Why GERS figures may not be all they seem
NEXT time someone tells you Scotland has a £15billion deficit, throw three words at them: Professor Richard Murphy.
The influential professor of practice in international political economy at City University of London made his name exposing the way big companies avoid paying tax – and the ineffectiveness of governments in collecting tax.
He is a chartered accountant who has succeeded in sexing up his subject with his book The Joy of Tax.
This month he turned his attention to Scotland and in particular claims that the country has a £15billion deficit and is too poor to be an independent country.
The claim was absurd even before Professor Murphy challenged it this month. This is why:
1. The Scottish Government balance the books each year because the Government do not borrow – so it is entirely “notional” or paper-based, a guesstimate.
2. The figure refers to one year only – in many other years Scotland has run a surplus according to the same criteria, with our tax take per head consistently higher than the UK.
Even if you accept the deficit, it was run up under the UK system – the UK controls the main economic policy levers that affect Scotland, including most tax revenue.
Professor Murphy’s intervention goes much further than the above by questioning the official data on which the notional deficit is based.
It is show-stopping now that the Scottish Parliament is on the cusp of backing Nicola Sturgeon’s plan to implement her manifesto pledge to hold another referendum on independence should Scotland be pulled out the EU against our will.
Murphy wrote: “I want to discuss the claim that Scotland has a weak economy.”
He challenged the statistics called the Government Expenditure and Revenue Figures, known as GERS.
This figures are published every year and reflect the UK Treasury’s understanding of spending and estimates of money raised in Scotland. They are also used by the Scottish Government for the simple reason that there is nothing else.
Scotland is not an independent country so many of the UK figures are difficult to break down. We are only just beginning to identify who is a “Scottish taxpayer” for income tax purposes.
But almost every other tax, including all corporate taxes, as well as customs and excise, are done on a UK basis, so it’s a pretty inexact science allocating Scotland’s share.
And this is Murphy’s point. He says the GERS figures may have “seriously mis-stated” Scottish tax revenues, Scottish Government spending, Scottish balance of payments (imports v exports) and Scottish national wealth (often called GDP for Gross Domestic Product).
The professor asserts that “there simply isn’t enough data” to reliably estimate Scottish GDP.
He points out that “we have no figures for where sales take place in the UK, for example. VAT returns are an utterly unreliable source for this – a UK company does not submit data separately on sales in Scotland from elsewhere”.
The estimates of how much money is spent by or on behalf of Scotland is “arbitrary”, he says. Scotland gets an allocated share of, say, defence spending. Basically this is whatever the UK Government decide it should be.
He is even more scathing when it comes to imports and exports
“Let’s be blunt: No one has a clue what crosses the borders from Scotland to England and Northern Ireland. These numbers are literally made up in that case.”
So the UK Government are making this up, says economist…. who’d have thought it? Murphy went on to question assertions that Scotland is responsible for any UK debt. The transfer of oil revenues from Scotland to London over three decades suggests it is Westminster who should pay us money,
Needless to say Professor Murphy, who is new to the independence debate, has found himself attacked by various unionist commentators who claim to be experts on GERS but who are not widely published professors of economics.
He is not, of course, the first. Margaret Cuthbert, a former senior civil servant in Scotland, repeatedly raised concerns about GERS.
Unionist commentators point out that the Scottish Government have used GERS and that is true.
During the independence referendum the oil price was so high that any problems with the figures were masked. If Richard Murphy is correct, GERS may have underestimated Scotland’s massive surplus at that time.
The future debate in Scotland must be honest about the challenges, such as a lower oil price (although it has risen since its nadir) but we should avoid self-flagellation.
Scotland is the EU’s largest oil producer, we have huge renewable energy assets, a unique product in whisky and more top universities per head than similarly sized countries.
It just doesn’t make sense that the UK Treasury figures show this country performing so poorly.
Professor Murphy thinks he knows the answer. The figures are wrong. He deserves to be heard.