Economics of Independence Oil and Gas Scotland's Economy

Westminster parties wrong-footed on GERS debate

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Today’s GERS report demonstrates that Scotland’s economy is fundamentally sound, generating £400 more revenue per person than the rest of the UK.

GERS, the Government Expenditure and Revenue Scotland report, was published today and on the surface it contains both good and not so good news for the Scottish economy.

Reducing deficit

The good news is that Scotland’s public finances have improved according to the latest GERS. The country’s deficit in 2013/14 was £12.4bn, this is an improvement on £14.3bn for the previous year. This is a smaller deficit drop in percentage terms than for the rest of the UK and is partly because of tax falls from North Sea revenues, due largely to tax incentives for oil companies who hit record levels of investment in exploration and new field development.

Scotland pays more tax per head.

One key figure in the report is that Scotland raised £54bn or £10,100 per person in taxes in 2013/14,a figure that is £400 per person higher than the UK average. This conclusively demonstrates that the Scottish economy is fundamentally sound. Indeed, this now means that Scotland has paid more tax per head of population than the UK on average for 34 years in a row. Scottish revenues generating the ability to spend £400 per person more than the rest of the UK, even in poorer years, scotches the myth that Scotland could not afford to be an independent nation.

The Scottish Government also spends more, about £1,200 per person, which is why although we raise more taxes, Scotland’s deficit as a share of GDP fell from 9.7% in 2012/13 to 8.1% in 2013/14 – it is still 2.5% higher than the UK average.  The Scottish voters are clearly not in favour of Westminster’s austerity plans and so this increased spending may explain some of the SNP government’s popularity.

UK debt interest slowing Scottish Growth.

The Barnett Formula will be lauded by unionists as it does mean that Scotland has more to spend in years where revenues drop. However, the key point is that in the years in which Scotland’s revenues have been far, far higher than the average for rest of the UK, the Barnet Formula has severely limited Scottish spending to an amount close to the UK’s.  Peer reviewed research by Business for Scotland has proven that had Scotland had been an independent country for the past 34 years (as the UK debt mountain grew) Scotland’s higher revenues would have meant that we would not have had to borrow a single penny. In fact Scotland would by now have a cash surplus of at least £50bn. All of the UK debt was generated outwith Scotland, and in the 2013/14 figures £3bn or 24% of Scotland’s deficit was driven by interest on that UK debt and the previous year £4.02bn or 33% of Scotland’s deficit was interest on debt. Let’s be clear, the Barnett Formula helps as part of the UK in some years, but has overall massively limited investment in Scotland’s economy.

Unionists wrong footed.

What this means is that the GERS report represents how Scotland’s economy is performing within the union and tell us next to nothing about how Scotland would have performed as an independent nation now or in the past, nor about how it would perform in the future with either independence or full fiscal autonomy. This makes it strange then that Labour are looking to score political points by stating that GERS shows that fiscal autonomy would be bad for Scotland; it wouldn’t, and they and other unionist parties seem to have put the wrong foot forward on the economic debate that GERS will ultimately kick off.

Yesterday, commenting on GERS, Jim Murphy stated that the figures would demonstrate that full fiscal autonomy for Scotland was wrong.

Full fiscal autonomy will grow Scotland economy.

Murphy seems to misunderstand that the purpose of full fiscal powers is to create economic growth and increase Government revenues, thus enlarging the funds available for public services. Only devolving tax spending powers on welfare but not tax raising powers, as Labour suggests, would lead to an increase in the Scottish deficit as a % of GDP when compared to the UK, just the thing they are complaining about. Labour’s plan would initially increase spending whilst denying Scotland the full powers needed to implement policies that would increase revenues. This would in the short term give the false, and for Labour and its Westminster allies the politically expedient impression, that Scotland’s economy is reliant on Westminster. Raising spending without also devolving the tools to raise revenues would result in poorer economic performance and, ultimately, lower welfare spending – Labour is planning to fail!

This at a time when the Scottish people clearly support both full fiscal and welfare devolution, so that the Scottish Government can follow policies that are tailored to Scotland’s needs and grow our economy and our revenues so that our deficit decreases in a managed way, without the need for Westminster austerity.

Further reading: Revealed: The ACCOUNTING TRICK that Hides Scotland’s Wealth.

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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.

12 Comments

  • “Peer reviewed research by Business for Scotland has proven that had Scotland had been an independent country for the past 34 years (as the UK debt mountain grew) Scotland’s higher revenues would have meant that we would not have had to borrow a single penny.”

    Is there any chance of a link to this as it seems to contradict perceived wisdom on Scottish finances.

    Even Nicola Sturgeon recently admitted that Scotland has more to spend as part of the UK (but that it doesn’t affect her desire for independence).

  • “What this means is that the GERS report represents how Scotland’s economy is performing within the union and tell us next to nothing about how Scotland would have performed as an independent nation now or in the past, nor about how it would perform in the future with either independence or full fiscal autonomy.”

    Yet this very website spent a great deal of time during the referendum campaign citing the 2011-12 GERS report as an open and shut case for independence – including such titles as “Breaking news: 9.3 is a smaller number than 9.9” which included the line that it was a “a mathematical certainty that we will do better than as part of the UK”.

    If the qualifiers about not knowing how the economy would actually perform under independence/full fiscal autonomy are true now, why did we completely ignore them back then? Was it not a mathematical certainty after all?

    And let’s be clear, when 12 of the last 16 GERS reports have had us generating a lower percentage of UK revenue than the percentage of UK spending we received, that’s not irrelevant. They’re the best figures we have to base the decision on – you don’t have to agree, but ignoring them and retreating behind vague lines about phantom productivity gains isn’t much of a counter-argument.

    • The very fact that Scotland generates more per head in tax is enough to show that we can afford to be an independent nation that is what GERS consistently shows. How much we spend is down to who we elect and the policies they follow. If Scotland is a basket case economy as many unionists seem to suggest then why do we generate more tax per head? Without oil we generate almost exactly the same as the average per head for the rest of the UK. The debate should hinge around who will make the best decisions for Scotland’s economy and the polls show that more and more people want those decisions in Scotland. The Scottish people voted no to the white paper timetable but seem to be highly interested in taking many many more steps down the road towards self rule if not completing the full journey in the timescale offers during the referendum.

      Your point about 12 of 16 GERS reports is a bit daft as hasn’t the UK as whole generated less tax than it spent for the same period and so are you suggesting that any country running a deficit should not be independent – I mean thats a complete non point ins’t it? Maybe you should read this and learn Revealed: The ACCOUNTING TRICK that Hides Scotland’s Wealth. https://www.businessforscotland.com/revealed-the-accounting-trick-that-hides-scotlands-wealth/

  • How would the figures be affected based upon the current price of oil to give us an indication of a “worst-case scenario”?

  • Thank you… we really need independent professional analysis of the facts and figures.
    I think as business people none of us want to do something stupid and cause unnecessary hardship although many of us are preparred to make sacrifices. We need to know within reason the scale of the sacrifice.

    • Is the sacrifice not simply missing the opportunity to grow our economy by accepting the one size fits all policies form Westminster rather than having the confidence to make our own decisions?

  • Excellent simply stated article. Will be copying many of the points to give to borderline voters and ask for their comments.

  • FRESH AIR COMMENTS AS OPPOSED TO BAILLIE’S SELF SERVING COMMENTS FOR HER PART IN TOEING THE PARTY LINE ON TELLY.

  • Excellent analysis and well thought through conclusions. Great stuff, and also great debating ammunition.

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