pa are unbearable, how on earth would she describe the £9.0bn pa of cuts (or increased taxes) that an independent (or FFA) Scotland would need without oil? Oil is no more a bonus than being able to fund Scotland's entire education and training budget (£7.6bn) is a bonus.

She misquotes Standard & Poors (because she doesn't understand credit ratings) and quotes a credit report made before the oil slump. In fact Standard and Poor's said: "In brief, we would expect Scotland to benefit from all the attributes of an investment-grade sovereign credit [rating]". That means BBB- or higher. There are 8 grades between BBB- and the UK's AAA.

She makes the observation that nobody predicted this level of oil price slump (which is true; not even Standard & Poors did) but ignores the fact that the White Paper low oil revenue forecast was £2 - 5bn higher than the OBR forecasts that existed at that time. That's the Office for Budget Responsibility, the people the UK government rely on - the clue is in the name.

[Here she's simply parroting the line esrtwhile SNP spin-doctor Kevin Pringle was using at the weekend in the Sunday Times - something I covered in detail here]

She asserts the oil price will rise again, ignoring the fact that it's North Sea profit that generates tax revenues ... and that profitability (due to rising extraction costs as fields mature) is in long term structural decline. The last time oil was at $100/bbl was in 2014 and we generated just £2.6bn in oil revenue. The White Paper "low" scenario was for £6.8bn (implicitly in perpetuity) and tax rates have been reduced since then (in an attempt to protect oil industry jobs). Implying the economic case for indy will be repaired by an oil price rise is simply nonsense - even before you factor in the volatility risk.

She rants about the fact there wasn't an oil fund built. This is a point that is as true for the UK as it is for Scotland; it has absolutely nothing to do with the future, with the choices we (whether as the UK or as Scotland) now face. Needless to say if we (the UK) had created an oil fund then we (the UK, including Scotland) would have had to pay higher taxes or enjoyed lower spending to fund it. We were at the party, we drank our fair share.

She talks of a "massive transfer of wealth" from Scotland to the UK. The Scottish Government's own figures show that this is nonsense. We were a massive contributor in the 1980's, on average we've been a large beneficiary since and certainly right now - to adopt Joan's language - there's a "massive transfer of wealth" taking place from the rest of the UK to Scotland. That's how pooling & sharing works.

She asserts (ridiculously) that the UK "would have gone bust" without oil. That statement doesn't even merit a rebuttal.

Finally she suggests an apology is called for. She's right: the SNP and the wider Yes campaign should be apologising for presenting a hopelessly optimistic economic case in their attempt to win a Yes vote. If they'd succeeded the Scottish people would be facing a level of economic hardship that would make current austerity measures seem trivial.

I would also suggest that Joan should apologise for writing this nasty, vindictive, grievance mongering article in a national paper.

Joan McAlpine and Scotland's Missing Whisky Taxes

A couple of days ago this (authored by SNP MSP Joan McAlpine) appeared in the Daily Record;

A mini twitter-storm ensued as people highlighted the obvious flaws in her argument and quite rightly criticised the article for being deeply misleading.

I was pleased and grateful to be given an opportunity to put The Record straight and they published my response today:

As is the way with these things, my statement was juxtaposed with Joan McAlpine's response to the criticism she'd received. I presume she hadn't seen what I'd written as I hadn't seen her attempt to defend herself

Frankly I think I could just leave this as it stands and trust the intelligence of readers of this blog to see how nonsensical Joan's riposte is.

Just in case though;

"no tax raised from these sales goes to Scotland, also factually accurate"

I'm not sure quite where Joan thinks the money to fund Scotland's public services comes from.

As the Scottish Government's own GERS figures show - the one's which apportion corporation and employment taxes to Scotland as they assume they'd fall were we separate - we in fact receive far more in spending than we contribute in taxes (that's the definition of running a deficit). More than that though: we receive proportionately more in spending than we generate in taxes (which is why we have a £8bn deficit gap). That deficit gap is after assuming "tax raised from these sales goes to Scotland".

Joan may not like the concept of pooling and sharing, but surely she should at least make an effort to understand it.

"duty ... which raises substantial revenue for the London Treasury"

The London Treasury - which then redistributes these taxes throughout the UK by way of public spending, in the process ensuring that we get our fair share back.

Again: Duty is a consumption tax so - quite correctly - only the Duty raised on whisky (or wine or vodka or cigarettes) sold in Scotland is attributed to Scotland in the GERS analysis that we all use.

"corporation taxes - none of which is paid in Scotland"

Technically true - all corporation taxes are paid to HMRC and then we get them (and a lot more) back by way of public spending as the Scottish Government's own GERS figures conclusively show.

"the exported whisky will also raise duty and sales taxes in those countries where it's sold."

So what?

She's said she's not mentioned duty and then goes on mention it - presumably on the off-chance she might still be able to muddy the waters for inattentive readers. Again: duty generated in overseas markets is no more relevant to us than duty we raise on sales of French wine in our market is relevant to the French

"to suggest the £4bn doesn't generate any tax is absurd"

Indeed it would be if anybody was suggesting that; nobody is.

