GERS-denying and wishful thinking

GERS, the Government Expenditure Revenue Scotland figures, really shouldn’t be that controversial a subject.  In fact, for most people they’ll be an interminable bore.  Yet time and again, over the course of the last year or so, the “debate” in Scotland swings back to GERS and, primarily, its accuracy.

For those who aren’t aware, GERS “estimates the contribution of revenue raised in Scotland towards the goods and services provided for the benefit of Scotland”.  In other words, it provides an estimate of Scotland’s net fiscal balance – how much is raised in tax here and how much is then spent here.

The controversy largely centres on the fact that recent editions of GERS show that Scotland’s public finances incur a significantly larger deficit than for the rest of the UK.  When you’re trying to fight an independence campaign on the basis that Scots could be “£8bn better off” outside the union, the reality of the GERS figures is therefore somewhat inconvenient. (incidentally, please see this excellent debunking of the £8bn better off nonsense)

As such, the compliant hordes of Yes supporters, led by the usual suspects, have employed various misdirection tactcs in an effort to discredit GERS as unreliable or misleading.  This started with myths about “hidden” or “missing” taxation that was attributed to England’s revenue rather than Scotland’s; then invents some expenditure, mostly centred in London, which is supposedly taken from the Scottish purse; usually moves on to dismissing the figures as “merely estimates” or a desperate belief that the source data, some of which comes from the Westminster Treasury, is biased (“haven’t you ever heard of McCrone?!?!?!!”. Sigh.).

And then, if all else fails, the last straw is to claim that we somehow shouldn’t be paying interest on money the UK government has borrowed since the discovery of oil in the North Sea.

To save me having this same argument over and over again, I decided to deal with each, in turn, here.

On the “missing revenue”, this is dealt with comprehensively in chokkablog’s “Stop Getting GERS Wrong” post and I had a go at some of them myself with the meme-busting pages on non-existent export duty and our share of oil revenues.  There’s really not much I can add here which hasn’t already been covered in the links provided.

#1. “Our” spend in London, sewers and other guff

I’m going to do a fuller “meme-busting” piece on this but, contrary to popular myth, Scotland does not contribute any expenditure to any number of things the nats claim we do. The two most common claims though:

  • London sewers – paid for by Thames Water customers, aided by international investment, with the UK government not contributing any money other than to act as insurer for any “incidents during construction”
  • Crossrail – GERS only assigns railway expenditure to Scotland on an “in” basis, i.e. if the spending is physically within Scotland, which London’s Crossrail quite clearly isn’t.  (The one exception to this is HS2 for which the Scottish Government accepts 2% of the current expenditure, based on their assessment of “economic benefit” to Scotland. This is quite clearly stated in the GERS methodology.)  In fact, as Crossrail expenditure results in Barnett consequentials, Scotland in fact benefits from Crossrail expenditure – to the tune of £500m.

#2. “They’re only estimates”

This is a fairly standard complaint which aims to discredit the accuracy of the GERS figures by claiming that, because they are “only” estimates, they obviously massively underestimate the true wealth of Scotland.

The fact that GERS are estimates is not in doubt and I don’t know a single person who claims they are 100% accurate.  But to hope people assume the word “estimate” infers a finger-in-the-air, hope-for-the-best, guess of the figures is a ludicrous misunderstanding of how the revenue is calculated.

There is a lengthy Methodology document that is published alongside the GERS figures which details how each of the various revenue streams is estimated.  Let’s take Income Tax as an example:

income tax

This is not a guestimate.  GERS is a detailed set of complex calculations, based on established academic principles which are accredited as a National Statistic publication by the United Kingdom Statistics Authority and are “largely consistent with the European system of Accounts 1995“.

accredited

What is often ignored is that the methodology for reaching these estimates is developed by the Scottish Government and the “Scottish Government’s Chief Statistician takes responsibility for this publication”.  It is not, as some have claimed, a system dictated by those notorious anti-Scots blue/red/yellow Tories in Westminster designed to make Scotland look poor.

Indeed, in 2013, the Scottish Government released a document detailing a comparison of the methodologies used by HMRC and GERS.  This report highlights a number of areas where the alternative methodologies produce different figures, e.g. Income Tax is over-estimated by HMRC compared with GERS and Corporation Tax and VAT are under-estimated; with the final difference being £2.1bn in favour of GERS.

And just to put another of the nationalists’ favourite myths to bed, the report’s section on Corporation Tax:

corp tax

So no, Corporation Tax estimates in GERS are not based on where a company has its headquarters, as the Scottish Government are at pains to point out this difference from the HMRC estimates – which is why the latter are lower than that estimated in GERS.  And just in case you still don’t believe me, perhaps you’ll believe him?

I’ve included the IFS quote in the screenshot above for the sake of balance.  This highlights something else which I don’t think is in dispute – that “calculating how much of a company’s profits are attributable to economic activity in different locations is conceptually and practically difficult” and that the estimates for this tax in particular may be “some way off”.

