Economics of Independence Westminster Mismanagement

GERS may be questionable data but it still demonstrates Westminster’s economic incompetence

There is an old saying that no one listens to a prophet from their own village. So it shouldn’t be surprising that when globally regarded leading accountant, economist, author and blogger from England, Richard Murphy points out that GERS data is not reliable enough to make decisions on how to use devolved powers it becomes news, when many people have been saying that for years in Scotland only to be ignored.

Richard was invited onto BBC Scotland’s John Beattie Show to debate how reliable the GERS figures are and he made several interesting observations including: 1) Politicians need quality data to make policy decisions on how to use the devolved powers they have, and the more powers are devolved the more crucial  the need for reliable data. 2) He also said: “Lets not pretend GERS gives any useful info to a politician in Scotland, it doesn’t.”  His rationale is that of the 26 income figures quoted in GERS 25 are estimated and there are no Scottish specific income tax, corporation tax, or national insurance figures – and that is true.

Costs are calculated on a UK basis and then applied to Scotland’s accounts and Richard claims this means the numbers are unreliable. He is supported in this by  Merryn Somerset Webb, the editor-in-chief of MoneyWeek, writing in the Financial Times in 2013, when she pointed out “all the numbers everyone uses to make the financial arguments are no more than a rough guess”. In the same article James Ferguson of the Macro Economic Partnership also said “I’m giving you one less thing to think about: you can now happily ignore all the financial arguments for a separate Scotland on the basis that no one knows what they actually are.”

When I have pointed out that GERS is largely estimates and that we need far more reliable GERS and exporting data Unionists say ‘well he would say that wouldn’t he as the data doesn’t agree with him’ – but it does. Business for Scotland’s view is that GERS although questionable still loosely indicates what Scotland’s share of Debt to GDP is as part of the UK, but does not show what that figure would be as an independent nation.

To do that you would have to:

1) Collect fully robust data of the same quality as a fully independent nation

and

2) Strip out all of the costs that are generated by UK policy that would not be the responsibility of an independent Scotland.

Once you do that, and then model the planned economic policy within an independent Scotland, you can state the starting point for Scotland as a new nation.  The cost savings of becoming an independent nation would include losing the costs of projects as wide ranging as upgrading the Trident nuclear deterrent and refurbishing the Palace of Westminster. There would also be cost savings in the billions in terms of border security, conventional military expenditure, and we would get to avoid the Brexit bill from the EU and the £10 billion of debt the UK Chancellor will add to our GERS accounts to pay for the Brexit we didn’t vote for. Any extra civil servants required in an independent Scotland, would replace the ones we already pay for who are largely based in London. This means the costs of administration and salaries will fall, the civil servants newly based in Scotland would then generate increased NI and income tax and consumer spending for Scotland’s economy, not London’s. Even the cost of the office space to house them in would be significantly cheaper.

GERS also shows that Scotland’s onshore economy has grown despite a massive slow down in the oil and gas sector, which were were told would be disastrous to Scotland’s economy. Although this slow down was damaging to the economy overall, GERS does show that our onshore economy has demonstrated significant resilience to oil price volatility. Today for example the Scottish unemployment figure fell by 15,000, while the UK’s remained static, which clearly couldn’t have happened if it were true that Scotland was solely oil reliant.

The fall in oil and gas revenues in the GERS report also gives us a figure that we can easily compare with Norway to point out that UK policy has done more damage to our nation’s oil and gas revenues than even the oil price fall. It allowed us to point out that small independent Norway somehow made £17 billion more in oil revenues that the UK last year.

GERS, is pretty much the main data source we have to use in the discussion about the economy of Scotland and its reasonably useful if you want to see the impact of being part of the UK on Scotland’s economy, but useless if you want to talk about the starting point of an independent Scotland. Even Richard’s fervently anti-independence opponent agreed with Business for Scotland when he said “Nobody suggests that the GERS figures show what a future independent Scotland would look like”, and the Scottish Government also issued a statement that GERS are not necessarily indicative of the finances of an independent Scotland”.

So although you may be confused by all the arguing one thing is for sure – the message that GERS (within the UK) says nothing about the finances of an independent Scotland has now been established beyond all doubt, and BfS contends that Scotland only has an illustrative deficit as part of the UK because of generations of economic mismanagement by Westminster.  People who can’t see, with all the economic advantages Scotland has, that we shouldn’t under any circumstances be running a deficit should read this – The question to ask every unionist about GERS.

Further Reading

We will update our research in the coming months but you may be interested in some of the areas we have identified as cost savings from independence in 2014: Revealed: The ACCOUNTING TRICK that Hides Scotland’s Wealth and Westminster charges Scotland billions of pounds in service costs.

We have also recently published our plans to increase revenues and change the way we think about economics for the betterment of the people in an independent Scotland: Elevating economics tells a better independence story than post-Brexit Britain

 

About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

2 Comments

  • When assessing GERS it is important to remember that many of the figures aren’t estimated.
    £40.5bn of spending in GERS is devolved and taken directly into GERS and for welfare spending, detailed information is used to identify where claimants live and how much they receive..
    As far as estimates are concerned, it is not unusual for estimations to be used in economic statistics. Scottish GDP figures are based entirely on estimation, as are the productivity, trade, employment, unemployment and national income statistics. And Scotland is not unique, all countries rely on estimates. While it is correct o say that an independent Scotland would avoid shares of UK spending, other costs would arise. Setting up the state for example. And don’t forget that if Scotland was independent, the revenues in GERS might might decrease while expenditure might increase.

    • What you say is largely true, but…
      The spending figures for devolved activities are indeed probably accurate, but are also conditioned by our present membership of the UK. Such expenditure may (probably will?) change upon independence to reflect the new priorities of a newly independent Scottish government – with a clean financial sheet to work from. As time goes by I would expect these differences to widen.
      Economic estimations are (must?) indeed be used, but it seems common sense to at least question whether UK based estimates, produced by a government politically motivated and quite capable of manipulating data for it’s own ends, via a system set up before devolution, really suits the devolved Scotland of today. That it cannot serve as a guide to independent Scottish finances at all now seems to be accepted even by ultra unionists such as Hague.
      As for your comment that an independent expenditure and revenue profile may not produce figures positive to wishing for independence, that is true, albeit the opposite is also true and for me at least, seems the more probable. Scottish defence expenditure alone for example would probably save us around £1.5bn pa – a hugely significant sum for our small nation. Would our small (EU or EFTA member) nation lose or gain from dispensing with the trappings and liabilities of a large post-imperial Brexit nation such as UK (Falklands, Northern Ireland etc)? I think so.

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