I have tried hard to take seriously the new report from the LSE on the costs of Scottish independence, as measured through the supposed impediments to trade that it will create, but I can't. It's available here.
There are numerous issues I can raise. First, and most glaringly obviously, the authors note that:
Unlike independent countries, Scotland does not collect detailed statistics on its external trade. Export Statistics Scotland provides useful data about onshore Scottish exports, but import data is relatively sparse.
In other words, there is quite literally no useful data on which to draw conclusions.
As the authors then add:
Measuring Scotland's trade is further complicated by the convention that economic statistics are produced separately for the onshore Scottish economy and its offshore counterpart (i.e. oil and gas production).
But, despite the very obvious fact that the only realistic thing to do at this point was, to be polite, to give up, they ploughed on:
However, by merging data sources and combining statistics for the onshore and offshore economies, we can obtain an overview of Scottish trade.
With respect, that conclusion literally cannot be reached from the claims that go before it. The only reasonable conclusion for the authors to reach was that there is no reliable basis on which to work. But they produced data anyway. Let's be candid, on this basis GERS looks to be reliable, and that that is very far from the case.
What is more, the most cursory inspection of the findings gives clues as to more problems. For example, the authors say:
In European terms, the UK is a large economy, whereas Scotland is medium-sized. In 2017 Scotland's GDP was £169 billion, similar to Czechia, Greece, Romania and Portugal.
But that assumes GERS is right, and there are good reasons to doubt that.
More significantly, GDP data is critically dependent upon accurate import and export data, and as just noted, and as the authors acknowledge, that is not available for a Scotland. So in that case these claims have to be unreliable
Exports account for 58% of Scottish GDP and imports for 60% of Scottish GDP. By contrast, in RUK exports account for 35% of GDP and imports for 36% of GDP.
From this they conclude:
We estimate there is around six times more trade between Scotland and the rest of the UK than predicted by a standard gravity trade model. Alternative methods imply there is from 2.6 to 7.8 times more Scotland-rest of UK trade than predicted.
They do at least have the decency to conclude:
This excess trade is partly the consequence of Scotland's union with the rest of the UK.
This, however, is an insufficient explanation. To have a result like this that so is abnormal (an absolute outlier in statistical terms) suggests one of three things. The first is that the data set is wrong. The second is that the data does not reflect the reality of what is going on. The third is that the behaviour being recorded is actually abnormal. It so happens all three are likely.
First, I have already noted that the data is highly unlikely to be right.
Second, it is exceptionally likely that in the absence of any border on which to actually measure the flow of products that what the available data really records is the relocation of the ownership of product. So, for example, it is entirely possible that Scottish product is transferred from Scottish ownership to English ownership prior to export, and the same may well happen in the opposite direction, none of which is surprising. In integrated economies, with companies that have no reason to respect the border between England and Scotland, and with no VAT or tax charge for the transfer of title, the likelihood that English- based import and export entities are being used by large groups of companies (who will dominate trade) to, first, take ownership of Scottish product (or imports) before they then actually move into or out of the UK as a whole, with those transfers across the next border being recorded as English as a consequence, is very high indeed. In other words, the likelihood is that actual imports and exports to England are much lower than reported and that those to elsewhere are much higher, with the data being distorted by what might best be called ‘book transactions'.
Third, the trade is abnormal because there is no border: if there was the flows would be different, as I note below.
The fact that geography also dictates that at present it is convenient to import and export through England just adds to the chance that this possibility is high.
But there are more issues (actually many more, but there are limits to the number that need be noted).
Take, for example, the claim that the cost of trade between Scotland and England will increase by 31%. Ludicrously, this is based on the estimated cost increase in trade between the UK and Ireland in 1922. As assumptions go, I cannot think of anything more ridiculous. The UK and Ireland were pretty much still at war. The UK controlled all the routes in and out of Ireland and could charge what it liked, and technology was utterly different. To pretend that this data is in any way relevant is absurd. Sheer common sense suggests that the comparison makes no sense.
