I have been a critic of GERS. As a result I have exposed weaknesses in its methodology that I think are significant. Those weaknesses include (but are not limited to):
- The fact the GERS is inconsistent in its treatment of tax revenues and expenditure in Scotland. So, the income is only that identifiably attributable to Scotland, subject to points made below on data quality, but the spend is that identifiably Scottish and that apportionable to Scotland on the basis that it is claimed Scotland benefits from it even if it is spent elsewhere. The taxes paid on these sums apportioned to Scotland are not credited to Scotland and so there is a bias in GERS that means it always will show a larger deficit for Scotland than is correct.
- GERS is largely based on estimates and apportionment of data for the UK as a whole, and is not actual Scottish information. Very little of the data used is actual fact, from oil revenue (which appears grossly inappropriately apportioned) onwards. There may be small improvements now Revenue Scotland is at work, but this will not impact on the overall quality.
- The data to check that some of the information is correct is just not available. For example, there is no way of knowing the value of goods and services flowing over the borders into England and Northern Ireland and so where value is really added is unknown. This means it is almost impossible to know the true levels of economic activity in Scotland and so guess whether the tax base is right.
- With so many Scottish companies being based in England deciding what profit arises in Scotland is nigh on impossible when there is no reliable data to base this upon.
- I could go on: you should have got my point by now.
The situation is however worse than this analysis suggests. The question has to be asked as to what GERS is for? Accounting only makes sense when there is someone accountable for an action. Otherwise what is the accounting for? And this is a wholly valid question in the case of GERS. The fact is that in its case no one can really be asked to explain the data because there is no one responsible for it. And no one can be asked to do anything about it as a result. After all, no one is responsible for all Scottish Government income and spend: Holyrood is not. If anyone is it is Westminster but they have now devolved just enough power to claim they are not either. So, if anything, GERS is an account of who is not responsible for what is going on. That, of course, is an indictment of the current state of devolution. But it also makes clear that the GERS statement has no accounting or accountability meaning. This suggests it can only be a political document that can only require a political response.
The appropriate political response to GERS is to make clear it is a Unionist document. In other words, it assumes the Union does exist, is beneficial, and will be perpetuated and is actively embraced as a result by the Scottish government. It is, of course, entirely possible that such a government could exist in Scotland. In that case such a government could ‘own' GERS if it so wished, although I would still suggest it would be unwise to do so because of the massive, and inherent, data uncertainties within it and because under current rules it apportions responsibility to Scotland for a great many decisions over which it has no control at all.
So what is the appropriate political response to GERS from a Scottish Government that does not share the Unionist view? This seems the most interesting question to me. I suggest it is this.
First, it has to make clear GERS is not, as such, its publication. It is a UK publication prepared on a UK basis and that its logic pre-dates even devolution.
Second, it has a duty to point out all the data flaws that exist.
Third, it has to make clear how much of GERS it is not responsible for.
Fourth, it has to make clear its own accountability and how it is doing on that score. This is all it can be responsible for.
Fifth, it has a duty to start collecting its own data.
Sixth, it must show what of the sums apportioned to Scotland it would not have to spend, or would not want to spend if independent.
Seventh, it should explain major areas of policy difference and what the consequences would be.
Eighth, it should explain how it would collect all the tax due to Scotland for what happens in Scotland if it were to be independent, which GERS does not do.
Ninth, it should argue why it is just not responsible for some UK costs, like defence spending it would not support, nuclear power it would not perpetuate when Scotland has so many better energy sources, and debt interest it has never accumulated liability for.
Tenth, it should compare Scotland with each English region, Wales and Northern Ireland and not just the UK as a whole, which is a meaningless exercise, not least because it means Scotland is double counted.
Last, it should demand cooperation from Westminster in preparing such an account and if that is not forthcoming say so.
I stress, this is just an outline for a blog and not a whole strategy for GERS. But the intention is clear. Each year Scotland suffers the GERS fiasco and right now the Unionists revel in it because this is an account fabricated to support their cause. My suggestion is that GERS is not an account in any meaningful sense. It is just a political stunt. It is time Scottish nationalists, including those in government, to treat it as such and begin a robust fightback.
