Schrödinger’s fiscal balance

For a document which “shows nothing about an independent Scotland”, the SNP don’t half expend a lot of energy attempting to undermine the Scottish Government’s own GERS figures.

Today’s attempt [LINK] comes from George Kerevan, MP for East Lothian, and the SNP’s representative on the House of Commons’ Treasury Committee.  Mr Kerevan has “previous” for ill-considered and, shall we say, contradictory public messages – at one point backing Full Fiscal Autonomy whilst admitting “for Scotland to accept fiscal autonomy without inbuilt UK-wide fiscal balancing would be tantamount to economic suicide” [LINK]; and then there was the time he voted against Trident despite publicly backing the nuclear deterrent in his previous life as a journalist [LINK].

Today’s article is no different.  I’m sure others will deal with it in a wider context but let’s focus on two specific items here.

First, Mr Kerevan casts doubt on the veracity of the GERS figures by stating “I have always held that the GERS figures understate Scottish tax revenues – a lot of tax generated north of the Border is currently recorded as accruing in England.”  This claim is common-place amongst the more, ahem, easily-convinced independence supporters on social media but it’s quite a claim for an MP to make, not least one who sits on the Treasury Committee; a committee whose purpose is to “examine the expenditure, administration and policy of HM Treasury, HM Revenue & Customs, and associated public bodies”.

Those of us who have taken the time to review the methodologies and understand the GERS report know this claim is nonsense.  Mr Kerevan is simply pandering to the conspiracy theorists who think a nationalist government whose entire political approach is to stoke grievance against the UK, who have been responsible for the production of GERS for 9 years and who have amended the methodologies by which the figures are assigned several times will, for reasons beyond explanation, produce a report on public finances which knowingly assigns Scottish revenue to England… and then never mention it.

So a question to Mr Kerevan – which taxes do you think are “recorded as accruing in England”?  Some evidence would be nice.

The second strand of the article worth noting is that Mr Kerevan goes on to argue deficits are welcome and a 9.5%GDP deficit would not be a problem for an independent Scotland, indeed it is to be applauded, perhaps even extended.

Whilst I’d agree that deficits in-of-themselves are not necessarily a problem, it’s hardly contentious to say a near 10%GDP deficit is neither welcome nor sustainable.  Indeed the Fraser of Allander Institute, economists commonly cited by the SNP, said so themselves, in response to the release of GERS last week: “it is simply not possible to operate under independence with a deficit at this scale on a consistent basis – full stop [LINK]”.

Leaving the deficit argument to one side, however, the sheer hypocrisy of Kerevan’s argument is staggering.  For starters, let’s consider his backing for Scotland’s position in the EU, indeed the premise that Scotland must achieve independence so as to re-join the EU.  The EU’s Stability and Growth Pact limits member states’ deficits to 3% in normal times and last month sanctions were instigated against Portugal and Spain when the EC Commission found the “fiscal effort to fall significantly short of what was recommended” [LINK].  Leaving the UK to join the EU with a 9.5%GDP deficit and take no action to reduce it is beyond delusional.

Further, Mr Kerevan isn’t even consistent in his own argument.  Just last month he backed a case for independence which required fiscal surpluses for at least the first five years of a new government [LINK].

Attempting to answer the sticky currency question, Kerevan argued that a new separate Scottish currency was the answer “but would require independent Scotland to cut its budget coat to fit its fiscal means” and “would necessitate fiscal consolidation to assuage the foreign exchange markets”.

He even went so far as to argue the “Scotland doesn’t want independence to live beyond its means”.  Language I’m sure you’d find in any George Osborne speech in defence of austerity.

Schrödinger’s fiscal balance – simultaneously in surplus and expanding deficit.  Quite a feat.

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8 thoughts on “Schrödinger’s fiscal balance

  1. In your first sentence you attribute the GERS figures to the SNP by saying “the SNP don’t half expend a lot of energy attempting to undermine their own GERS figures.”. Please correct me if I am wrong as I am new to this but, I thought “GERS is compiled by statisticians and economists in the Office of the Chief Economic Adviser of the Scottish Government. The Scottish Government’s Chief Statistician takes responsibility for this publication.” and is an independent body separate to the SNP. I understand that the Scottish government of whatever persuasion has to publish them . So I suggest that the GERS figures are not owned by the SNP as you seem to imply.
    Meanwhile I have noted your criticisms of George Kerevan’s article and even as an SNP member I can see some of your points make sense but I have to say that since GERS seems to be mainly conjecture and articles for or against seem to be conjecturing on conjecture and a bit Pythonesque.

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      1. In retrospect, of course it was. Predicting the future is always conjecture,but at least it wasn’t conjecture on a conjecture like all these “water muddying” articles on GERS. At least the White Paper was the SNP’s unlike GERS, which was my main point.

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    1. Hi Mark, thanks for the comment.

      I can see the point you’re making re SNP / ScotGov but I’m simply trying to make the point that the SNP officially stand behind the figures, have called them “authoritative” in the past, used them as the basis for the White Paper and have been responsible for driving the methodology changes which they saw as necessary. But a valid point and I’ll amend it to “Scottish Government”.

      Re the second point, I absolutely do not agree that GERS are conjecture. Since the figures started looking inconvenient for the SNP, there seems to have been a coherent strategy to undermine them where possible. No-one is saying that the figures are 100% accurate to the £ but the report itself offers a confidence interval analysis and the most unreliable of revenue allocations are highlighted in Table A.5 here http://www.gov.scot/Resource/0050/00504649.pdf

      Assuming the worst case across all those revenue streams, the numbers are out by £0.5bn and that could be either way.

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      1. Points taken and thanks for the amendment. I accept that informed estimates are a bit less than conjecture but still border on crystal balls! I find it amusing given that alcohol is one of the major duties and this is Scotland the +/- 8% is quite a large bit of unreliability.

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  2. And then there’s this frank admission (?) that Independence would be economically painful “for five years”: http://www.scotsman.com/news/politics/scottish-independence-would-bring-five-years-of-cuts-says-snp-mp-1-4181483 – a position from which Mr K was encouraged to back down.

    George speaks up and rapidly pipes down, sticks his neck out and quickly back in (tortoise image), dares to step out of line and suddenly toes it like the most uncritical of Party faithful, that it is perhaps hardly surprising at this stage he gives an impression he’s hardly sure if he’s coming or going. At 6s, or 7s. …?

    Was he joking, chancing his arm, at 6s and 7s, or what, in such cases as this?: http://www.huffingtonpost.co.uk/entry/snp-mp-george-kerevans-good-sense-of-humour-sees-him-post-attack-on-sturgeon-and-his-own-party_uk_56e709ffe4b03fb88ede08d4

    The current Kerevan post (under discussion) looks for all the world as if George is still in ultra-disciplinarian Party “rehab” – h/t to Neil Lovatt – and desperately straining to prove he’s ideologically super-dry loyal, whatever the day’s ideology might be. At the expense, sadly, of integrity.

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  3. Mark, a crystal ball is for reading the future where as the GER’s figures are based on past economic data that actually exists. It is as accurate a figure for a countries accounts that you are likely to get. By suggesting that we do not get allocated the tax/revenue streams we should is to suggest that the statisticians involved and government employees are too stupid/inept to understand what we should get a share of which I find highly unreasonable position to take. it just doesn’t make any sense.

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