"we can say with 100% accuracy that it generates nothing in Scotland"

Huh? Does Joan really think that those whisky companies employing people and spending money in Scotland are "generating nothing in Scotland"? And of course - at the risk of labouring the point which unfortunately does seem to need labouring - the corporation taxes they pay are attributed to Scotland in the GERS figures that everybody uses.

"unionist bloggers"

This is straight from the approved SNP script - if anybody points out flaws in my argument they must be dogmatic unionists so can't be trusted. I wrote about this yesterday

"most readers will struggle to understand"

A statement made more in hope than expectation I think - she knows she only wins if people don't understand what's actually going on.

"revenues from our most successful export go everywhere except Scotland"

A truly remarkable note to finish on.

Surely by now everybody understands that these revenues go into the UK tax pool from where they are shared back out as public spending. The Scottish Government's own GERS figures very clearly shows that not only do we get some of that revenue back, in the last few years - and given oil decline, for the foreseeable future - we get a larger share from that pool than we contribute. That's the beauty of pooling and sharing.

I do hope the majority of right-thinking Daily Record readers can see through Ms McAlpine's rather clumsy attempt to stoke misguided resentment.

Full Fiscal Autonomy in 700 Words

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This piece originally appeared in the Daily Record on 25/04/2015

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When the SNP campaigned for Independence they convinced many voters that a Yes vote would make us better off. Those voters should now be asking themselves why the SNP is backing away from the idea of Full Fiscal Autonomy (FFA) anytime soon.

Full Fiscal Autonomy is a very simple concept. It means Scotland keeping everything we raise from taxes and using that money to pay for our own public spending.  We’d need to pay the UK government for some shared costs (like defence and foreign affairs) but effectively it means we’d get to run our own economy, to stand on our own feet.

In fact FFA would give us many of the claimed benefits of independence without some of the big risks like currency.  We would keep our oil revenues and choose what taxes to raise and how to spend our money.

Under FFA we would still be sharing a currency and a national debt with the rest of the UK, so to be paying our way we would simply need to be running a deficit at a similar rate.

The Scottish Government's own figures (GERS) tell us where we would start from.  These are not Westminster's numbers; the Scottish Government's Chief Statistician takes responsibility for them.

The GERS figures simply show us how much we spend and how much we raise through taxes. The difference between the two is our deficit. By comparing to the rest of the UK on a per person basis we can see our relative deficit rate – how much better or worse off our stand-alone finances are than those we share as an integral part of the UK.

First let’s look at what we spend. Over the last 15 years (adjusted for inflation) we spent on average over £1,400 more per person than the rest of the UK.  This is largely due to the fact that our population density is 20% of the UK’s so it’s more expensive to provide the same level of public services in areas such as education, health, and transport. This higher spend is very consistent and is the equivalent of £7.8bn per year.

Next let’s look at the taxes we raise before oil is included. Again there is a remarkably consistent trend. We generate similar but slightly less tax per person than the UK average. Over the last 15 years (adjusted for inflation) the average difference is £250 per person or £1.3bn per year

During the referendum we were told by the SNP that oil revenues were just a bonus.  Yet before we take into account oil revenues, these figures show Scotland has consistently run a £9.1bn per year higher deficit than the rest of the UK for the last 15 years.

Some people react to this by suggesting it shows that Westminster is somehow letting Scotland down. But our economy does pretty well at generating revenue. It seems harsh to blame Westminster because they allowing us to spend more.

So does keeping “our oil” overcome this deficit gap? It has done in only three of the last 15 years, the most recent of which was 2011-12 (the base year used for the Independence White Paper).  Since then oil revenues have plummeted and as they decline we are seeing more and more of the underlying £9.1bn deficit gap exposed. This is what is often referred to as the “black-hole” in the SNP’s plans.

But we’ve just looked at the past, what of the future?

Oil is extremely unlikely to come to our rescue.  Tax revenues are generated by oil industry profits and the North Sea oil industry’s profitability has been in long term decline. The oil price crash just makes it worse.

Some pin their hopes on Scotland achieving unheard of economic growth. This is of course what any country’s government wants. Achieving it is another matter and the SNP haven’t suggested any radical policies that might actually make it happen.

So the most likely solution would be to pile on additional austerity measures (on top of those the rest of the UK choose) and/or to take on even more debt.

No wonder the SNP aren’t that keen on FFA anymore.  They might even be secretly relieved we didn’t vote Yes.

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For those who are visually minded the following graph represents the data described above.

The solid red line is actual higher Scottish public spending per capita; the solid blue line is Scotland's lower onshore tax revenues per capita; the solid black line is Scotland’s actual higher tax generation per capita when “our” oil is included.  

The gap between the blue and black lines is oil & gas tax revenues.  The gap between the red and black lines is Scotland’s higher deficit (when black below red) or lower deficit (when black above red).

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For a more complete explanations see;

> Full Fiscal Autonomy for Dummies
> Oil Price & Scottish Tax Generation