FALSE BELIEF BUMPS UP AGAINST SOLID REALITY

Those intent on denying the economic data published in the Scottish Government’s GERS report bring to mind a famous line from George Orwell’s 1984: “The party told you to reject the evidence of your eyes and ears. It was their final, most essential command”. That is the GERS-deniers’ objective: to get you to reject the evidence published by our own Scottish Government.

Perhaps the most reasonable sounding of their complaints is that the revenue figures in GERS include estimates and rely on some assumptions. Needless to say this was not a criticism we heard when booming oil revenues made the GERS figures look more favourable – presumably because back then they accepted that estimates are involved in pretty much any economic statistics.

If you get flashed by a speed camera, in court a technician will use the photographic evidence to estimate your speed. The fact that it’s an estimate doesn’t stop it being accurate enough to convict you. The issue is one of materiality: how accurate is the estimate?

The GERS report uses standard statistical techniques to show that survey based revenue estimates are accurate to +/- £0.6 billion, which is good enough for the report to be awarded National Statistics status. The uncertainty works both ways of course, so instead of saying last year’s GERS deficit was £15.1 billion, we could say it was between £14.5 billion and £15.7 billion. Does anybody seriously think this changes the message?

As for the assumptions used, these are all made by Scottish Government economists. So, for example, it is their decision to allocate a population share of the UK’s debt interest to Scotland. Indeed they often override HM Treasury assumptions on cost allocations in ways which, perhaps unsurprisingly, always favour Scotland’s fiscal position.

GERS-deniers are (these days at least) keen to point out that the report only shows Scotland’s public sector finances under current constitutional arrangements. This is true, but they also tell us how much revenue our existing economy generates and what it costs to deliver the public services we are used to receiving.

As it happens, I agree with those who say the GERS figures do not represent the economy of an independent Scotland; we would not be able to continue running such a large deficit without the support of the rest of the UK.

Scotland’s 2019-20 GERS deficit was 8.6% of GDP compared to the UK’s 2.5% and the EU’s “excessive deficit” threshold of 3.0%. Even if we make the (patently absurd) assumption that Scotland wouldn’t spend anything on defence or debt interest, the GERS figures show we would still be running a deficit of 4.1%. Something would clearly have to give.

Those who argue this proves the UK is somehow failing Scotland manage to ignore the fact that, on a per head basis, Scotland generates about the same revenue as the UK average while enjoying public spending that’s 14% higher. I have yet to hear a nationalist explain why a system which delivers higher public spending in Scotland is something we should have a grievance about. Indeed if Westminster cut Scottish public spending by 12%, our deficit would fall into line with the UK average and – by the twisted logic applied by some nationalists – apparently that would be a better advert for the union!

Those arguing for separation have a duty to explain what they believe would change relative to the historic GERS figures to put an independent Scotland on a sustainable economic footing.

The SNP have not argued for tax-rate increases following separation, presumably because they realise how easy it would be for high-rate taxpayers and corporate profits to relocate South of Gretna. Yet some nationalists still want us to believe an independent Scotland would miraculously start generating higher tax revenues. One of the barmier arguments offered is that we should tax the oil and gas industry more – despite the fact the SNP campaigned for the job-saving industry tax cuts that have been made in recent years and that North Sea profits (the driver of those tax revenues) have dropped by 90% from their early-2000’s peak. You can’t tax profits that aren’t there.

In truth, currency uncertainty and trade friction caused by leaving the UK’s single market would negatively impact Scotland’s economic activity. If Brexit is bad for the UK economy, Scexit would be so much worse for Scotland’s.

Which brings us back to the root cause of Scotland’s higher deficit – higher public spending per head. This might partly be justified by lower population density, remote island communities and demographic differences, but those factors wouldn’t go away if Scotland left the UK.

Those reduced to denying the GERS figures are trying to foster a false belief that an independent Scotland – aspiring to meet the EU’s deficit criteria and seeking to establish the fiscal credibility required to launch a new currency – could maintain public spending at current levels. The truth is that the act of separation would lead to eye-watering austerity in an independent Scotland because, to quote Orwell again: “sooner or later, a false belief bumps up against solid reality”.

This piece was first published by The Herald, on 15th December 2020.