I was amused to see an article in The Spectator by Kevin Hague, with whom I have crossed swords many a time on the subject of Government Expenditure and Revenue Scotland.
As some readers will know, I am not much of a fan of the intellectually and methodologically flawed GERS statement. This records government income in Scotland but expenditure for Scotland, without credit for tax paid on the latter in England or elsewhere being given. It is, therefore, designed to overstate the Scottish government's deficit, and does. That is exacerbated because there is no way of knowing whether tax is appropriately credited on imports and exports of goods and services and it is very likely that significant parts of Scottish financial services profits in particular (rents internet, fees, etc) are recorded in England without tax being credited to Scotland as a result.
Kevin Hague argues GERS is factually accurate though, which only proves who little he knows about any form of accounting or statistics.
Amusingly, a survey for The Spectator shows most people do not agree with him. They found this:
I think we can safely conclude that the argument on GERS has been won: it is what I have always described it as, which is CRAp, or a completely rubbish approximation to the truth.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
A quick question
In many other posts you state the government spending is not dependent on tax. Here you seem to be accociating tax with spending. Is this correct?
I am saying spending gives rise to tax paid
That is true
There has been an argument recently over NatWest Group (aka RBS), and the threat by the CEO, Alyson Rose to move the HQ from Edinburgh if Scotland is independent.
I have written about this before in a comment on a recent thread. NatWest (RBS) has laready moved to London. It moved long ago. It is a London bank. What the CEO is actually referring to, is moving a brass plate. Literally. The Registered Office is St.Andrews Square, Edinburgh. Moving the brass plate changes nothing substantive. Nothing.
Does this make any difference to Scotland’s economy, in terms of Government taxation or funding? No. Let us take GERS. The GERS ‘Detailed Revenue Mathodology’ (published 2012-13) made clear that in terms of revenue (corporation tax): “GERS apportions a share of UK corporation tax revenues based on the economic activity undertaken in Scotland and not the location of companies’ headquarters.”
In fact GERS constantly chops and changes how it allocates or applies the rules (I have discovered that politicians, journalists and commentators do not read the small print suffciently carefully to observe the changes and their obfuscation when GERS is published), but to make an issue out of a brass plate, when it has no substantive significance, is risible.
Spot on
Re the “move” of Natwest/RBS corporate HQ to London, I suspect that a couple of factors were at play, but left unstated:
1. The UK Gov is the biggest single shareholder in the group, so Natwest/RBS is susceptible to political pressure from it. The threat of a symbolic shift of HQ was used by UK Gov as part of the Project Fear operation in the 2014 Independence referendum. With the prospect of another Indy ref approaching, it’s a handy, proven “oven-ready” tactic, so déjà -vu all over again.
2. In the 2008 GFC, UK Gov saved RBS from collapse by buying a majority stake at above-market prices. NW/RBS management can be more confident that UK Gov would repeat the rescue in the event of another financial crisis since it has shown that it is prepared to socialise such losses. The government of a newly independent Scotland might well take a different stance and insist that, if profits are privatised, losses should be too, particularly as the hit from a NW/RBS collapse would be disproportionately larger in a smaller economy, so Ms Rose’s decision looks like self-interest.
RBS has also shown it has little interest in retail banking in Scotland with a massive number of bank closures and ATM removals. This begs the question: in whose interest is the company run? It’s not the customers, many of whom now have to travel considerable distances just to carry out simple, but essential, banking. It’s not in the interests of its staff, with tens of thousands of redundancies, or of its shareholders. Small shareholders lost out on regular and reliable dividends, while the UK Gov has seen the share price remain doggedly below the price paid for its majority stake. It’s certainly not the nation of Scotland, which has suffered reputational damage through the collapse of the group and the revelations of its malpractices. A global reputation for thrift and canny financial management is swept away by one company’s reckless behaviour.
Since none of the key stakeholders can be said to have seen the company run in their best interests, the only conclusion I can reach is that it has become an oligarchy which is run for the benefit of its senior executives. This view is supported by the huge bonuses and beneficial share deals which continued in the aftermath of the 2008 GFC. It’s clear that Scotland will have to develop a better banking industry post-independence and should be looking and learning from the Nordic nations.
The part I struggle to understand in relation to GERS and this article is the motive for GERS overstating the Scottish government’s deficit, please could you explain this? Also, with regards to the deficit being overstated, can you advise by how much you believe it to be overstated?
GERS is a report created by the Scottish government, which is currently a pro-independence government. It seems to me to be in their interest to paint the best picture of Scotland’s finances as the argument that Scotland is financially fitter than the UK and is being held back by the union is the strongest economic argument for leaving.
