The Government Expenditure Revenue Scotland (GERS) figures, the authoritative account of Scotland’s public finances, are due out this week and most people expect them to be pretty bad news for supporters of Scottish independence.
The ‘union dividend’ to Scotland looks set to increase and, most importantly for people like me who live in Scotland, public expenditure will not be hamstrung by the crisis in North Sea oil and the resulting drop in Scottish revenues. This is great news for Scotland, for Scottish people and Scottish business.
It is, however, bad news for the SNP and their sole aim of independence come what may. Economic reality is, and always will be, one of the biggest factors in any vote, and concrete evidence of the enormous benefit from Scotland’s continued membership of the United Kingdom will not be welcomed by Scottish nationalists.
Knowing this, we can expect two things to happen this week. First, an SNP politician will mention independence and/or another referendum in an attempt to steal the news cycle and deflect attention from the numbers. They might even use this opportunity to confirm or deny a referendum commitment for their 2016 manifesto.
Next, the usual suspects will renew their attempts to undermine GERSs, claim they are biased, incomplete or irrelevant to independence. This will not be a new phenomenon, in fact it started around about the same time it became clear GERS show we are better off in the UK – funny that.
Previous attempts to undermine GERS have centred on the fact that the numbers are “only estimates” or even that they don’t include all revenues that are raised by Scotland.
These desperate excuses have been dealt with comprehensively in the past (see this on chokkablog or my attempt here) but some common misconceptions remain and they are regularly used as the nationalist’s argument of last resort.
These claims tend to rely on two general themes: that Scotland is unfairly assigned a share of spending in the rest of the UK ; or that the Scottish Government is only responsible for around half the spending recorded in GERS and the rest shouldn’t count… for reasons.
As with any good myth, there is an element of truth to both that lends them credence. However, looking closer it’s obvious the arguments just don’t stack up.
“Scotland is unfairly assigned a share of spending in the rest of the UK…”
This myth rests on misunderstanding the concept of non-identifiable spending. The GERS figures attribute two types of spending to Scotland: identifiable and non-identifiable.
Identifiable is “expenditure that can be directly identified as having been spent for the benefit of a country or region within the UK” (emphasis is Scottish Government’s). This is easily understood. If £5m is spent on a school in Dundee, this is clearly Scottish expenditure. If it’s spent on a school in Dunstable, it is not. Simple.
Non-identifiable is “expenditure that is considered to occur on behalf of the UK as a whole and which cannot be decomposed on an individual country or regional basis“. Take HMRC as an example: a body whose work applies to the entire UK equally, it is only right that everyone in the UK pays towards its costs – not just those areas which happen to house HMRC offices.
Some have attempted to twist this to claim that London infrastructure such as Crossrail is included as non-identifiable spending and that GERS includes an unfair cost to Scotland for these projects. This is demonstrably untrue and I cover that in great detail here.
For the last available figures at the time of writing (2013-14), Scotland was attributed £7.6bn of non-identifiable spending, broken down thus:
The vast majority of this spending, £7.27bn, is spent on the first four categories: public and common services, international services, public sector debt interest and defence. The cost for each of these is shared across the entire UK on a population share basis.
Some, including the thinly veiled SNP-front Business for Scotland, have attempted to claim that Scotland should not be responsible for our fair share of debt interest which I’ve covered in #4 of the GERS Denying article and won’t repeat here.
Similarly, there have been claims that Scotland shouldn’t assume a population share of defence spending because not all of that money is physically spent within Scotland’s borders, indeed the Scottish Government has alluded to as much in official reports. Again, this is a scandalously desperate attempt at misdirection. Why should Scotland only pay for defence forces actually within our border? Does Norway not pay for its forces in Afghanistan? Does Canada not pay for its presence in Iraq?
Britain’s armed forces maintain bases in Germany, Cyprus and the Falklands; not to mention overseas forces in Afghanistan, Gibraltar, Kenya, Brunei and Sierra Leone. Why should Scotland not pay a population share of this? A straight per capita split of defence spending is entirely fair and sees Scotland receive the full benefit of £36.3bn of defence forces for a £3bn investment.
More commonly, Trident is often cited as the obvious potential saving. Ignoring any speculation as to a hypothetical independent Scotland’s defence spend or what any theoretical “Trident saving” could be spent on, let’s look at the current cost. It is well documented that between 5 and 6% of the entire defence budget is spent on running Trident. That works out as, at most, £181m a year for Scotland (in 2012, Alex Salmond put it at £163m).
