GERS tells a story: of Westminster mismanagement
It will come as no surprise to hear that Derek Mackay’s legacy isn’t quite what he intended it to be, one of the lesser known consequences of his despicable behaviour is that it has deprived the independence movement of what had been touted as one of the greatest tools it could have had in its arsenal for the next referendum campaign.
This is GERS week (Government Expenditure Review Scotland) and on Wednesday the Scottish Government published its analysis of public spending versus public revenue in Scotland. The short snappy headline reveals that this comes to a Scottish deficit of approximately £15 billion. Unsurprisingly both sides of the constitutional debate have strong opinions over GERS; it has been used both to defend Scotland’s place in the union and to argue that Scotland would be better off out of the UK. It has been touted as a conspiracy to hide Scotland’s wealth as well as evidence that the Scottish Government has been running the country into the ground.
GERS has a long history and it is riddled with theories and assumptions. Part of the issue is that many of the loudest commentators don’t seem to really understand what it encompasses. Two great sources to find the truth of the matter are the Fraser of Allander Institute and their brief article explaining GERS as well as a 40 minute podcast they released earlier this week where they discussed GERS with two of the former civil servants who worked on it in previous years.
If you’ve taken the time to check either of these sources you will now be aware that GERS is not quite as cut and dry as it is made out to be. The key word here is ‘review’. The numbers published each year are only relevant while we’re talking about Scotland’s finances as they are currently being managed, it says nothing about the capabilities of an independent Scotland and it only covers money raised through taxes and then what is spent by the government on public services. This of course leaves out several key details. Not to say that GERS doesn’t have its uses – in fact as an analysis of how the UK government has been spending and borrowing on behalf of Scotland it’s pretty damning, for anyone to claim that a notional £15 billion deficit is a sign of sound fiscal management from Westminster they would have to be a few cards short of a full deck.
During his time as Finance Minister, Derek Mackay would regularly mention his intentions to publish what he called an ‘alternative GERS’. These figures would have described how an independent Scotland would have handled the economic challenges of any given year. This would have been a welcome source of information which could have been compared to the limited GERS figures to show the advantages of having a Scottish parliament and government with all the financial levers of any other independent country in the world. When Kate Forbes stepped into his shoes, she and her department had every intention to produce this report; however on the 26th of August she announced at a media briefing that it would be postponed due to the ongoing coronavirus pandemic. This is disappointing (albeit understandable) for a number of reasons.
For independence campaigners the opportunity to be able to point to an official government report which showed Scotland’s finances being better if we were an independent country would have been an invaluable tool to help coax the undecided into the Yes camp. It would have taken much of the wind out of the sails of the HMS Galloway and would have undercut the argument so frequently put forward by British Nationalists that Scotland is an economic basket case which cannot support itself. In the absence of these figures we are stuck once more with the usual debate over GERS.
In the same briefing Forbes explained that despite the economic challenges an independent Scotland would face she would not resort to inflicting harmful austerity measures, the like of which have been used by Tory governments over the 10 years to push more and more families into poverty and which a study in BMJ Open estimated would result in an excess 150,000 deaths between 2015 and 2020. Forbes said that “these figures demonstrate why the current constitutional arrangements are unsustainable and why, if Scotland had the right fiscal powers, we could do more”. She went on to claim that, if anything, the GERS figures highlight the mismanagement of Scotland’s finances by London.
Murdo Fraser of the Scottish Conservatives was quoted in the Daily Record as saying that “Nationalists have always disliked GERS as they highlight the increasingly disastrous economic case for an independent Scotland”. This perfectly highlights the strong division between both types of nationalist and how they interpret GERS, with each side using it as a club to swing at the other.