There is a final absurdity to note. The authors seem to assume that there will be no behavioural changes despite these costs. But just look at what is happening in Ireland right now. Literally, almost overnight new freight routes that avoid costs have opened. And so would they from Scotland to avoid the claimed costs of going through England. This would be most especially the case if Scotland rejoined the EU, when import substitution from the UK might be very significant.
Put it all together and the claims in this report are literally not worth the paper they are written on. I suggested the estimates be consigned to that receptacle in the corner of your room, never to be discussed again.
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A good dismantling of yet another manipulated view of Scotland’s finances. It’s a shame that the SNP are not doing likewise and acting like a government in waiting to take over. Like the GERS figures, the SNP have repeatedly just let bogus figures pass with barely a word said against them and certainly no serious rebuttal. This is arguably the biggest area of contention among the swing voters, yet without this the current SNP opportunists expect people to believe they are serious about independence. Sadly the people that could do this are there, just not in positions to do so yet. This is by a very calculated design, courtesy of those that took over in 2014.
https://wingsoverscotland.com/how-to-make-a-coup/
“The fact that geography also dictates that at present it is convenient to import and export through England just adds to the chance that this possibility is high”.
Its not convenient, if its deliberate. Up untill the 60’s Scotland had it’s own ports. But no more. almost all a Scottish exports are now through England. Westminster is more of a brake 9n Scottish world exports. Than accelerator. Various political decisions made there have gradually decimated Scottish industry, services, farming and fisheries. Brexit is only the latest, in a long line of bad decisions. Made on Scotlands behalf. Without our agreement. Yet the Westminster hand is still stuck out for Scottish revenue’s.
I think a Scottish port revival would be a key independence issue
I have been coordinating a response in the Scottish Currency Group to the reporting of this LSE briefing in the MSM. There is a draft response on the SCG Facebook page if you wish to comment on it before we send it out later today.
If I get time
As you say the use of estimated data from 1922 is bizarre. The report also doesn’t factor in (because it can’t!) policy changes that an independent Scotland could make.
If we go back to Ireland as an example, trade with the UK has declined (as a proportuon) significantly following key policy decisions such as joining the EU, breaking the relationship between the Punt and Sterling and then joining the Eurozone. As a consequence trade with the UK is less important (proportionally) than it was. The big issue is logistics, and as you say new routes between Ireland and France are opening up (Brittany Ferries have announced some this week).
And of course, overall, income has risen significantly in Ireland since joining the EU.
Whilst I wouldn’t suggest Scotland follows the same path in joining the Euro it does demonstrate that control of all policy levers available can make a huge difference to a country’s economic performance.
I wrote a hasty, similar review on Bella Caledonia yesterday. I gave the LSE piece a title that I thought best described its utility: ‘If you start with the answer, the question is ‘Brigadoon”.
Forgive me if this comment reads like a promotion piece, it is not intended. Richard covers the ground.
It’s very good
It complements mine
And this is the link https://bellacaledonia.org.uk/2021/02/03/if-you-start-with-the-answer-the-question-is-brigadoon/
I understand that when Estonia became independent from the Soviet Union it lost 100% of its trade! Seems to be doing fine now. This short film by Lesley Riddoch explains.
https://www.youtube.com/watch?v=GqLJA7sXD-c
I watched the video and came to a somewhat different viewpoint.
a. While the young and early middle aged professionals now appear to be doing very well. The elderly and working classes still seem to be struggling.
b. It took nearly 15 years of brutal austerity to get to where it is now and where it is now appears more to do with luck than judgement, aided by assistance from nearby Finland.
Estonia is the birthplace of Skype – (yes I know about the partnership with Denmark)
Skype came into full bloom just at precisely the perfect time to piggy back on the success of social media. Skype was sold to e bay and then two years later to Microsoft for a combined total of over £11 billion the bulk of which has so far been reinvested to benefit the people. That windfall, from what I can see,so far hasn’t fully trickled down to benefit the working class and the elderly.
Throw into the mix the Russian immigrant issue and a different picture emerges.