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I hope you get as much attention from these comments as you can. Diddly squat seems to be the reaction from the unionist parties , MSPs and most of the pro-independence team too.
When the first SNP Government came to power in Holyrood in 2007 the first priority was to demonstrate to a (small ‘c’) conservative Scottish electorate that the party could be more than a political protest group; but prove that it could govern effectively and efficiently, and manage government in Scotland with the political tools currently available to it within the Union. This was a test it dare not fail. Among the mechanisms to hand was Ian Lang’s accounting canard (constructed with the intention of ‘dishing the Nats’), GERS. This was accepted by the SNP in government, along with everything else.
The SNP government has been able to demonstrate a capacity for competent managerialism far beyond that of its opponents (the only measure that matters); a test proved by its electiral resilience over more than a decade, but it is now in some difficulty repudiating GERS, since it has broadly accepted the methodology for so long. It was mistake to do so.
Then it will have to find a reason to change its mind…
One question- you highlight the lost tax revenues generated by out of Scotland spending apportioned to Scotland in GERS. If this is a major effect isn’t the tax revenue generated in Scotland by the £10bn odd structural deficit spending a far greater effect which makes the tax take in Scotland look far more rosie than it should? All those Scottish nurses funded by London bankers taxes?
Does Scotland have a structural deficit?
How do you know?
And – is it really London bankers who are paying Scottish nurses? Verifiable stats do not exist. GERS is not an example of accurately quantifying Scottish money flows. GERS is avowed political chicanery; has been since the day of its design.
As a question please: if a Scottish company is based in England, why isn’t an English company? That seems to be where the business activity, control etc. takes place.
What’s Scottish about the company, other than perhaps registration and possibly history?
A Scottish company trades and makes profit in Scotland
But no one knows for sure how many such companies there are and how much they make
What is wrong with saying so?
And this has nothing to do with registration, at all
There are companies based across the world trading in Scotland – not just English based ones. Are you saying this makes them ‘Scottish’ companies for this purpose?
Of course if trading there and not into there
Don’t you know about the reason for country by country reporting!
Dear Richard
Thank you for your contribution which I agree with.
I am an accountant and have also run companies in the U.K., Germany. I also sit on the board of small quoted companies. I have been following GERS for a number of years and more recently following your comments.
At first I welcomed the introduction of GERS as the provision of information and the development of a reporting system should cast some light on the Scottish Economy. However it seems that some of the figures have become more accurate over time but the use of estimates is still prelevant. In addition, you begin to ask what is the purpose of GERS. A financial report should be used to inform and to hold people to account, in addition it is also useful for forecasting. GERS does none of these. I think you have spelt this out in your comments.
Your suggested way forward seems appropriate and the Scottsh Government, the SNP and the others in the independence movement need to start demanding a much better report and a timeline of when this will be achieved.
My purpose in writing was to thank you for your contribution, I enjoyed reading it.
Best regards
Paul Macdonald
Thank you
The defence contribution in GERS is an interesting one, given that forces personnel living and working in Scotland can be deemed NOT to be Scottish taxpayers.
This must be an exception to MMT, since spend and tax does not work in this case 😉 .
GERS assumes £3.2bn of “government expenditure” (4.3% of the total), based on a population share of UK expenditure. Clearly most of this “spend” occurs outside Scotland, but it appears we are not entitled to any tax due on armed forces personnel who live in Scotland.
The Income Tax in Scotland document at https://www.gov.uk/scottish-income-tax/if-you-live-in-more-than-one-home says “Your main home may be the home where you spend less time” – “This might apply to you if you live away because of your work, for example you’re a lorry driver, an offshore worker or in the armed forces.”.
It is not obvious how this exception for armed forces personnel arises from the tortuous descriptions of how tax liability works in the Scotland Act 2012, or in the HMRC guidance notes at https://www.gov.uk/hmrc-internal-manuals/scottish-taxpayer-technical-guidance.
I think this problem may also arise for council tax.
I’ve a feeling someone else has looked into this, but I can’t find it – thoughts?