Even if the data underlying GERS is not comprehensive and skewed towards the negative, the report could make some assumptions and justifications to correct this, to a small degree. On the basis that the Scottish government has published it, it is implicit confirmation that the Scottish government believes the report is sufficiently accurate to have value: Otherwise, the prudent position for the Scottish government to take on a report they concluded was too inaccurate to draw any useful information from, would be not to publish, providing the relevant reasons such as lack of access to required data. Alternatively, if the report was clearly shown to overstate the deficit at a later date, the Scottish government should (and would be quite happy to) retract it citing such reasons.
The conclusion I draw from the above is that GERS, regardless of its deficiencies, is considered by the Scottish government to be reasonably accurate and in the absence of any conclusive evidence to the contrary, should be considered reasonably accurate by the Scottish electorate also.
Brian
I have discussed this many times before
I can’t tell you by how much it is overstated: the data does not exist to prove that. Is it likely to be significant? Yes. How significant? Give me the data and I will tell you. All I can say is that the process is deeply statistically flawed
Why is it flawed? Because politicians wanted it that way – in the UK government. Them when oil was flowing it suited the SNP. Why they have stuck to it since then is very hard to tell. But the get out is that GERS says it is no indication of what would happen in an independent Scotland and that is definitely one of the few correct statements in it
And because a government publishes something does not make it right. The UK government says the Uk national debt is £2.1 trillion., It’s actually £1.3 trillion. GERS is unlikely to be that far out, but your position is naive, at best.
Richard
The SNP inherited GERS from the previous devolved, Unionist administrations as the devovled ‘status quo’ they were required to use. An important factor in the SNP’s use of GERS that is too often overlooked is managerialism.
When the SNP first took power in 2007 the Party had no experience in office, and critics, opposition and the media ruthlessly exploited their inexperience, and challenged their competence (paying scant attention to the low competence of the other Parties, or of British Governments). The SNP had to work very hard against that hostile framework, over a long period, to demonstrate ‘competence’ to the general Scottish public. It worked, although the attacks continue, which redoubles the SNP commitment to managerialism, in an endless political cicrle. It turned the SNP essentially into managerialists.
In the case of GERS, having accepted the ‘rules of engagement’ delivered by Westminster for years (and as Westminster slowly lost the political struggle in Scotland and resorted more and more to amending the critical detail to GERS, in order to exploit the political concept of a and adverse comparative ‘deficit’ to the UK or anyone in the EU, which Westminster is free to do because it controls the measurement method used in GERS, not the Scottish Government – that is ‘reserved’); the SNP were in a difficult position to challenge a system they had had to conform to, for years.
GERS is not a report on the Scottish economy (but of Government Revenue and Expenditure), and even GERS apologists acknowledge it is not a reliable indicator of an independent Scotland. It is also an unusable system in an independent Scotland, becuase it does not accurately or precisely measure the critical data to represent an independent Scotland. It is based on (sometimes excessively) indirect, unstable estimates of revenues, and typically of population (or other easy to derive but loose) allocations of expenditure that may be useless as an appropriate measure of the economic facts. Read the methodology, then reflect on what real data you would require if you wished to understand the economy and government revenue and expenditure effects for Scotland. Then think of the amount of resource (both people and money) expended on assembling the estimates, compared with that required to do a proper job. GERS is a cheap job to serve a Unionist Government political purpose.
Agreed
Brian, I wrote to the previous Finance Minister at Holyrood to ask why ScotGov issues such a slanted, inaccurate report as GERS without at least highlighting the distortions and weakness inherent in it. The reply I got from a Civil Servant basically used the standard get-out favoured by Ombudsmen of saying that the methodology for its compilation follows appropriate best-practice. However he didn’t mention that almost none of the content derives from data which would stand up to audit check, so it’s basically crap data assembled in manner that complies with best standards.
I did an analysis based on probative audit trail of each income and expenditure item in GERS which identified the source data and the methodology used to disaggregate Scotland’s share of values expressed at UK level. Less than 5% of the data used was verifiably Scotland-specific with everything else either an estimate or an apportionment using a wide variety of base data, which may or may not be expressed on a consistent basis as to timing, values, accounting methods (e.g. cash basis or accruals basis) etc. I came to the conclusion that, if GERS were subject to audit, the audit report would undoubtedly be heavily qualified.