This is the draft Scottish Currency Group response regarding the LSE Centre for Economic Performance report on an independent Scotland
Dear Sir,
The Scottish Currency Group wishes to respond to the report by the LSE which was reported in [name of newspaper] on February 3rd 2021.
It is unfortunate that your coverage of this LSE briefing displays such an unbalanced assessment that it can only be regarded as pro-union propaganda. The report contains several important caveats, which read as follows:
“In this briefing, we restrict our analysis to trade effects and do not consider other potentially important economic effects of Scottish independence, such as changes in investment flows into and out of Scotland, whether Scotland continues to use sterling as its currency and the fiscal implications of independence. “
Unlike your reporting we will be clear and objective. It is entirely possible that Scotland will be poorer after independence. But such an outcome will not be caused by independence — it will be the result of poor decisions and mistakes in the management of Scotland’s economy, and in this broader context the impact of any new trading arrangements cannot be predicted in isolation. The truth is that the possible post independence scenarios are almost infinite and fundamentally unpredictable and un-quantifiable. We should never be drawn into futile arguments about hypothetical numbers, especially in the case where they are a product of such a narrowly framed analysis.
What can be said with confidence is that with our own currency Scotland will have greater control over its destiny — not absolute control as we a part of a globally connected economy, and any trade arrangements always involve some compromise for national sovereignty. We can, however, say with certainty that having our own currency will provide the country with greater autonomy and there is no reason to suppose that Scotland will be the weaker partner in any trade negotiations. We may be, but we may not — it depends on what other decisions are made with regard to the management of our economy.
The first mistake we can make is to adopt the prescribed economic policies set out in the Growth Commission Report. The second mistake we could make is to delay the adoption of the new currency. If we commence the new currency immediately after independence our freedom of action is widened in many areas of economic management.
The next mistake we could make after independence would be to replicate the UK’s banking and financial regulations. Who can say whether Scotland will make this mistake or not? — again it is unpredictable. We hope we don’t make such a mistake, and we in the Scottish Currency Group will do whatever we can to prevent it, but nobody can say that we will succeed.
Neither your newspaper nor the LSE economists have any idea whatsoever whether Scotland will choose wisely or not — that is unpredictable. The LSE report is subject to so many caveats that it is a pointless exercise except as a weapon with which to try and scare the people of Scotland out of their wits.
Even if we take the analysis based on the impact on trade, there is an assumption that trade patterns will continue as at present without taking into account the highly probable effects that climate change and biodiversity loss mitigation will have on economic activity and resulting trade flows. Trade flows may well change rapidly and such uncertainty defies any meaningful quantification.
If we keep mistakes to a minimum there is a very real probability that Scotland will emerge as a more prosperous, more productive and more environmentally sustainable, free nation. To quote the words of Franklin D Roosevelt — “there is nothing to fear but fear itself”.
56 SCG member signatories
Yay could sign me to that
Jim,
This is an excellent response, but it’s also an excellent summary of how and in which way having our own currency is so important – in and of itself, it doesn’t guarantee success, but allows us the choice of success. Thanks! I’ll try and share where I can.
Now that is a balanced, reasonable and fair minded response that throws into sharper relief the nature of the shallow propaganda which it is challenging. I doff my hat to the scribe.
Excellent Richard and the from the Currency Group, we should not be surprised though, we now expect
finding such things blatantly biased reporting is the Westminster thing.
They have had plenty of practice over centuries , and thus a likely library of documents to guide them.
Their fear of an Independent is palpable.
Another great response and happily George Kerevan was available to fulsomely debunk this drivel on Radio Scotland – phew! Add my signature and I will post it on our media at Modern Money Scotland.
This “report” accomplished its mission – cloaked in the unquestioned academic emperor’s new clothes, headlines and straplines, to be used by the usual media suspects to seed doubt and fear. The union cannot argue factually and fairly; it is rotten to its core. A relic which must be dissolved.
