It was largely by accident that I became a commentator on the Scottish government's Government Expenditure and Revenue Scotland (GERS) statement about 18 months ago. I dislike poor accounting, and GERS is very poor accounting because it fails to use the same basis for accounting for revenue and expenditure, which builds in an automatic, and I think significant, bias to overstate the Scottish government deficit. And the statement does not also accurately reflect anything that might remotely represent the true consequences of decision making that might happen if Scotland was to be independent. It admits this in the small print. Most forget it when coming to comment. A detailed critique is here: I won't repeat it.
This morning the Scottish government has published the latest GERS data, for the year to 31 March 2018. Three things stand out.
The first is that the method for calculation has not changed. It is still as flawed as ever.
The result is that, secondly, it is still claimed that Scotland is doing terribly compared to the rest of the UK:
According to the data Scotland is now doing very slightly better than the whole of the UK at the time of the 2008 financial crisis. That, however, is nonsense. If the data was produced correctly what it would show is that Scotland is doing better than most parts of the UK but is doing vastly worse, as is everywhere else, than the south-east of England, including London. The divide is not between Scotland and the rest of the UK, as all the GERS charts imply, but is instead between the south-east of England and the rest of the UK.
And this matters. UK economic policy is a run for the benefit of the south-east of England; its taxes are structured to appease them; much of government expenditure is there because it includes the capital; and expenditure decided upon to suit the voter in the south-east of England is apportioned to Scotland as if it was policy to benefit that country, which quite often it is not. In that case all these comparisons are simply wrong, and it is time the Scottish government said so. Part of good accounting is choosing good comparables with which to contrast reported data: the GERS team is letting Scotland down by not choosing to make the appropriate choices in this area.
Third, there is the issue of data quality to consider. I have in the past suggested that GERS is CRAP. CRAP in the way that I use it here as a technical term: it stands for 'completely rubbish approximations'. And table B.2, published this morning, confirms this to be true. Look at the table of comparisons for revisions to Scottish and UK data and you will see that, as always happens, there are some revisions to UK data but the revisions to Scottish data are very much bigger in proportion, and the largest overall UK provision actually relates to a Scottish tax. In other words, GERS really is CRAP.
It is time the Scottish government invested in better national income accounting for the country, which I contend is possible. GERS is not a basis for forecasting Scotland's future, and one of the weaknesses of the Growth Commission is that it presumes that it is when that is a wholly inappropriate assumption to make. There is a duty to identify what really happens in Scotland so that there can be informed debate on the country's future. GERS does not do that. It's time to have the right data, and GERS is not it.
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What are the revisions? On what basis are they made? What is the implication of the Scottish revisions generally being larger than the UK revisions?
I have not read through all the notes as yet – this has only been out for an hour
What’s the implication of the bigger changes? That the original data was crap, as I said
I concur with your call Richard. It’s absolutely vital that an objective and rigorous assessment of the state of the Scottish economy is made. In order to facilitate proper debate and inform the discussions around inter alia, independence. I feel the Scottish Government should make this a public policy priority.
The Scottish Government produces the GERS figures and today Nicola Sturgeon endorsed them.
And I say she got that wrong
Does that make you happier Alex?
Like Labour in Scotland the SNP can make mistakes
Point is Richard, they’re HER figures. She can’t disown them. And the Growth Commission Report also accepted GERS as a reasonable starting point for calculating the conditions on day 1 of “independence”.
All the GERS deniers here (not you) seem not to know or understand the implications of that fact.
There are no implications
The figures are at best what is now
But that’s not what the debate is about, is it?
That’s a tired old argument Alex. Didn’t you spot Nicola Sturgeon commenting on the “notional deficit”.
One definition of notional is “not existing in reality”. More seriously (perhaps), you will struggle to find any justification for the accuracy of the GERS estimates.
Totally agree the Scottish Govt cannot continue to be seen to validate the GERS reports as they currently seem to it is completely detrimental to the idea that Scotland is financially viable
couldn’t agree more.
Hi Professor Murphy.
You’re opinion is shaped by Anti Westminster bias and intellectual ignorance.
The KEY to Scottish economic prosperity is the fact that SNP £71 billion Scottish public expenditure cost is shared between 64 British people and not between 5.3 million Scottish people.
Based on the EU /IMF /WTO conventions that govern us here in Scotland and evidence from Nordic tax models of Norway, Sweden, Denmark and Finland we can only conclude that it is impossible for the SNP to sustain its promised public expenditure cost on a tax income of just £58 billion.
And guess what… You can’t do the calculations to prove me wrong.
And guess what, with your ability in charm I won’t be trying
Please don’t call again. Intelligent debate is clearly not what you are interested in.
It’s hillarious.. as soon as your challenged you ban them!!