VAT illustrates this perfectly. VAT is supposedly devolved to Holyrood, but the entire mechanism is run at UK level by HMRC. Scotland-specific figures could easily be obtained by enforcing separate Scottish VAT numbers for all businesses trading in Scotland, but this hasn’t been done. Instead, if I buy a shirt in M&S in Scotland the VAT which I paid is part of a Group submission made by M&S’s Head Office under its sole UK VAT Number. HMRC doesn’t care where my VAT was collected, nor does M&S since it simply passes into and out of its VAT A/C. The result is that ALL VAT collected in Scotland is estimated and the aggregate estimate shows up in GERS as income. However estimates are rarely exactly accurate, so retrospective adjustments will be made in subsequent years. They, in turn are estimates, so at no time can anyone be sure of the VAT income arising in Scotland while ScotGov budgets and accounts for several years are distorted. Similar difficulties arise with Income Tax, which is only partially devolved.
Nobody knows for sure what the accurate figures are for imports, exports, taxes raised etc etc and, as Richard states, this is entirely intentional on the part of UKGov). As I’ve commented here before, you couldn’t run a sweetie shop using the UK’s methods.
Thanks Ken
I’m not clear what the above graph is supposed to show. If it’s the All figure then at 30-40% depending on the question, I don’t see how it can be used to say that the argument on GERS has been won.
I would argue that cut through at such a level for such an argument is astonishingly high
Richard, you’re mentioned in today’s Independent Daily Edition https://edition.independent.co.uk/editions/uk.co.independent.issue.040521/data/9736568/index.html but not in the free version of the same article.
Richard Murphy, a visiting professor in international political economy at City, University of London, among other institutions, recently argued that “Scotland won’t need to repay the UK national debt unless the UK does as well — and there’s almost no chance of that”.
Writing in pro-independence The National, Prof Murphy went further in suggesting that any debt owed should be adjusted for both quantitative easing and historic oil surpluses — an argument based on the disputed, but not categorically disproven, assertion of nationalists that Scotland has “subsidised the rest of the UK in most of the last 40-year period”.
And he interpreted a Westminster publication from 2014, titled “UK debt and the Scotland independence referendum”, as a concession that “Scotland will not be liable for debts managed by London before independence”.
A fair interpretation
“debt owed should be adjusted for both quantitative easing and historic oil surpluses”
The debt that will be payable by Scotland will be no more and no less than an amount agreed by the Scottish government and the Westminster government. What it should be, what Scotland’s ‘fair’ share is etc. is completely academic, it is a commercial negotiation, not a pricing exercise.
One thing that is accurate is that Scotland could walk away with no UK debt, and the UK could walk away retaining all UK assets (that aren’t bolted down in Scotland). It is completely naive however to assume that any agreement around debt will be closely linked to an accurately derived figure that is fair, what ends up being agreed must be palatable to both sides, but that may well be a long way off fair.
Commercial?
What about facts?
Or politics?
But commercial? No way
And the international community will expect justice, which is all that my comment is based on
There are established precedents for secession from unitary states in international law. To some degree this would be designed ‘bespoke’ to the specific circumstances of the UK, in others it would follow established, relevant precedents.
In the case of the Union, the framework of agreement would be: Scotland (seceding state) and rUK (continuator state – by common consent as the only viable solution for the circumstances, in spite of the existence of an Incorporating Union, this would be treated as a secession from a federal state); the rules of currency and debt were established quite clearly and unambiguously by UK (rUK) in 2014. For very good reason rUK takes the benefit of the currency (it already refused Scotland Monetary Union – this has consequences for both parties, not just one): thus UK (rUK) must commit to full responsibility for the debt, as it has done. The logic of the Continuator State demands this, along with retaining the 2,000 odd international treaties that go with the continuator state; also UN Security Council membership, G8 etc.,); however, that is as far as UK (rUK) can dictate terms unilaterally because it is continuator sate; secession remains a negotiation to be conducted under international law.
Committing to full responsibility for the debt leaves no room for “but” (as in, but Scotland must give up any control over its currency but also take a share of the UK debt: currency and debt go together. Scotland has no obligation to do so, and it would be absolutely insane to commit to debt in what necessarily becomes a foreign currency on independence, whether or not Scotland uses sterling).
It also seems clear that there are no convincing arguments for the detailed division of other assets and liabilities (there are no viable grounds for a 21st century UK ‘Domesday Book’). The ownership of assets would almost certainly follow established, relevant legal precedents, from comparable cases: the rights of the sovereign state in which the asset is located would define who retains it.
“Amusingly, a survey for The Spectator shows most people do not agree with him”
No. The survey shows that most people saying yes to independence do not agree with him. The grey ‘All’ column shows ‘all’ respondents when combined, the yellow and blue look only at the views of each particular side. Amusingly, you have not understood what the survey shows.