I’m glad you spotted this Richard – I had seen a tweet or something (pointing out that one of their own colleagues at LSE had immediately disputed some of the figures) and had meant to go back and investigate what it was saying – which is, it seems, just another way to try and push GERS-type data on us to shock and scare. Anyway, I’d got distracted, with so much happening on the Scottish political scene, which is really a distraction in itself,,, but it’s nice to have a bit of time to indulge (I think it might be worthwhile viewing Salmond’s appearance before the committee on the 8th or 9th of Feb, if you have the time to spare Richard, the sessions are archived not long after recording too.)
This LSE publication is just politicking, but Scotland does have the issue of many ports that used to do exports being effectively shut – all in the name of having all exports go out from England (and so add to their exports, and jobs, etc). There is also the thing where a lot of raw goods, so I have heard, are sent down to England for process and packaging, only to be sent back up to Scotland for sale. This raises issues – does Scotland still have process and packaging capabilities (I am reminded a bit of many countries that are left exporting only raw materials, so make much less money from exports)? This method of export where goods are transported, by road mainly, before being exported, or even worse, sent back after processing – how much extra pollution is caused by this method? It seems madness to me. And how on earth can anyone sort between imports/exports, over a non-existent border, when half of what is going out is coming back in?
I’m sure Scotland can set up sea trade routes and get ports up and running again fairly quickly (though of course needing customs etc rules, and trade deals – EFTA membership could take some of the load off there though) – not as quick as Ireland re-routing obviously (and how much better for the environment is it that they now don’t use a land-transporting route in the middle of exporting?), and expanding process and packaging capability again should be a good boost for employment – hopefully distributed throughout the country. Ah – sorry, getting ahead of myself there. So, I can conclude that the LSE report is just another propaganda exercise in telling Scotland just how totally rubbish we are?
Totally fair conclusion
Why are the LSE regarded as authoritative as far as economics is concerned when they publish propaganda?
@ Niall Campbell Morrison
The LSE has form for pushing right-wing propaganda starting with Robbins and Hayek!
This has been described as academic research. Academic so it’s supposed to be something from a scholar that teaches or informs the lesser knowledgable. Research so it’s factually accurate, contain unchallengeable evidence in support of its conclusions and be recognised by the authors’ peers. It fails on all counts!
As the case with all reports by economists, as the joke about a chemist, physicist and economist shipwreaked on a desert island, the economist starts by assuming a can-opener.
Thanks for this. It is of course more of the same propaganda…too wee etc.
Genuine question; do the big supermarket chains record all business in their Scottish stores as imports from England to Scotland?
In other words, do all Scottish products, milk, cheese, beef, or whatever, suddenly become ‘imports to Scotland although produced here and sold in Scottish branches of English chains?
I have a sense that this is happening.
This LSE report is of course arrant nonsense, spread with relish across the pages of the Scots Dead Tree Scrolls…If Scotland joins some form of EEA EFTA or full blown EU agreement, post independence, which is mercifully inevitable now, and indeed imminent, then we become part of a 500 million strong Trade Block, and England will become the junior player from that day onwards.
Following Independence, I envisage Scotland Eastern Seaboard opening up, with direct routes from Scotland to Europe thriving.
Ireland may opt to reroute freight via Scotland and on to the continent by sea from say, Rosyth.
The LSE is a British oligarchy mouth piece, and writes from the perspective of a Colonial power, which, by some mystery will still dictate Scotland’s future post Independence.
It is a serious collective national psychosis.
When the supermarket warehouses in England deplete their pre Brexit stockpiles, England will begin to realise how isolated and suicidal leaving the biggest Free Trade bloc in the world really is.
Fortunately Scotland has an escape pod.
I read the Bella piece. Like yours, Mr Murphy, the BC summary is terse, acerbic, and will be repeated throughout the ether came to your article via WGD.
Thanks for this.
Scotland is a rich vibrant country. Yet we still have scots born hacks and politicians trying to destroy our land for money.
Yes, sales in Scottish supermarkets will be shown as imports in many cases
This mean supply chains will change
The report9ignores that
Bin it indeed. The demolition in The National makes interesting reading.