Other than wishful thinking, though, I haven’t had anyone explain to me why potentially “some way off” necessarily means “definitely underestimating Scotland’s contribution”.  After all, estimates can as easily be too high as too low; and considering that the Scottish Corporation Tax estimates for GERS 2013-14 were £2.8bn, how much is “some way off”?  What margin of error should reasonably be applied?  Even an error of 10% would result in an extra £0.3bn being assigned to GERS.  Hardly enough to wipe out that £7.6bn deficit gap.

#3. The data comes from Westminster which is obviously biased

So we’ve established that GERS are Scottish Government estimates, generated by the Scottish Government, endorsed by the Scottish Government and accredited as National Statistics.

Still, there is the occasional desperate claim that because the estimates are based on data that comes from the Office for National Statistics or HMRC that the data is clearly biased against Scotland.  Because they’re based in London, you see.  Not in Scotland.  Wastemonster.  Anti-Scottish.  Everyone knows that.  It’s self-evident.

Combined with the obligatory “have you ever heard of McCrone” nonsense, this seems to be the sum total of “evidence” forwarded for the bias inherent in the figures.

And on the subject of McCrone, perhaps you’d like to hear the man’s own view on it.

Most prevalent to this article is that “most of the information that I gathered and put into that report was already available in various sources”.  So even the nationalists’ great grievo-train was simply a collection of readily available data that they were too incompetent to use at the time.

Quite how this leads to an undeniable accusation of bias in fully audited and publicly available data over 40 years later has never been made clear to me.  Further, with the entire Scottish civil service at its disposal, not to mention their own economists and statisticians, how is it that the SNP have not raised this obvious bias themselves?

Indeed, how is it that the White Paper called GERS “the authoritative publication on Scotland’s public finances” (page 67)

authoritative

The White Paper then goes on to use GERS as its source data for the “economic arguments” for independence.  Pro-independence Business for Scotland used GERS as the source data for the hugely misleading and oft-quoted articles and videos attempting to make their “economic case for independence”.  The GERS figures are quoted time-and-time again by the SNP, including the pre-indyref debates by Alex Salmond:

Every time you hear the SNP delivering the half-truth of “per capita revenue in Scotland has been higher than rUK for each of the last 34 years” they are quoting GERS.

So if the data is fine for pro-independence arguments, why does it suddenly become biased and untrustworthy when the results are detrimental to the independence cause?

The answer is, of course, that it doesn’t.  GERS are, to quote the SNP, “the authoritative publication on Scotland’s public finances”.

#4. Scotland shouldn’t be paying interest on debt we didn’t take out

This argument usually stems from the Business for Scotland article titled “Revealed: the ACCOUNTING TRICK that hides Scotland’s wealth“.  Once you get past the pejorative, grievance-churning delivery the article aims to argue that Scotland’s public finances are skewed because we “shouldn’t have paid any interest for UK public debt that was accrued whilst Scotland was a net contributor to the UK” (I’m paraphrasing).

It is little secret that Scotland was a net contributor to the UK during the early ’80’s boom years of North Sea oil.  Much has been made in the nationalist cause of how, if only Scotland had declared independence when oil was first discovered, we would currently be living in a richer, fairer country with none of the bad stuff that’s happened in the last 40 years (because that’s the union’s fault) but all of the good stuff that’s happened (because Scotland).

There are a few problems with this argument, of course. First, why does time start at 1975 in this calculation?  Scotland has benefited from being part of the union since 1707 and to suggest that being a net contributor for a handful of years towards the end of last century means we’re being robbed is petty desperation.

Public debt is far from a new phenomenon, even at what many consider to be outrageous levels of £1.5tn+; this is public debt for the UK since ~1700

oublic net debt

And to indicate the extent of our net contribution to the UK public finances, the following graph from the ever-excellent chokkablog identifies the impact of oil revenues on Scotland’s comparison with the UK.  When the bars (oil revenues) are above the green line (the revenue required to bridge the gap between Scotland onshore taxes and our spending), Scotland is a net contributor.  When the bar is below, we are a net beneficiary.

oil_reqd_real_long

I’m sure there have been other times in the past when Scotland has been a net contributor to the UK’s public finances and I’m sure that there will be plenty of times in the future when we will be so again; none of which would justify any sort of argument that we shouldn’t pay our share of the debt interest accrued during that time.

That is exactly the point of being part of a union – that the fiscal risk is shared and the price you pay for that is sharing your fiscal reward.  It’s really not a difficult concept.  Were we to follow Business for Scotland’s logic, Scotland should currently be paying *more* in debt interest because our deficit is higher per capita and as a share of GDP than rUK.  We should be paying *more* for debt interest accrued from borrowing in the early 90’s. And we should be paying *more* for any debt accrued at any other time when we have been net beneficiaries from the union.  If you want to take it even, London should never pay a penny towards debt interest again given that it is the only area in the UK which consistently runs a surplus.

