Thursday, 27 October 2016

Crazy Horses

Over the last few weeks the SNP's strategy for overcoming the awkward economic realities that stand between them and independence has become clear. It seems Sturgeon has decided to harness up the nationalist troika to three wildly incompatible horses.

On the right, former MSP turned corporate lobbyist Andrew "Acceptable Face of Capitalism" Wilson.

On the left, current Westminster MP George "Smash the System" Kerevan.

In the middle, a Pantomime Horse to amuse and distract the masses.

Each speaks to different constituencies

1. Andrew "Acceptable Face of Capitalism" Wilson

Andrew has been appointed Chair of the SNP's Growth Commission, tasked with creating a rational plan to "boost economic growth" and "consider the most appropriate monetary policy arrangements to underpin a policy for sustainable growth"

Given that the economic case presented for the 2014 independence referendum is now widely accepted as having been embarrassingly weak, you might think they'd use this opportunity to inject some fresh thinking, garner input from across the political spectrum and seek advice from a broad range of business voices. Then you'd look at the make-up of the commission and think again.

From the world of politics we have two former and five current SNP politicians alongside two leading lights from Yes Scotland1. It's hardly surprising that a serious economic commission doesn't include anybody from the Scottish Socialist Party, but the Greens must surely be miffed that their "unconditional support" for independence hasn't been rewarded with at least a token seat at the table.

Add to that three academics - two of whom at least have nailed their colours pretty firmly to the SNP's mast2 - and you start to get a sense that the Commission's thinking might be a little stale.

To be fair, they do also have two active Scottish businesswomen with real entrepreneurial credibility. They're pretty focused on the domestic Scottish scene and one of them was a proud champion of the discredited SNP front "Business for Scotland" (and holds some pretty "out there" views on hidden oil fields), but we'll let that pass3.

I confess I have some sympathy for Andrew. He is by all accounts a decent and intelligent chap, but his loyalty to the cause requires him to cook up a package of policies and then suggest they'll deliver unfeasibly high rates of growth.

The problem he faces is that one of the few certainties of independence is that Scotland would lose what is currently a £9bn annual fiscal transfer from the rest of the UK. To offset that transfer through growth alone requires Scottish GDP to grow by 17% more than the rest of the UK4. This isn't what would be required to eliminate the deficit, it's just what would be required to get us back to the level of deficit we currently share within the UK.

Coming up with a credible plan to deliver cumulative 17% superior economic growth in anything less than a few generations is some ask, particularly given we start from a position of slower growth5 and would need to overcome the negative impact of separation from our largest export customer (the rest of the UK). 

If all that wasn't hard enough, the Growth Commission is haunted by the ghost of SNP proclamations past. Their own independence White Paper proposed that a growth rate improvement of 0.12% a year would be a reasonable figure for the "bonus of being independent". It was a figure based on some pretty dodgy analysis, but the SNP liked it so much that they cited it five times in the White Paper6.

At plus 0.12% a year, it would take about 130 years to deliver the cumulative 17% superior growth required just to offset the existing fiscal transfer (through economic growth alone).

Andrew has his work cut out.

The Commission will surprise no-one by recommending some form of Sterling currency board and suggesting enormously optimistic growth assumptions based on a strategy of tax-cutting, investment incentives and financial services wooing. Reassuring messages will be whispered in the direction of big businesses and the wealthy - the Greens and Yes supporting enemies of neoliberalism will just close their ears.

2. George "Smash the System" Kerevan

You might ask why George (as a trained economist and member of the House of Commons Treasury Select Committee) isn't on the Growth Commission. The simple answer is that George is a bit too radical in his outlook to be allowed near the SNP's real plans, so he's kept on a loose rein and encouraged to make noises which appease the radical left and keep the anti-capitalists on side.

Regular readers of Chokkablog may recall that George is on record prior to his election as an MP as hoping to achieve the implosion of the UK economy: "after Home Rule, independence will follow as the UK economy implodes [..] I would relish the chance to take Scotland's fight to the enemy camp"