To which could perhaps be added that those thanked for their “useful discussions about the Scottish economy and Scottish data” include not only Jim Gallagher, but also one who was “Head of Macroeconomic Analysis at Her Majesty’s Treasury” (apparently from 2004 to 2011 – a period which included not predicting the Crash) and the Deputy Director of the Fraser of Allander Institute. One wonders if the latter’s wise words, (ironically in an article defending GERS) were also taken into account? She wrote in August 2019, “If the very purpose of independence is to take different choices about the type of economy and society that we live in, then a set of accounts based upon the current constitutional settlement and policy priorities will tell us little about the long-term finances of an independent Scotland.”
Well…. quite!
This is exactly the same model used to estimate the damage to UK GDP from Brexit – even the same researchers I believe.
I remember you were happy to use this data when reported through other media to make your case as to why Brexit was such a bad idea.
Now these same people have used the same model on Scottish Independence, suddenly it’s all wrong?
I can only assume then that either their results regarding Brexit are also wrong, at which point there will be no economic damage, or they are correct at which point the model also stands for Scotland. Which is it? It can’t be that it works in one case but is totally wrong in another.
I used a Cambridge Econometrics model
And there is real data on that trade
Read the assumptions. The source economic data for an independent Scotland and for the UK are not the same; they can’t be, Scotland is not independent and UK source data is not collected in a form that represents an independent Scotland. After that comment I can only assume that you haven’t read the report, or you haven’t read the criticisms, or both; or perhaps you simply do not understand the issues.
The data may be questionable , but on a quick reading the ‘gravity’ trade model also seems to incorporate a huge number of additional assumptions.
It involves regression of the log of trade against the log of trade distance, and variables measuring ‘fixed effects’ , ‘dummy variables’ for EU membership, trade agreements ,currency, language, land border or colonial relationship.
Using logs – is a warning – and suggests they haven’t got a model which explains trade directly
It is widely used and I know some academics who use it, although your observation on the flaws is one I share and I have to say I have never been convinced
The basic premise is obvious – you are likely to be trading most with the people near you. But like so much in economics mimicking physics from thereon there is the capacity to go wrong
I got as far as page 10 of the report and their comment on Czechia’s exports to Slovakia falling from 22% of total Czech exports to only 8% in the decade after independence. Clearly this was bad and a result of the new border, according to the authors.
But the value of those exports had grown from $2.7Bn to around $5.8 Bn, and total Czech exports had gone up from $13 Bn to around $60 Bn.
Clearly a case of selecting the data to fit the conclusion you were paid to deliver.
Indeed
Richard states that “imports account for 60% of Scottish GDP”
I was under the impression imports are not counted in a countries GDP?! Some clarification would be appreciated
The net difference between exports and imports is in gdp
Thankyou very much for this,
When the Scottish Government published its Brexit impact assessment in 2016, it relied on the work of CEP/LSE.
Nicola Sturgeon held a press conference to promote the report.
Now the same people produce a report showing similar but worse effects of Scexit and boy they don’t like it.
As ever you are wrong Alex
I don’t like it
Actually the statement is factually correct. An author exposed trade flaws with Brexit. The Nationalists rejoiced and called a press conference to publicise it. The same author exposes the trade flaws with independence and the same Nationalists attack it as unbalanced and propaganda. Here’s the opinion of an indy supporting academic https://twitter.com/BingoDemagogue/status/1357661231876866051/photo/1
With respect Alex, I am really not sure you would known the truth if you wer3e confronted with it
You were posting nonsense about me on Twitter the other day and then have the nerve to turn up here
That’s not something I really think I need to tolerate
No PHD for the authors of this piece then?
[…] Tweet does, of course, refer to my commentary on the absurd LSE report in the costs of Scotland becoming independent […]
No doubt this dubious report will be one of many to be produced, as in the pre-Brexit era, to frighten the Scots and provide Boris with the false basis for more of his lies, justifying his refusal to allow a referendum. By fair means or, more likely, foul, the probability is that independence is never going to be allowed to happen.
How could an accurate impact analysis be completed? Is there any mechanism whereby accurate records of imports/exports could be gathered? Would there be a benefit in doing so?