I don’t ban those who disagree intelligently
I find it quite instructive that the GERS-believers invariably say “it will always be thus”. A prime example being the Scottish Tory Prof Tomkins when he said today – “No thanks. Not now. Not ever.”.
What they mean is that Scotland, and most of England, should remain “in hock” (as they see it) to London and the South-East – where most of the wealth is created and kept, or “exported” outwith the UK, but that doesn’t seem to bother them.
It’s deeply patronising and unsustainable
Apart from that it’s an attitude that has everything going for it
Most of the wealth isn’t created in the SE. it’s declared there. There is a big difference. But yes GERS are crap.
Such a shame that so much of the media do not give any weight to your conclusions and almost completely ignore them. Many of us in Scotland have been stating that the GERS figures are complete nonsense for many years now, yet people such as yourself who not only agree with that assessment but are also non partisan and more than qualified to make such an assessment are at best ignored and at worst ridiculed shows the bias and manipulation of the UK media.
I thank you for your work and wish you all the best
No problem
Go well
Hear! Hear! Richard. It should also be noted that Westminster used to keep separate accounts for what are now the devolved nations as well as the English regions but ceased to do so for political and convenience reasons. Why an advanced economic democracy would choose to blind itself to what is actually happening in the country it administers is beyond me. But then I’m a BioScientist and data are sacred and I was taught to always follow where the data lead and I have sought always to do that and have slain the odd sacred cow along the way in doing so. Memorably I overturned dogma in our field that my PhD supervisor had done more than anyone to establish.
His response? we need more experimental data to understand this. I got it and it explained what was happening and deepened our understanding and we published it together. Which is exactly how it should be.
I agree in Spades that Scotgov if it really wanted to could do better.
‘Advanced’ you say Peter?
The more I think about Westminster, the more I realise that feudalism as a means of ruling this God forsaken country has never really been abandoned since the days of ‘Longshanks’.
My worry with the SNP is that they will go along with GERS and then if they get separation will blame GERS for giving false and incomplete info and then the people of Scotland will suffer. Because I fear that in the SNP, independence at any cost is what some of them advocate. And I can just see the cynical smirks at Westminster if that happened.
Also – I think that an independent Scotland’s resultant austerity plan would be far harsher than the one in the UK. As much as I can see the reason why Scotland wants to be independent I still think that it is a very risky enterprise.
Scotland is better off staying in and fighting their position from within the Union in my view.
We have to disagree there……
Great article as always Richard. Two comments, the first a request
a) you refer in your first paragraph to the “Scottish government’s deficit”. The BBC have been using this terminology all day and have been asked by MSPs to correct it. Is it not more correctly “Scotland’s deficit”?
b) the figures seem to suggest Scotland is being allocated over 30% of the UK’s deficit. Are you able to address why this is the case and what it means for the veracity of GERS (besides the obvious, clearly). I continue to be disappointed that the Scottish Government fails to do this, and instead appears to take the “deficit” figure at face value.
Many thanks
Apologies for b). I’ve just followed the link to the detailed critique…
Re a) (since you have solved b) the issue is not that important. Both are the UK’s deficit because Scotland cannot have a deficit as such since it only exists as part of the U.K., just as the Scottish government only manages devolved powers within the U.K. In international law all the debt would fall to the remaining U.K. in case of independence, at least in theory.
What is the point of your constant calls for more bureacracy to enable GERS figures to be fine tuned? Statistical authorities line up with the Scottish Governent to say GERS figures are already of a high technical standard. Why do you assume that the fine tuned figures would show a more favourable position for SDcotland?
Because they would?
Thanks Richard. I totally appreciate that. The problem is that when the media use that terminology “Scottish government deficit” they are inviting people to believe that Scotland, and not the UK, is liable for creating it and paying for it.
Good point
Well said Richard. As a fellow Chartered Accountant and now academic in such things I could not agree more. These tired old models need to change if we are to see the true position..or at least something nearer the reality. And then make decisions appropriately. The lack of questioning and glib acceptance of the current model by some, often politically motivated, and who claim to be intellectually rigorous is laughable.
Thanks
[…] has been much, appropriate, criticism of the commentary in the media on yesterday's GERS figures. The BBC represented them as if a fact i.e. this was Scotland's income and spend, when GERS shows […]
I completely agree with your view regarding GERS.
I think GERS is a political tool designed to show Scotland in an unfavourable light.
The political problem for the SNP is how to deal with it.
I understand that, although compiled for the Scottish Government, the methodology is not something that the Scottish Government has control. They are obliged to co-operate with this farce but cannot correct it.
Their options are either to play along but make it clear how flawed the data is (e.g. using the term ‘notional’) or attack directly and offer an alternative.
