‘We are in deficit because we are part of the Union’
GERS, the Government Expenditure and Revenue Scotland published last week, has, as always become a political football. No surprise, it was designed to be such. When it was first published by the Conservative Government in 1992 GERS’ main role was to make the case against a Scottish Parliament. Oil revenues caused a problem — so they allocated oil revenues to a new area of the UK called the UK Continental Shelf and we ended up with two sets of Scottish accounts: one allocating North Sea revenues on a population share basis, and the other including all of Scotland’s oil.
I want to look at the key uses and the key flaws of GERS in the political debate, but first let’s look at what they said this year.
total Scottish Government revenue was £57.7 billion, an increase of 6.3 per cent on the year before,
Scotland’s share of UK expenditure is around 9.2 per cent when we only have 8.2 per cent of UK population,
Revenue generated per person in Scotland was also £312 lower than the UK average,
North Sea Revenue increased to £208m 2016-17 from £56m the year before,
Scotland’s illustrative deficit was £13.2bn in 2016-17, equivalent to 8.3 per cent of Scotland’s GDP an improvement on 9.3 per cent reported the year before,
GDP increased from £155.6bn (2015-16) to £159.3bn (2016-17).
The good news is that GERS shows that Scotland’s revenues have grown by 6.3 per cent in the face of low oil prices. The last quarter GDP figures even show Scotland’s economy growing four times faster than that of the UK.
It should also be noted the UK Government has reduced key oil taxes to effectively zero and so the the drop in oil revenues is 50 per cent due to oil price and 50 per cent due to UK Government policy. Norway’s Government generated £11bn more in oil revenues than the UK.
GERS tells us what the finances of Scotland look like under the current constitutional arrangements. They do not tell us what they would look like under the full fiscal autonomy of Labour’s Federalism plan or the SNP’s independence plan. On reliability, globally renowned political economist Richard Murphy has correctly claimed that GERS data is not reliable enough to make political decisions on how to use devolved powers. His rationale is that of the 26 income figures quoted in GERS, 25 are estimated and there are no Scottish specific income tax, corporation tax, or national insurance figures. Scotland (although technically a nation) operates as a region of the UK. We have no borders to the rest of the UK so we have severe difficulty collecting reliable data on things like exports, and costs are calculated on a UK basis and then applied to Scotland’s accounts — and that is still an estimate and open to debate. For example, should you apply a population share of the cost of Defence to Scotland accounts or a geographical share? Well, as part of the UK it’s population share, but as an independent nation you could save approximately £1.5bn a year.
On the independence issue, GERS indicates what Scotland’s share of surplus/deficit to GDP is as part of the UK, but does not show what that figure would be as an independent nation.
A key question for independence supporters is — why, when Scotland is a country with an embarrassment of economic advantages that any small to medium-sized independent country would give their left arm for, do we have a financial deficit greater than any other independent European nation of similar size? Why,