I note the gentleman above who remarks on the hazards of being drawn into a debate regarding hypothetical figures, however surely it can only benefit the case for independence for research to be conducted in this area? Forgive me if the question betrays naivete, but why cant reliable research be conducted regarding the potential financial position of an independent Scotland? We talk about how GERs and other studies such as the LSE report discussed above are not reliable tools and I completely understand and agree with the reasons presented for this, but surely accurate research into this area cannot simply be branded as impossible prior to a pro-indy vote? Isn’t a lack of this kind of information once of the main criticisms of the Brexit campaign?
In essence data is not available as there is no reason to do so and therefore no point at which to collect it
As such reliable death cannot be available
This is even more true of services
“As such reliable death cannot be available”
From whence then can we seek a reliable death?
Don’t you just love predictive text!
Westminster’s long ago decision to concentrate ports in the South. Would have been based on London centric thinking. Considerations for Scotland’s needs, fell far down the priority list. Only independence would rectify this. The Republic of Ireland decision to avoid Englands strangle hold on it’s exports, is an example for Scotland to follow. The Rosyth to Ostend route being 92mls shorter than the RI new route. Clearly makes this feasible. You may gather from this, that I would support a hard border. To counter a long history, including pre Union. Of intimidation of Scottish exporting ability.
I think this inevitable in due course
Thank you for confirming my (Layman) suspicions about the piece, also the poster above who points out that Scottish exports inevitably travel through English ports. I take that as one of the main points from your piece along with the idea that not all goods will be consumed in England and quite possibly sold on in part or in whole.
There’s at least one thing I find highly questionable RE: GERS estimates for Scotland revenues, and that’s VAT receipts. GDP per capita here is comparable to East of England, yet house price average here is £150K vs £300K there. Unless Scots are hoarding a lot of money in their bank account, I’d assume the appreciable difference in disposable income after mortgage and interest would be spent on VAT rated goods, but GERS estimates of VAT receipts is based on population share.
This in itself could result in an appreciable difference in VAT receipts between countries. Unfortunately there’s no data to confirm this due to spending not being delineated over the border, though potentially some empirical data could be had with a decent sample size of population and spending habits.
With regard to GDP and Import and Export data, how exactly are these data collected? If the primary data for GDP come from tax data then total revenues of any English-domiciled company would be recorded in English GDP even if some of that revenue derived from Scotland. Similarly if imports and exports are based upon customs data from the ports then Scottish exports and imports through the port of Newcastle for example would be reported as English. As for trade between Scotland and England for domestic consumption, that must be complete guesswork. With regard to the LSE study, it seems to be a case of “Garbage In, Garbage Out” – if the inputs into your model are garbage, then so too are the output.
Regarding the port issue there may be many issues why a Scottish importer or exporter may choose to use an English port. It may be congestion at the Scottish port or that there are more frequent liner services at that port or direct services to your destination. For example, the Scots port may only offer one service/week to and from Hamburg (or none at all) whereas the English port has 3 services/week. Or his preferred freight consolidator operates from that port. I would expect those factors would continue to operate after Independence at least in the short-term since it’s unlikely that Scottish ports have enough capacity to absorb the extra volume instantly and even longer term the issue of shipping services will remain.
With regard to the “Gravity Model” of trade it’s quite valid in principle and you can see it in all types of areas. Before the growth of the internet domestic mail deliveries showed that phenomenon – most postcode to postcode mail went to regions relatively nearby and dropped off proportionately the further away you were. Overlaid this was a network of “trunk” routes, say Edinburgh to Glasgow or Edinburgh to London. The same phenomenon occurs with telephone calls. Likewise countries trade most with those nearby because transport costs are lower. Even in the heyday of the British Empire Britain’s trade with Europe was always greater than with the Empire for that reason, which makes England’s decision to sever itself from its biggest customers completely nonsensical. Even after Independence England is always going to be Scotland’s biggest export and import market because of proximity and a common language.
All noted
Simple fact is that without a border trade data will not be collected
For that reason the number within the Union will always remain dubious
The UK takes money from Scotland by a thousand cuts. There is the trade aspect where Scotland buys more from England than England buys from Scotland. It is always said about England being our biggest trading partner, which is true, but the facts above show that even after Independence both would find a way, and a better way than now.
