Desperate response to Gers figures shows nationalists’ lack of economic understanding
Ipredicted in this column last week that the publication of the annual Gers figures would provoke a lively debate, and the events of the last seven days have done nothing to disprove that fore - cast. Both unionist and nationalist politicians and commentators have lined up to put their own spin on the annual statement of Scotland’s income and expenditure.
To deal with the facts first, the Gers figures showed that the Union is more valuable than ever to Scotland: worth nearly £2,000 in the past year for every man, woman and child here. They would mean that a stand-alone Scotland would have to fill a fiscal deficit of more than £15 billion just to stand still, meaning either substantial tax hikes, drastic spending cuts, or a cruel combination of both.
The figures also put Scotland’s deficit at 8.4 per cent of GDP, the highest in the EU, and well above the EU requirement for members to have a budget deficit below three per cent, according to the Stability and Growth Pact.
The figures for 2019-20 only tell part of the story. If we look at the entire period that the SNP have been in office since 2007, the cumulative fiscal transfer from the rest of the UK to Scotland amounts to a staggering £62.4 billion, more than the entire budget of the Scottish Government in one year.
Despite all this additional spending power, the Scottish economy continues to perform more poorly than that of the UK as a whole, Scottish education is sliding down international league tables, and Scottish local government has been starved of resources. This £62 billion “Britain Bonus” has been squandered by the SNP over 13 years.
The latest nationalist response to Gers seems to be to dismiss the value of fiscal transfers entirely. The former SNP MSP Andrew Wilson, who now seems to fill the role of the last standing Scottish Government economic guru, condemned fiscal transfers as locking in structural inequality, and ensuring that poorer parts of the country stay poorer.
This is an extraordinary take for anyone with a background in economics, and suggests an argument that has been developed in response to the otherwise unanswerable Gers dilemma for nationalists, rather than a credible proposition. Yet Wilson’s comments were enthusiastically endorsed by the SNP’S Finance Secretary Kate Forbes.
The flaws in Wilson’s argument are not hard to spot. The “Union Dividend” disclosed in the Gers figures, worth £1,941 for every person in Scotland in the year 2019-20, is not predominantly the product of lower economic growth in Scotland.
Only £308 of the total is made up by relatively lower tax revenues here compared to the UK average. Some £1,633 of the total – 84 per cent – comes from the fact that public spending per person in Scotland is substantially higher than the UK average. So even if Scotland did match UK output and tax revenues, we would still see a fiscal deficit in excess of £12 billion.
More fundamentally, fiscal transfers are a feature of every developed economy. Federal countries like Australia formalise the position through the Australian Grants Commission, reallocating resources from economically stronger states to those where spending demands are higher. Fiscal transfers exist within the EU – not something the SNP ever seem to have objected to in the past.
Thus, countries with stronger economies like the UK and Germany have been net contributors to EU budgets in the past, whilst Mediterranean and Eastern European countries have been net beneficiaries. The whole basis of EU structure funds is to transfer resources from more successful areas to those with greater needs – a process that has been going on for decades without a peep in opposition from the nationalists.
We even see fiscal transfers within Scotland. Historically the North East contributed to higher tax revenues which were transferred to the Central Belt. The funding formulas that exist for allocation of resources both to local government and health boards are based on a wide range of factors, including demography and measures of deprivation. So, for example, a wealthier area such as East Renfrewshire is delivering fiscal transfers to more deprived areas such as East Ayrshire.
This has been happening under the SNP’S watch for some 13 years, without any suggestion that the formula should change.
Are they now going to change these calculations because it has been decided, after years of practice to the contrary, that pooling and sharing of resources “ensures that poorer parts stay poorer”, as Andrew Wilson put it?
I think we can conclude from all this that the nationalists’ sudden conversion to the notion that fiscal transfers are a bad idea is more down to their desperate need to have something to say to try and combat the message of the Gers figures, rather than a consistent and carefully considered economic position. In the panicked search for a soundbite, the woeful lack of understanding of economic reality within the SNP has been exposed.
It has long been my view that creating a separate Scotland is a bad idea for a variety of reasons, but I understand there are those who have a romantic attachment to the notion of Scottish independence. What the Gers figures have done, once again, is make clear that that separation would only come at massive cost to our economy and public services.
If nationalists want to start winning the economic arguments for separation, then they will have to work much harder than they have done over the past seven days.