The problem with a direct attack is that Unionists have full spectrum
dominance of the media and would launch a merciless bombardment of ‘the SNP are trying to fiddle the figures’.
This is why your work is so valuable. Having someone who is not a politician but has substance call these figures out for the complete nonsense that they are is very important for democracy.
Maybe it has got so silly that the Scottish Government just needs to bite the bullet.
Thank you
In response to Dr Douglas Deans’ post at 10.25am today, you are entirely right in your statement that GERS is a political tool. It was instituted in 1992 (i.e. before the Scottish Parliament was created) by the then (Tory) Secretary of State for Scotland, Ian Lang, for expressly political purposes. Its stated purpose was to estimate the UK Government’s borrowing requirement for Scotland, or, as GERS described it “Scotland’s Fiscal Deficit”, being the difference between UK Gov’t expenditure on behalf of Scotland’s people and the tax and other public income deriving from Scotland.
That was the stated aim, but the underlying aim was entirely political. Here’s what Lang wrote in a memo to then Prime minister, John Major: “I judge that it is just what is needed at present in our campaign to maintain the initiative and undermine other parties. This initiative could score against all of them.” In other words GERS would be an invaluable means by which all political opponents in Scotland could be disadvantaged.
The mainstream media routinely refers to the GERS figures as reflecting “Scotland’s economy” when they specifically exclude the effects of private sector activities. Instead GERS claims to represent only the public sector economy, but only a small percentage of its components are based on probative actual data, with the rest being a miscellany of estimates, apportionments, disaggregations etc of UK-wide data. In other words a guess. Scotland-specific economic data is as scarce as rocking-horse crap and the methodology used to divine supposedly Scottish numbers is open to questions about consistency of data, time-periods, accounting treatment (accruals v cash basis etc), bases for apportionment etc drawn from multiple diverse sources
Dr Deans also states “I understand that, although compiled for the Scottish Government, the methodology is not something that the Scottish Government has control. They are obliged to co-operate with this farce but cannot correct it. Their options are either to play along but make it clear how flawed the data is (e.g. using the term ‘notional’) or attack directly and offer an alternative.” This is also correct: the methodology is established over 26 years, with the Scottish Government being charged with GERS production, so there is little that any Scottish government can do about it. I have suggested in a previous blog entry here on GERS that the Scottish Government should ask Audit Scotland to audit the results and certify their (AS’s) opinion. That would make interesting reading as there’s no way AS could give a clean docket. At best they could say that GERS had been prepared in accordance with established methodology or something similar, but they could never state that the figures were correct.
Finding an alternative to GERS as presently constituted requires the development of dedicated Scotland-specific economic data and, to the current SGov’s credit, they are currently recruiting staff for a Statistics function. My view is that you couldn’t run a successful sweetie shop without knowing your key financial facts, yet the SGov is expected to run a country without this information, so until SGov is in a position to collect reliable Scotland-specific economic data it’s not going to happen. Just refusing to produce GERS without an alternative data set would set off a firestorm of complaint from the media, so that’s politically unacceptable.
In the interim, GERS will continue to be produced, but why does the SGov not issue an accompanying statement of GERS’ weaknesses? There’s no point in continuing to be “tarred with somebody else’s brush!”
Thanks Ken
Well said
Bravo!
Several years ago, the DWP website had a beta version of a tool that allowed users to find out how many benefits claimants of each type there were in each part of the UK. This was available not just by country but also by county and, in many cases, by towns and cities. It identified the number of claimants in each of the geographies and also the cost. The costs however were worse than CRAP. They were CRUD which is an acronym for complete rubbish and utterly deceptive. They were calculated by taking the average cost per claimant for a particular benefit for the whole of the UK and multiplying it by the number of claimants in the chosen geography. Since every benefits claimant has an address and a postcode, there can be no reason why accurate data could not have been made available so there must be a reason why CRUD data was provided instead. It is self evident that many benefits cost far more per person in London than in most other parts of the UK. Housing benefit is a ciear example. By applying an average cost per claimant, the costs of benefits in London were being grossly understated and the costs in other parts if the UK were being grossly overstated.
I haven’t been able to locate this data on the DWP website in recent years but if their methodology was typical of how the UK Government allocates expenditures to the countries, counties, towns and cities of the UK then the GERS data isn’t just CRAP. It’s CRUD.
Thanks
And that still goes on. Along with other ways to push “expenditure” the perifery and pull income into the centre.
You disagree?
Fair enough – but I do hope the putative Scottish independent state is listening to you and others.
I fear that that are not.
Not yet
[…] Quite simply, GERS is bad data. […]
[…] have been a critic of GERS. As a result I have exposed weaknesses in its methodology that I think are significant. Those […]