With all the UK losses to the treasury right now especially, England would suffer greatly in terms of money and human costs, as many English jobs would go. So it would be best, surely that it would be in English interests not to shoot themselves in the foot. Of course, Scotland would suffer too.
However, If Scotland joins the Eu or in fact EFTA, I feel sure many European companies of all kinds may be happy to supply Scotland with ALL the services that it needs. What the LSE are saying is we have a shotgun at our heads, and they do not care whether anything is accurate or not, indeed it actually cannot be. No thought of course of the changes an Independent Scotland would make either. it is simply yet more Westminster Propaganda.
But they do have things sown up quite tight, nearly every supermarket chain operating in Scotland will pay their taxes in England, we could probably count hundreds of companies here who do that, look in any Scottish Mall, very few Scottish companies are there, most by a large amount are English based.
That has to be changed somehow.
There are many of these kinds of issues that need sorted.
However, can I finish by bringing up another issue. Scotland when Independent, would also have it’s own DVLA, every kind of vehicle road tax would be Scottish revenue not Westminster’s anymore, that revenue alone would bring in a pretty sum to the Scottish treasury. Something I have not yet heard of when it comes to Scotland’s finances in the future. There is more for another day….
Scotland’s trade with England will continue for the simple reason that the two countries are close together, minimising transport costs. Scotland was in the EU free-trade zone for decades, if it was cheaper to import from an EU country they’d be doing it already.
T
he big difference if Scotland becomes independent is that companies in both Scotland and rUK will have to restructure their operations into separate subsidiary companies for each state, for tax and legal reasons. Otherwise they could find both Scotland and England trying to tax the same profit twice, and similarly with VAT. That’s how operations in foreign countries are structured now: as separate companies incorporated under each country’s laws. That doesn’t mean a change to Scottish ownership, but most Scottish insurance companies and pension funds would already own a large amount of shares in their parent companies.
However, that raises another issue with the revenue estimates for GERS. Are the VAT and company income tax based on where the taxpaying entity is submitting the return – typically its head office? In that case the taxes paid by the supermarkets etc in Scotland would be recorded as English revenue. As the saying goes “figures don’t lie but liars can figure”.
The GERS figures are based on surveys, not declared returns
Stuart, while VAT is nominally devolved to Scotland, the valuation of VAT raised in Scotland is an estimate, as Richard states. VAT registration numbers are issued on a UK-wide basis only; there are no separate registration numbers for Scotland, but, if there were, we’d have a clear-cut answer to the annual question of VAT raised in Scotland. Instead, all responsibility for billing, collection and management of VAT is retained by HMRC, with the attribution of Scotland’s share being essentially a bookkeeping cross-entry by both parties. Use of estimates in one year naturally results in adjustments in later years as evidential data becomes retrospectively available. This is a pain in the neck for Finance Ministers in both parliaments as nasty surprises inevitably emerge without prior warning years after their origin and require adjustment that will distort the later year’s results, thereby making year-on-year trends harder to follow.
This could easily be solved if two changes were to be made: demand that all businesses operating in Scotland have a separate Scottish VAT number and transfer responsibility for administration of Scottish VAT to Revenue Scotland. My suspicion is that this hasn’t happened largely for political reasons.
There is of course a third solution: Independence would put an end to VAT guesswork, unreliable statistics and convoluted admin processes.
Ken thanks for that, much as I suspected. See my last sentence
I didn’t know about the adjustments to this year’s budget from changes to prior year estimates. Given the disparity in population and wealth between England and the devolved regions any adjustments would hit the regions harder.
The more I find out about the devolution arrangements in the UK the more I realise what a sham they are. The Scottish Government has less powers than not only an Australian State Government but even that of a Territory Government. The Australian Capital Territory and the Northern Territory were created by Federal legislation and can in theory be overruled by the Federal Government. In practice, the only instance I can recall was the striking down of a euthanasia bill in the NT.