It appears that time at Westminster has done nothing to dampen George's revolutionary ardour. Let's look at some highlights of Citizen Kerevan's outpourings over the last few months:
  • In July - he accepted the need for spending cuts under independence: "a separate Scottish currency pegged to sterling would necessitate fiscal consolidation to assuage the foreign exchange markets. It would certainly be doable, but would require independent Scotland to cut its budget coat to fit its fiscal means." - Cityam
  • In August - he called for a revolution:"Popular, if often incoherent, opposition to this mad, mad system has suddenly boiled over into open revolt. Not enough revolt, in my opinion, but a line has been crossed. [..] The neoliberal order needed dismantling"The National
  • In September - he denied the need for spending cuts, converting instead to the growth cause (while suggesting that the higher public spending we enjoy in Scotland is due to "incompetence of Westminster"): "Growth is the only sure route to closing any temporary budget deficit bequeathed to Scotland by the economic incompetence of Westminster." - The National
  • In October - he abandoned the growth cause and shifted into full-on "smash the system" mode (volunteering the Scots to be used as lab-rats in the process)
“a new political economy using Scotland as a laboratory – an agenda that rejects not simply the neo-liberal variant of capitalism but the entire system itself. [..]  to embed a non-capitalist economic practice [..] Such an outcome will not be stable. There will be social friction and resistance from the prevailing capitalist order
The era of neoliberal tax cuts and low interest rates is over", corporation tax should not be used as “a crude bribe to secure inward investment” there should be greater taxes on wealth, despite “an inevitable response from the business class and rich that such a move will hurt ‘incentives’, discourage inward investment and ‘force’ high net wealth individuals to migrate”  
- the Herald Oct 2016
Of course anybody vaguely paying attention knows that in fact the SNP embrace capitalism and are fans of "neoliberal tax cuts". The only significant tax moves they've suggested recently have been to cut taxes (corporation tax, Air Passenger Duty, VAT on tourism, "use the tax system to improve incentives for investment" etc.)7 and they balked at the idea of raising the top rate of tax to 50p (as Scottish Labour and the LibDems proposed).

So why is George allowed to go so far off-script in a party famous for its message discipline? He's allowed to because he serves a valuable purpose pacifying "useful idiots" like those at Radical Independence and The Common Weal. The SNP would never translate Kerevan's anti-capitalist ramblings into policy - he's just making the right noises to keep the "radical left" on board.

3. The pantomime horse

So with two of their horses so obviously pulling in different directions, the SNP need something to divert the attention of the masses, to stop them asking if either actually makes a coherent and credible economic case.

No problem: the actors inside the costume may change, but the red-nosed, trouser-dropping, reality-denying antics of the SNP's pantomime horse is a real crowd-pleaser. Let's look at who has donned the paper-maché head9;

Isn't it just hilarious? Doesn't this pantomime horse galumphing around the stage make you forget about all the real economic arguments?

It's worth noting that these performances don't just the keep less-than-fully-intellectually-engaged Yes voters amused and well misinformed - they also ensure opponents spend their time and energy debunking myths instead of engaging in substantive and constructive debate; it takes a lot less time to make up nonsense than it does to robustly disprove it.

So there we have it. Three horse pulling in different directions. A smorgasbord of truths, half-truths and downright lies. A menu of clearly incompatible options to suit all political tastes. Whatever you need to hear to make you support independence, you'll be able to find somebody from the Yes camp saying it.

So far Sturgeon has done an impressive job of holding the reins of these three horses and providing at least the illusion of being in control - but is she really driving the carriage or simply hanging on for dear life?



1. Growth Commission Membership - SNP/Yes Scotland members

2 x Former SNP politicians
  • Andrew Wilson (Chairman)
  • Jim Mather
5 x Current SNP politicians
  • Kate Forbes MSP
  • Derek Mackay MSP
  • Shirley-Anne Somerville MSP
  • Roger Mullin MP
  • Cllr. Marie Burns
2 x Former Yes Scotland activists

2. Growth Commission Membership - Academics
3. Growth Commission Membership - Businesswomen

4.  Price of Independence

"£9bn pa represents 13% of total Scottish public spending and is greater than Scotland’s entire education & training budget; it’s 17% of total Scottish onshore revenue and 77% of the total amount Scotland raises in income tax [..] to close the deficit gap with the UK – to be in a situation where becoming independent wouldn’t make Scots immediately worse off – would require Scotland to out-grow the rest of the UK by 17%"

5. Scotland's GDP growth

6. The Scottish Government's own White Paper: Scotland's Future: Your Guide to an Independent Scotland had a go at scaling how much faster an independent Scotland might grow when no longer shackled to the UK. In fact they were so pleased with their analysis that they quoted it five times (pp 23, 43, 88, 375, 619). Here's the wording from page 23;
"Similar countries to Scotland have seen higher levels of economic growth over the past generation. That is because they have the bonus of being independent and are able to make the right choices for their nation and economy. If Scotland had matched the levels of growth of these other independent nations between 1977 and 2007, GDP per head in Scotland would now be 3.8 per cent higher"
I think we can safely assume that the countries and timescale used were selected to make the strongest possible case - after all, why stop at 2007 when more recent data was available? - and just in case you doubt if that is a cumulative 30 year figure, it's clarified on page 619:
"The average rate among small European countries was 2.61%, a gap of 0.12% each year. Over a 30 year period the compounded effect of this gap totals 3.8% of GDP"
7. SNP tax cutting proposals
"giving Scottish businesses a competitive edge by providing a clear timetable for reducing corporation tax by up to three percentage points; and improving international connectivity by cutting Air Passenger Duty by 50 per cent" - White Paper (p.6)
"One option for future governments to support manufacturing and boost innovation will be to use the tax system to improve incentives for investment, for example through more generous depreciation allowances for key growth sectors in Scotland." - White Paper (p.88)
"Tax based incentives that are aimed at encouraging investment in innovation activities can be applied to either expenditure (related to R&D) or income that results from investment in R&D. Following independence this Government will examine how best to develop and target such tax relief to encourage Scotland’s innovative industries" - White Paper (p.102)
 44 SNP MPs call on Treasury to reduce tourism VAT