All of this comes together to further demonstrate why the figures Mackay planned to produce would have been so useful. GERS paints a poor picture of Scotland when taken on its own but when you break down the UK into its respective regions and Nations, as has happened with more recent variations of GERS where figures are produced for all 12 of what are referred to as the NUTS 1 regions it becomes increasingly clear that Scotland is incredibly close to the UK average for spending and tax raising. The regions in the UK which have the greatest surplus are London and the South East. This is in large part because much of the UK’s financial district is concentrated in this area as well as many corporate headquarters and higher paying jobs. As a result, the amount of money spent on public services is less than the amount which is raised through taxation. Meanwhile, in many other regions and Nations of the UK there is what Forbes calls a “notional deficit”. Most areas in the UK operate a deficit, the extent of this varies but only London and the South-East of England meet the requirement to operate with a surplus according to these figures. This is balanced out by using a mix of borrowing and the surplus from some areas to cover shortfalls in others. The key word in that sentence is “borrowing”. This is how the UK supports itself, plainly and simply. We have just passed the threshold for a national debt of over £2 trillion. That doesn’t happen from a few regions operating a notional deficit. Furthermore it’s important to understand how that ‘deficit’ is calculated
Large portions of the GERS figures consist of what is called “non-identifiable expenditure”. This is money the UK government has spent where data is only collected on a UK wide level as opposed to a regional and national level. This is not good enough. We need to know what this money is being spent on. But until we do, this is what we are stuck with. We are allocated a population share of this spending regardless of if it benefits us or not, regardless of if it’s spent here, regardless of whether it was a terrible investment (which with this lot is usually the case). One such example is spending on defence, another is the hare-brained plans and schemes Boris is so fond of.
You don’t need me to tell you that this is an absurd waste of our money, his track record in London speaks for itself and the longer his premiership continues the more examples we’re going to see. I see no reason why we should be contributing to the £200 billion bill that the UK government has chosen to pay to renew trident. I’m even less happy with them taking our money to pay for it and then making us keep them 30 miles from our largest population centre. Is that what they mean by ‘union dividend’? That’s our reward is it?
Should we have to be paying for HS2 which is slated to cost Aberdeen £220 million and Dundee £96 million – every year? This absurdly expensive project will not only serve to funnel more and more people into London but it will also suck the life out of the north of England. It won’t reach anywhere near our border yet they expect us to cough up for another of their batshit schemes? I think not.
GERS shows how poorly our finances are being managed by the charlatans we are cursed with as Government ministers. George Kerevan has put forward a vastly superior alternative to the current arrangement and has suggested that under his theory Scotland would in fact operate with a surplus greater than this ‘notional deficit’ we are being told we have. Kerevan suggests we don’t tax enough and he makes a convincing case for Scotland raising its taxes to even a marginally higher proportion of GDP – which would only begin the process of bringing us in line with the average percentage of GDP taxed by countries across Europe. We tax far less than the EU average and he makes the point that Scotland actually taxes less than the UK average with regards to proportion of GDP. Yet the British nationalists and even the current Prime Minister continue to claim that we’re the highest taxed part of the UK.
Union dividend my arse. Have you seen any of that money? I know I haven’t. The fact of the matter is that British nationalists are shitting themselves. They know they’ve lost most of the arguments on independence, and they’re blatantly rejecting the simple answers to their own questions. They keep talking about how we can’t fund ourselves, when small countries the length and breadth of Europe which have nothing resembling our natural wealth are not only surviving independence but are prospering with it. We need only look at Norway. They discovered their oil at the same time we did, yet we have food banks and the Norwegians have a sovereign wealth fund worth over $1 trillion USD. To put that in context, it is half of the UK’s national debt. But this is an argument to stay in the UK and let the treasury and a plethora of blatantly corrupt or incompetent tory muppets throw away our vast wealth?