Even assuming this money could be spent elsewhere, these are not huge sums when seen in the context of £66,388m public expenditure. There’s a good reason the SNP always use the cumulative figure over 40 years. Whenever someone claims that ‘savings like Trident would take care of the deficit gap’, remember that the entire Trident spend constituted just 1.5% of Scotland’s deficit from 2013/14.
Moving on, international services includes the maintenance of embassies and diplomatic relations overseas, such as those which assisted Natalie McGarry during her recent incident in Turkey, or which promote Scottish industries like oil and whisky. It also includes Scotland’s share of international aid. Surely no-one could claim we have no responsibility for this spend?
Similarly, public and common services are fairly straight forward. Within this we pay for our population share of legislative and executive organs such as the House of Commons, House of Lords, HMRC, the civil service, voter registration, etc etc etc. These are all services which serve Scotland equally and for which it is only fair that we bear our share of the cost. Interestingly, at £364m, our share of the entire machinations of Westminster bureaucracy is around half of what John Swinney privately estimated the annual cost of just an independent Scotland’s HMRC:
Corresponding annual costs of tax administration in Scotland would on this basis be expected to lie in the region of £575m to £625m
So rather than non-identifiable spending being an unwarranted cost that we would jettison on independence, it’s a saving that provides economies of scale we could not otherwise achieve.
The remaining £470m is split across the other criteria in a similar fashion – on spending which is undertaken for the benefit of the UK as a whole and cannot be attributed to one particular part of the country. This is not a nefarious accounting trick on the part of “colonising Westminster” trying to skew the books. There is nothing in the non-identifiable spending which is in the slightest bit unfair to Scotland and if anyone wants to challenge this then please feel free to do so.
And for anyone who still thinks Scotland pays for all those London transport projects like Crossrail, have a look at the capital spend on transport:
£18m. Total. And £7.5m of that was on HS2 as per the economic benefit attributable to Scotland according to the Scottish Government. So no, we don’t pay for “English projects”.
“But the Scottish Government only spends £30bn…”
The second common strand of objections to GERS goes something like this: Scotland sends £54bn of revenues to Westminster and only gets £30bn back, they spend the rest of stuff Scotland doesn’t need so who’s creating the deficit?
As you’d expect, this is nonsense on many levels and completely misunderstands reserved spending.
£30bn is roughly the block grant which the Scottish Government receives to spend on devolved matters – health, education, transport, policing, local government, some welfare powers, infrastructure, culture… basically everything that isn’t explicitly reserved. (the total spending in 2013/14 for which the Scottish Government is responsible was £34.3bn)
Given that total spending for Scotland, according to the authoritative GERS figures, was £66.4bn, this begs the obvious question: how was the rest of the money spent? And the equally obvious answer is: reserved spending.
Reserved spending does not mean, as some would have you believe, expenditure that has no benefit to Scotland. As we saw above, the vast majority of spend assigned to Scotland is “identifiable expenditure”, directly attributable for the benefit of Scotland. The fact is that the vast majority of reserved spending is spend in Scotland.
Three of the largest portions of reserved spending (debt interest, defence and international services) were dealt with above and won’t be repeated here.
The majority of reserved spending, by some margin, is “social protection”. The full definition can be found in the UN Classifications of the Function of Government but, for the purposes of this blog, we’ll narrow it down to ‘benefits and pensions’.
For the last available figures, the UK Government paid out £16.7bn of reserved spending on benefits and pensions in Scotland. We’re not going to pretend that this is spending which is not “to the benefit of Scotland”, are we? And it’s worth noting that the UK Government also provides around £2bn a year of housing benefit grants to local authorities which is included in the £5.6bn shown above.
The moral of the story? Reserved spending is still Scottish spending. It’s just spent by our government in London, not the one in Edinburgh or your local council office. And we should, of course, record it as Scottish spend.
As we should with our share of non-identifiable spending. There is nothing unfair in apportioning the cost of a shared service like the British Army or HMRC equally to every person across the state.
There is no attempt in GERS, which are written by the Scottish Government lest we forget, to saddle Scotland with a raft of expenditure for which we cannot be reasonably expected to accept responsibility. Any claim to the contrary is simply desperation on the part of nationalists who are unwilling to accept that current reality is inconvenient to their cause.