I think we can safely conclude that you can’t read survey results.
Did you notice they did not publish the don’t knows?
I think there was a reason
I think I can read and fill in the gaps
Just to point out that the survey was commissioned by These islands (KH is chairman) specifically to identify misunderstandings.
For example the ‘taxes missing because of exports through English ports’ cannot be correct as there are no export duties in the UK
I was also amused by that….
Kevin is a very strange guy, with some strange friends
Maybe – but 54% of independence supporters believe it to be true as do around 30% of the total population. Worrying.
GERS is of course CRAP as a representation of Scottish finances post independence. I think the SNP has been remiss in more recent years in not challenging GERS, a bit in the way they have not properly pointed out that Scotland MUST have an independent currency, there isn’t any ‘mibbee yes mibbee naw’. We might use sterling for a brief period during the changeover but changeover we must. The Growth Commission’s take was deeply flawed in that regard.
I also believe both UK government and any unionists with any grey matter must know GERS is CRAP but it suits them to pretend otherwise though I note of late there has been less and less of the “Scotland reliant on English generosity” take.
The question I pose to unionists is to ask them why, a Westminster government, who cannot apparently afford to give a few million to feed children, cannot afford more than a 1% rise for our critically important NHS staff, who felt the need to introduce a bedroom tax, to remove mobility allowances from the disabled, nevertheless are apparently more than happy to fund us feckless Scots to the tune of billions.
I have never yet had a single answer to that conundrum. I know the answer and I guess many here know what it is too and its about time the SNP started making much more of this.
I was intrigued by this sentence in GERS 2019/2020.
“ Scotland’s non-North Sea revenue was 7.9% of total UK revenue in 2019-20.”
Since Scotland has around 8% of the UK population, surely this shows a per capita revenue generation roughly equal to the rUK, including the additional revenue raised by London and the SE of England, without the potential of additional revenue from the North Sea at levels more akin to those achieved by Norway rather than the UK.
Furthermore, this level of revenue is being generated in Scotland without any controls over levers that may potentially increase that revenue.
This never seems to be mentioned in discussions around GERS.
Am I missing something?
No
Speaking as an Englishman my advice to the Scottish is to not accept GERS at all. It’s typical English imperialist crap at its worst – obfuscation by design.
Obviously Liz and the Windsor Clan would hate to lose their holiday homes.
Now there’s a question? What about the royal cling-ons in an independent Scotland? Where to they fit in?
Apologies if this comment is stupid and naive, I do like fairness and simplicity a bit too much sometimes.
Whether or not GERS is involved, there appears to be much controversy about Scotland taking on “its share” of UK debt on independence. If UK Govt debt is largely owed to the Bank of England, shouldn’t a proportion of that BoE credit also be transferred to a new Bank of Scotland? The BoS could then simply decide to cancel that debt.
Surely that’s a win/win. Overall UK debt reduces considerably and an independent Scotland starts with a largely clean sheet.
Blog posted this morning….
Someone directed me here from Facebook, because I’m trying to see where it is formally and credibly established that an Independent Scotland will not be a Scotland suffering £15 billion of deficit each year as the latest GERS has established. I keep finding articles and blogs stating GERS is not credible (or worse words). Reading the thread of messages here, I am beginning to understand why GERS may be unreliable as a reference for an Independent Scotland. So brushing GERS to one side, I am now looking for the best estimates for an Independent Scotland that show that:
Scot Gov Revenue – Scot Gov Expenditure = Positive Number
Surely this must exist somewhere…but it’s proving hard to find. The 2014 White Paper is a bit old, and was also shown unreliable at the time.
Perhaps I am naive expecting to find an alternative balance sheet to the GERS.
I would very much hope it is not a positive number
No government needs to overtax people
Mr Woods,
A little history may help here: Scotland effectively had no debt in 1707 when it signed the Treaty of Union. The other side of that supposed ‘virtue’ was that the Scottish economy was on its knees; no debt, no liquidity, no activity: a symphony of economic inertia, which is what happens when there is no sovereign debt.
England was heavily in debt in 1707, had a dreadful reputation for not paying its creditors, and had been paying grossly ‘over the odds’ for credit in consequence (1672 – ‘Stop the Exchequer’ scandal set the scene). In order for Scotland to sign the Union Treaty, England had to pay Scotland a sum of money (The Equivalent) to take a share of England’s debt. The heavily indebted state actually paid the debt-free state to take its debt!
Neither side seemed to understand. In the early eighteenth century people thought like you; they thought sovereign debt was a ‘bad thing’. They were wrong. Debt (at least, in your own currency) was not the problem: debt was the solution.