I have heard it discussed
I can’t recall the answer know
It was probably Fraser of Allander
George,
I’m in the Armed Forces and live and work in Scotland. The way it works for us is we have to declare our any home we own or rent if we don’t live in single living accommodation on a base. We have to set a primary residence and this is the one used for calculating we jurisdiction our income tax is calculate under. Since the bands changed in Scotland many swapped primary residence to houses in England if owned. As far as I’m aware the only real exemption we have is based on the time needed to be spent to define it as the primary, whereby we can always declare that as long as we own it and pay council tax on it.
They did give out a memorandum a while back, but I must have binned it, and it showed the breakdown of how our tax was divided between UK & Scottish Parliaments and from memory so please forgive if this isn’t exact. After personal allowances, if we live in Scotland, the first half of each banding is paid to the UKG the next bit within that band to the SP
so: UK/SP
10% / 9% – Starter Rate
10% / 10% – Basic Rate
10% / 11% – Intermediate Rate
20% / 21% – Higher Rate
22.5% / 23.5% – Top Rate
Anyone that has primary residence south of the border uses those UK tax bands and there is no split. This is what has caused us to seek a compensation payment which we are told with be paid from next year to the Scottish tax payers so we are not disadvantaged. The issue also applied to married personnel living in married quarters who because of living of base in the married quarter resulting from a draft order, have been made to pay the Scottish rates resulting in drops in net pay.
Hope that helps
What it shows is that Westminster is undermining devolution of tax powers
Thanks for your helpful input James.
If you are deemed to be Scottish resident, or there is a split as you describe it, and *IF* that means you are paying more tax than you would if resident outside Scotland, Gavin Williamson has promised you a refund. Sounds like a lot of administrative effort to make that work in the split scenario. As has been said many times, it also seems unfair to service personnel living and working in England, who do not benefit from various advantages of living here – free prescriptions, free university education, etc.
Further to Richard’s point about undermining devolution of tax powers, I believe that you can choose where to register to vote. I’m not clear whether the tax and voting choices have to be aligned. If they are not aligned, the idea of “no taxation without representation” and democracy are compromised.
An independence-supporting cynic (who me?) might then worry that you can avoid the Scottish tax system but vote in Scotland – perhaps voting No in an independence referendum. 😉
ONS does produce country and regional public sector finances – https://www.ons.gov.uk/economy/governmentpublicsectorandtaxes/publicsectorfinance/articles/countryandregionalpublicsectorfinances/2016to2017
Everywhere is in deficit except London and The South East, of course. Capital spending is enormous in our wonderful Capital and one wonders how much of the debt of the crash was incurred there and why deprived regions get so little investment.
Now I am not an accountant or a statistician or an economist but something strikes me as wrong in GERS.
It says Scottish State Pension was £7.749 Billion of a total UK State Pension of £91.6 Billion, or 8.459%, roughly the % of the Scottish population relative to the UKs.
However as we all know we have a terrible life expectancy in Scotland, 81.2 years for females and 77.1 years for males, as opposed to UK life expectancy of 82.9 years for females and 79.2 years for males.
So a Scottish male claims 2.1 years less state pension than the average UK citizen, or about 14% less. For woman they claim about 10% less, if we average that out at 12% of £7.749 Billion then Scotland is being over charged by £0.92988 Billion.
Thank you
It doe not, of course, make any sense
A couple of things puzzle me about this issue. Is there any way of putting quantities into the inconsistencies between the attribution of tax revenue and expenditure, for example if say £6 billion was spent for Scotland but not in Scotland, how much revenue would that expenditure generate?
How does GERs fit in with the QE magic money, does a proportion of if count as spending for Scotland?
Re the former, that would be a guess right now, although some will dispute that.
Re the second, none has been credited
Well done Richard. Someone needs to tell these Scottish nationalists what to think about GERS.
If not you, then who?
Richard, you really got to the heart of the matter when you wrote “But it also makes clear that the GERS statement has no accounting or accountability meaning. This suggests it can only be a political document that can only require a political response” in the third para of your preamble. I’d go further about the lack of accounting meaning of GERS.
I reckon it was conceived and designed by a non-accountant as it claims to represent Scotland’s fiscal income and expenditure yet is transparently not an Income & Expenditure A/C that any accountant would recognise. As you point out, only a small proportion of its content derives from actual Scottish data, the rest being estimates and apportionments of UK total data, but it also contains substantial, but not substantiable, recharges for matters entirely outwith the Scottish Governments jurisdiction (and cash flow).
