GERS eco­nomic fig­ures branded ‘crap’ by top econ­o­mist

THE PUB­LI­CA­TION OF THE SCOT­TISH GOV­ERN­MENT’S EX­PEN­DI­TURE AND REV­ENUE STA­TIS­TICS TRIG­GERED A WAVE OF CLAIM AND COUNTER-CLAIM OVER THE STATE OF THE SCOT­TISH ECON­OMY AND WHAT IT MEANT FOR THE IN­DE­PEN­DENCE MOVE­MENT. HERE, FOUR LEAD­ING ECO­NOMIC THINKERS GIVE T

Sunday Herald - - FRONT PAGE - BY RICHARD MUR­PHY ECO­NOM­ICS PRO­FES­SOR AND DI­REC­TOR OF TAX RE­SEARCH

‘GERS data is what I tech­ni­cally de­scribe as crap’

WHEN I was giv­ing ev­i­dence to the Fi­nance and Con­sti­tu­tion Com­mit­tee at Holy­rood this year, I said I had never come across a coun­try more in­ter­ested in na­tional in­come ac­count­ing than Scot­land. The de­bate on GERS proves this. The lat­est ver­sion was pub­lished this week.

My ar­gu­ment on GERS is that the data it pro­vides is what I have tech­ni­cally de­scribed as “crap”, which, as I also ex­plained to the Par­lia­ment, is a term I use when teach­ing on eco­nomic data qual­ity to stu­dents to de­scribe “com­pletely rub­bish ap­prox­i­ma­tions”. It’s my con­tention that this is what Scot­land has had to deal with for many years. This needs to be ex­plained.

GERS has two sides to it, as its name im­plies. On in­come un­til 2016, 25 of the 26 fig­ures that made up the data were es­ti­mated. I am pleased to say that this ra­tio has im­proved slightly this year be­cause bet­ter, Scot­tish-sourced data is now avail­able on some lo­cally-de­volved taxes. How­ever, let’s not get too car­ried away: they make up quite a small part of to­tal in­come, and even the team pre­par­ing GERS are can­did enough to ad­mit they can­not state with any con­fi­dence the de­gree of ac­cu­racy to which over one-third of the in­come is stated. This in­cludes some pretty sig­nif­i­cant fig­ures, like cor­po­ra­tion tax in­come, while oil es­ti­mates, which have been re­vised this year, still look open to ques­tion as well. The re­al­ity is that not nearly enough tax data is col­lected in Scot­land as yet to be con­fi­dent about many of the fig­ures in GERS. I ac­tu­ally go fur­ther in my crit­i­cism than that though: I have sug­gested that this fail­ure to col­lect data is de­lib­er­ate. Politi­cians in West­min­ster are likely, in my opin­ion, to want the wrig­gle room that this cre­ates for them.

Many ar­gue that the ex­pen­di­ture fig­ures in GERS are more re­li­able than the in­come data be­cause a sig­nif­i­cant part of that spend is de­volved to Scot­tish Gov­ern­ment con­trol. This, of course, is true. But that’s not the whole story there ei­ther. The pa­ram­e­ters in which the spend­ing arises are set in Lon­don in many cases, and they too pro­vide the money, set­ting out what Scot­land can pretty much do as a re­sult.

And then in very many parts of GERS Scot­land is sim­ply at­trib­uted with a part of to­tal UK spend­ing. In many cases, how­ever, such as de­fence, for­eign af­fairs, and quite pos­si­bly many other pol­icy ar­eas where this at­tri­bu­tion arises, Scot­tish pub­lic opin­ion clearly in­di­cates that if it had the chance Scot­land would make very dif­fer­ent spend­ing de­ci­sions to those for which it is cur­rently charged. GERS, how­ever, does not al­low for that: GERS as­sumes Scot­land is a mini-part of the UK and no com­pen­sa­tion for its higher lev­els of spend­ing in some ar­eas is re­flected in other costs ap­por­tioned from the rest of the UK, mean­ing that the sup­posed Scot­tish deficit may be se­ri­ously over­stated as a re­sult. It is also pos­si­ble that the tax rev­enue gen­er­ated by the spend out­side Scot­land deemed in GERS to be for Scot­tish ben­e­fit should also be, but is not, cred­ited to the GERS rev­enue ac­count. If that’s the case then there is a se­ri­ous ac­count­ing flaw in the whole GERS process that un­der­mines all the data it sup­plies.

What is the net con­se­quence of all this? It’s three things, in my opin­ion. The first is that a lot of time and ef­fort is now spent dis­cussing a re­port that’s full of cob­bled to­gether data, how­ever well-mean­ing the statis­ti­cians who pre- pare it might be. Sec­ond, that state­ment sug­gests, on pretty un­sound eco­nomic and ac­count­ing foun­da­tions, that Scot­land re­mains de­pen­dent on the UK when that might not be true and when Scot­land is, ac­cord­ing to re­gional trade data, the only part of the UK that is cur­rently run­ning a trade sur­plus with the rest of the world. But per­haps most im­por­tant of all, the GERS data leaves the Scot­tish Par­lia­ment com­pletely in the dark over the real im­pact of the de­ci­sions they have taken and have to take .

MY sug­ges­tion is that this is de­lib­er­ate. Scot­land has been given what looks like de­volved pow­ers but has lit­tle rel­e­vant, re­li­able or us­able data on which to de­cide what to do with them. That’s a recipe for hit-and-miss gov­ern­ment and if on oc­ca­sion that’s what Scot­land has got that’s firstly what West­min­ster wants and, sec­ond, Holy­rood is not to blame.

But what really sur­prises me is that we do not hear Scot­tish min­is­ters mak­ing a fuss about this. Nor do I see them queuing up to de­mand the bet­ter qual­ity data Scot­land could and should have on which to make de­ci­sions if only the po­lit­i­cal will to cre­ate it ex­isted. That is a mis­take by all Scot­tish politi­cians that they alone can cor­rect.

But what they can’t do is put GERS right. That’s be­cause it hardly recog­nises Scot­land’s right to de­cide on al­most any is­sue of con­se­quence. As a re­sult, what is really needed now is a whole new sys­tem of na­tional ac­count­ing for Scot­land, whether de­volved or in­de­pen­dent, that is in charge of its own de­ci­sion-mak­ing.

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