8. Angus MacNeil MP retweeting a ludicrous meme (just one example of many)

9. This is an incomplete list of course - I've written entire blogs on the falsehoods perpetuated by the likes of Business for Scotland and Wings Over Scotland, the likes of Angus MacNeil and John Mason are serial offenders and there are many journalists I've not mentioned here who have shown themselves to be naively susceptible to an SNP press office briefing

Sunday, 16 October 2016

Salmond Spins Again

Alex Salmond once proudly boasted  of his ability to put “a gloss on statistics or any economic figure” to build a political case. It's an assertion predicated on his belief that ordinary voters just aren't smart enough to spot when they're being misled by him, on the toweringly arrogant assumption that he's simply too smart for us.

His performance on BBC Radio 5 live's Pienaar's Politics this morning is a case in point. When asked to explain away the problem of Scotland's £15bn deficit (per the most recent Scottish Government GERS figures) he referred to a "£30 - 35 billion" saving we could make from central UK spend attributed to Scotland.

This is clearly bunkum of the highest order. The true figure (comparable with the £15bn annual deficit in question and related to the spend categories he cites) is in fact less than £0.5bn. He clearly does have nothing but contempt for the intelligence of listening voters.

Before we unpick his assertion and explain why it's so ludicrous, it's worth taking a quick skip through the rest of his scoffing and chuckling performance. You can listen to it all here [starts at 08:00]

He starts by dancing around the subject of opinion polls, presumably hoping his bluster will disguise the fact that none of the post-Brexit polls have shown majority support for Scottish independence.

It's been pointed out to me that at least one poll here did show a lead for independence immediately following the Brexit vote
*correction ends*

When Pienaar suggests that the demand from Sturgeon that "Scotland somehow retains access to the free open market of Europe, even though that may be lost to rest of the UK [...] seems to be a constitutional, political and practical impossibility" he repeatedly ducks the question.

Instead of explaining how his might be possible, he talks about the downside of the UK's exit from the single market-place by saying "we know that the expectation within Her Majesty's Treasury is that an exit from the single marketplace will cost 20% of trade and investment".

Whilst this is broadly true1, Salmond shows his customary brass-neck to quote these figures when he previously rubbished similar HM Treasury analysis which suggested independence would cost Scotland around £1,400 per person per year2. This is of course classic Salmond: dismiss credible sources if you don't like what they say, quote them as gospel if they support your case. For what it's worth I applaud his volte-face and new-found respect for the Treasury's economic analysis. Surely only a deeply cynical and duplicitous politician would be prepared to then change his position again if and when the Treasury next reveals unhelpful truths about the economic implications of Scottish independence.

At the time he contended instead that independence would in fact give each person in Scotland a £1,000 "bonus of independence". Salmond's dismissal of the Treasury claim and his own party's ludicrous assertion have since been shown to be simply and unequivocally wrong. The truth is that the actual decline in oil revenues has been even worse than HM Treasury predicted, so the "£1,400 worse off" analysis was in fact optimistic. 

He then offers some nonsense around negotiation tactics, asserting that he's "never heard of a negotiation which tries and keeps your objectives a secret" - as if publicly stating your negotiating position is the only option. In fact later in the interview he undermines his own argument by suggesting that Theresa May should put her specific objectives before the House of Commons before entering negotiation because  "how will you win afterwards when you inevitably won't have achieved all of your objectives?" The flaw in this argument is obvious: what's the point in publicising and seeking approval for something you "inevitably" won't achieve?

Pienaar tries to return to the core question, pointing out that for Scotland to remain in the EU market if the UK exits "you'd have to have a hard border between Scotland and England". Salmond doesn't explain how that could be avoided, instead asking "how is the government stating that there's not going to be a hard border between RoI and NI?" I would suggest that that too is a good question, but it's certainly not an answer (particularly when it comes to the customs controls which are required between EEA and EU members).