Of course, even the SNP realised that this was a ludicrous argument and, in both the scenarios offered by the White Paper (p 348) for the transition of national debt, ignore the UK’s nefarious “accounting trick” to accept that Scotland would assume a reasonable share of the liability.

national debt

So, no, GERS are not inaccurate because they include interest payments (approximately £3bn per year) for debt that “we didn’t need”.

Neither are the fact they are estimates any suggestion that they are horrendously inaccurate; nor are they inherently biased against Scotland.  They do not include expenditure on capital projects for which Scotland receives no benefit; and there are no hidden sources of revenue which are excluded.

If, despite all of this, you still somehow believe that the figures are wrong, please tell me which sources you are using instead?  Because I have asked this question many times and been left wanting on every occasion.  The simple answer for this is that there is no alternative source.  Despite being in government for 8 years and running an independence campaign for 3 years, the SNP haven’t offered anything to contradict GERS – hardly surprising since they write them in the first place.

GERS are “authoritative” and believing otherwise is baseless wishful thinking.

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24 thoughts on “GERS-denying and wishful thinking

  1. I think if you look closely at GERS figures they are not impartial

    FOI request to SNP Government

    “How much revenue per person raised from tobacco and spirits duty ”

    SNP produced GERs figures

    Tobacco duty for every
    £1.00 raised per person in London
    £2.12p is raised in Scotland.

    Spirits duty for every
    £1.00 raised per person in London
    £2.22 raised in Scotland.

    https://www.whatdotheyknow.com/request/disaggregation_of_hmrc_tax_recei_2#incoming-672334

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    1. That’s fine Matthew but can you please tell me what point it is that you’re trying to make? What is it that you think these statistics show? It would be handy to understand your argument rather than trying to deduce it from the links.

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    2. As both duties are applied solely on where the purchase (and presumably consumption) of the item was made, I believe what you can conclude from this is that Scots both smoke and drink twice as much as Londoners. No financial conspiracy, just lifestyle choices.

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  2. V fine review of several of the main issues, Fraser. Well done.

    The only thing I’d maybe change is to trim the intro slightly, and get faster into the central point – (a) GERS is “Government Expenditure Revenue Scotland” (NOT the supporters of an in some quarters much-vilified football club), (b) that is, the OFFICIAL set of annual figures & estimates produced BY AND FOR THE SCOTTISH GOVERNMENT, hence far from some heinous Westminster conspiracy, or the product of some Scotland-hating chancers throwing together some warped, laughable BS in a bar in a posh, unScottish part of Edinburgh, as some would clearly prefer to believe – in order to establish the following set of excellently put mythbusting items you have compiled. As a sort of demystifying FAQ article.

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    1. There is nothing in that Wings piece which contradicts anything written here. RTS statistics on trade flows from various areas of the UK have absolutely nothing to do with GERS. For a start, GERS is about tax revenue, not export value. Secondly, GERS uses the Kemp-Stephen model to assign Scottish production on a geographic basis – RTS is not a source for this model and never has been. There is no “new revenue”, there is no “misallocated revenue”. This is a set of experimental statistics that no-one uses improving its methodology to correctly assign export value to a particular area of the UK.

      It’d help if folk understood this.

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      1. So, just to help me out, am I right in saying that in 2014-2015 Scotland sold £6,800,000,000 of oil and made an income of £60,000,000 ? Less than 1% ?

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      2. Value of oil sold will have been more than that, as that’s just the exported value. Doesn’t include value sold within the UK and the ‘exports’ to rUK are significant too. But yes, the tax revenue in total was £60m because tax is based on profit rather than sale value and the UKCS is negatively affected by the very high production costs. There will also have been tax rebates against decommissioning spend, which is why there’s a chance the revenue may be negative this year.

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    1. Because their production costs are much lower than ours (about half) so profit is much higher, because they produce much more (Troll alone produces more than the UKCS), because their production is centred on a few very large super-fields meaning margins are massive and therefore tax take is massive, because they have less decommissioning rebate to fund at the moment and because they can also claim a state dividend from the public share in Statoil and retained share in fields. Only the last of these is something which I would agree is the “fault” of the UK Government and something we should have done too but the Norwegians learned from our mistakes because we went first.

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  3. My question is because there is potentially far greater income to be made from renewables going forwards and I wonder if Westminister has the skill set to manage that resource? As on the face of it they cannot make money from oil; despite every other country in the world being able to do so? It would seem logical to try a different management team.

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    1. Well that’s one view but not one I’d share. Scotland / UK has made a lot of money from oil over the years and the tax rebates on offer from a UK-wide perspective are helping to save jobs like mine in the industry. I’d hope we’d learn lessons from the mistakes that were made over oil when it comes to managing renewables, however.

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  4. Hi Fraser,
    Do you have any comment on Mr Murphy’s theory that GERS may not reflect the income correctly for expenditure attributed to Scotland?
    KR
    Mr Darby

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