Richard Murphy is a leading economist and proponent of Scottish independence; he’s gone through this year’s GERS figures and pointed out some of the many flaws within these figures, as well as how Scotland’s finances are being terribly misrepresented. He notes that the two main focuses of GERS are: (1) “Public sector revenue is estimated for taxes where a financial burden is imposed on residents and enterprises in Scotland and (2) Public sector expenditure is estimated on the basis of spending incurred for the benefit of residents and enterprises in Scotland”. Murphy goes on to claim that these yearly figures are designed specifically to overstate the Scottish deficit. Emphasising the significant factors of the Scottish economy which are not included in GERS (most notably; Scottish income which is taxed outside of scotland, tax paid on services provided for scotland even when those services are not delivered in scotland and what murphy calls: “tax paid on the multiplier benefit in the spend outside scotland when the spend ins nonetheless charged to scotland”). He makes the point that spending (specifically in London) to offset economic downturns has not been matched in Scotland when it was necessary, citing the decreasing profits from oil in Aberdeen as a major failing of the UK government’s duty to support all areas of the UK in times of need. Scotland currently controls less than 62% of the spending attributed to us, which suggests that if there is any issue with our nation’s finances, then it would be laughable to suggest that the Scottish Government is solely responsible.
In what world should we be happy with how our money is being managed? We have greater natural wealth than most small independent European countries yet we are expected to believe that we are the only country in the world which cannot support itself? £152 million of taxpayer money was spent by the UK government on contracts for PPE only a few months ago, which never produced anything. Part of that was our money. Our money is being thrown to obviously fake companies, many of which are run by Tory peers, associates and donors for nothing to come of it. The corruptness of this government knows no bounds and we are getting saddled with a share of the debt they have run up. If Scotland has any deficit at all, it’s not because the Scottish government are bad at managing their finances, in fact they need to balance their books at the end of each year. Scotland couldn’t run up a deficit even if we tried: we physically don’t have the powers. So much of our economic policy is reserved to Westminster that it almost seems a miracle we’re able to use it at all. And yet this notional deficit which isn’t really a deficit is supposed to be proof that Scotland should stay in the hands of the people who stole the potential our country had (as they did with so many others) and threw it away? Not a fucking chance.
The tories used to be the party of sound fiscal management. My, my, how they have fallen. Dare I say even Corbyn would have had a better fiscal plan than this pack of liars and lapdogs. This is part of the reason that Kate Forbe’s disappointing albeit understandable decision to postpone the alternative GERS figures is such a blow. Sure, the unionists would never believe them but they won’t believe anything unless it’s in the Mail and has a union flag stamped on it. This would have provided a vital reassurance to ‘soft no’s’ and those who are as yet undecided. For many people their biggest concern is whether or not Scotland could afford to support itself without the union and these figures would have helped to put their minds at ease. GERS too readily allows British nationalists to lie about Scotland’s finances by misrepresenting what the report actually concludes. It provides short snappy headlines when in fact the conclusions it comes out with each year are far more nuanced.
There is no shortage of ideas being floated for massive reform of the tax system in an independent Scotland. One of these, and the Scottish Government has been looking into this amongst other ideas is the idea of a land tax, or Annual Ground Rent. To cover this very briefly, it’s suggested that we do away with every other tax, no income tax, no property tax, nothing and replace it all with a tax on the size of your home/building. It is expected that this could bring in many more billions per year for the Scottish economy than is currently being raised. It would also have the effect of discouraging companies or land owners from allowing their land to go into disrepair or become unused - as they will be paying for the privilege.
GERS is far from perfect but until the scottish government prioritises producing more accurate figures they are the best we have. Everyone, no matter their approach to the constitutional question has a duty to try and understand the basics of GERS if they are going to try and spin them to support one side or another but we must all agree on the simple facts. This report does not show how an independent Scotland would handle itself economically. This report does not account for every source of revenue within the country. This report does not prove that Scotland has a £15 billion deficit. This report is created by economists independent of government. Before any of us can use this as a weapon against the other side we must first begin the admittedly long and difficult process of gaining a basic understanding of how it is put together and what the GERS figures actually mean.