There’s also the absence of a Balance Sheet, so normal conventions of double entry bookkeeping cannot be applied. This means that no attempt is made to quantify Scotland’s share of UK assets even though GERS includes costs from beyond its jurisdiction. The lack of a B/S also means that parity of debits and credits cannot be proved, so costs/income can be over or/understated without it being apparent. There’s also the question of how GERS treats investment expenditure. Is it included in expenditure in GERS or ignored altogether? If the former, then the principle of amortising capital costs over the asset’s lifetime is ignored. Similarly the accruals method (which GERS supposedly employs) requires matching the timing of income and the costs of obtaining it, but without a Balance Sheet can anyone say whether that concept has been applied accurately.
So, if GERS isn’t an Income & Expenditure A/C as an accountant would understand it, what is it? An alternative might be that it’s meant to be a cash flow statement, but again it’s clearly not that either. The estimates of data and recharges from external cash flows nail that firmly. GERS therefore has no validity as a credible accounting document and can only be viewed as a political document. That should come as no surprise to anyone: it started that way, its methodology remains largely unchanged, so of course it’s a purely political document and it’s high time the SGov dismissed it as a relevant economic indicator.
This leaves one last question: who pays for GERS to be produced? I understand it’s compiled by the Fraser of Allander Institute, so external consultancy costs are likely to be significant. Are these booked to GERS? That would be the ultimate irony: the costs of proving nothing are added to the notional deficit!
Ken
I agree with everything but the last comment. The statement is prepared at public expense and by civil servants. However, there appear to be strong personnel overlaps with the Fraser of Allander over time.
Richard
Comments about london bankers tax revenue funding nurses. Folk need to realise that spending precedes taxes.
Martin wolf of the FT commented a while back that banks were essentially part-public entities. I totally agree. The govt has shown it’s willingness over the last decade to pick up the tab of the wholly reckless behaviour of the city.
The lack of motivation to take anyone to task has only emboldened the financial establishment and created a huge moral hazard. Their tax revenues aren’t funding anything. They are funded.
The belief that government surpluses are actually good things serves only to benefit the financial establishment. This was reinforced over the last few days when the press were fawning over the govt further draining the private sector.
Further credit fuelled growth of course benefits the banking regions – funnily enough Lon/SE.
The U.K. govt produce GERS as proof that Scotland s failing and always broke, the only oil producing country in the world that lets another country handle the money and produce the accounts .
Why do some Scottish people actually believe that their oil and gas isn’t worth much and never was, the answer to that question is GERS BBC and British newspapers who have perpetually presented the GERS lie, led face it, GERS is a lie told by the U.K. govt to its people, it’s not only sir Scottish people that believe this drivel but many English people too.
The answer is for the SNP to counter it with facts and as you say point out the U.K. govt refusal to cooperate or produce information requested,I understand the reluctance of SNP to spend time and resource on this matter because once they provided the truth it would not be disseminated to the public widely by BBC and the British newspapers and there lies the real problem getting to the truth, British propaganda is choking Scottish people day in day out year in year out .We know why. England has more to lose that what it skins off Scotland .England will no longer be seen as the bigger entity U.K.
it will no longer be able to behave like the bigger entity U.K. and will have it’s representation reduced across the world.It I’ll not be able to wage war across the globe and bomb other countries.Scotland will be happy to be small and independent. England will not.
GERS is shite.
I’m amazed by how many amateur as well as professional coprologists there are.
GERS is shite, Andy, but its purpose is to give the impression that Scotland is shite.
Happily the BBC was caught out the other day and was forced to apologise but years of crappy analysis and negative innuendo make it a difficult impression to refute.
https://www.youtube.com/watch?v=XVMumrUkrPc
Westminster beguiles even the most ardent professionals
Janet Carter
Someone needs to tell “these Scottish nationalists” what to think?
I’m speechless at such insulting arrogance.
Many Scots enjoy Richards blogs, they educate (and entertain) us. At no time has he ever claimed that we need to be “told” about our own nations understanding of economics
.
I don’t tell anyone
I think out loud