So far so normal for a political interview: bluster, obfuscation and logical inconsistency. But things get more interesting when the subject switches to the wider question of Scotland's economic performance.

Unfortunately, John Pienaar wasn't well briefed. He starts by wrongly stating that "Scottish output has shrunk, has contracted" since the Brexit vote. Salmond is rightly able to rebut that claim, but - because it's undeniable - concedes the fact that growth in the Scottish economy has slowed both in absolute terms3 and relative to the UK4.

When explaining the relative economic slow-down, Salmon (correctly in my opinion) is very clear on the main cause, suggesting it's "as a result, incidently, of the onshore effects of oil & gas" and referring to "perhaps 30,000 job losses affected by the down-turn in North Sea activity". Nothing to do with evil Westminster then.

It's worth noting that the GDP measure used for the growth statistics Salmond quotes exclude oil & gas extraction5Scotland's GDP (including the Sottish Government's preferred geographic allocation of oil revenue) did decline from £157.5bn to £156.8bn in 2015-166, a 0.5% contraction. 

Whether the relative slow-down is purely due to the knock-on onshore effects of the problems in the oil & gas industry, fears of further uncertainty around a second independence referendum or other factors is a subject for another day.

The fact that Salmond attributes the slow-down to Oil & Gas will come as a terrible shock to the Nationalist's very own self-styled hate-preacher, the "Reverend" Stuart Campbell, (custodian of the risible "Wings Over Scotland") who recently asserted "the lower oil price will actually benefit the Scottish economy overall, with the positive effects driving growth and outweighing the downside of lower corporation tax receipts."

Salmond goes on to note that Scottish unemployment is returning to lower than the UK average and employment is now higher. Given that he and Nicola Sturgeon have consistently argued that devolution doesn't give the Scottish Government "job creating powers", it's surprising that he didn't add that this shows how well Westminster is succeeding in supporting employment growth in Scotland.

Studio guest Kevin Schofield then asks "why if leaving the EU is such a bad thing for Scotland, how come leaving the UK isn't?". Salmond's answer betrays the cognitive dissonance at the heart the SNP's current position:  "I don't accept Scotland becoming independent means needing to put trade barriers between Scotland and England [...] England is Scotland's first export market."

There's a mind-boggling obvious contradiction here: if Scotland needs to leave a post-Brexit UK and join the EU to defend its EU trade, it's because there's a belief that EU/UK trade barriers will exist. To then dismiss the inevitable corollary (that Scotland in the EU would then face trade barriers with England) is just plain daft.

The other studio guest Kate McCann then asks a question about the problem Scotland would face because of its £15bn deficit.

Salmond's tone switches at this point [24:00] and he moves into full-on mansplaining condescension mode: "it's what called the GERS figures, Kate [...] it was a bit longer ago than that, but nonetheless, never mind [...]  I've been looking at this set of figures for 30 years [...] let me give you a quick example which is pretty easy to understand".

He carries on to say: "GERS has us attributed a share of certain central UK expenditures, for example it would have us paying for a share of Trident, of HS2, of Nuclear power stations on the South coast and of renovating the House of Commons and a bill of £6bn ... if you total all that up and divide it by Scotland's share then that'll save you 30 to 35 billion for a start"

You don't need to be an economic mastermind to spot that this number isn't a figure that can honestly be presented in response to a question about Scotland's annual deficit, not least when you observe that our total managed expenditure (devolved and reserved) is just £68.6bn.

So let's unpick those figures.

Full Fact suggests the annual operating costs of Trident are expected to be around £2bn a year. Scotland's population share (as attributed in GERS) of that annual cost would be about £150m a year. This is broadly consistent with Salmond's assertion in 2012 that "Trident is costing Scottish tax payers £163m a year". So the cost figure in that 2015-16 £15bn deficit is less than £0.2bn

The capital cost of replacing Trident is estimated at £30 - 40bn by the MoD. The "overall cost" (included in-service operating costs) is estimated at £167bn by Reuters (according to this Guardian article) and £205bn according to the CND (a figure which includes running costs to 2060). So if we take the largest available figure of £205bn, Scotland's 8.2% population share of that would be £17bn. That's spread over 45 years, so works out at £370m a year.

The SNP's own notoriously optimistic Independence White Paper (page 59) suggested "making different choices from Westminster on nuclear weapons and defence will allow this Scottish Government to save £500 million [a year]" - a figure which assumes more than simply stopping paying for our share of Trident.

So on Trident we can safely say the figure Scotland was allocated in 2015-16 was less than £0.2bn; even looking forwards under the most pessimistic assumptions the figure is less than £0.4bn a year.

HS2 is the single exception in GERS to the general rule that transport spending is allocated on an "in" basis (i.e that we are attributed only spend made in Scotland). As was explained in the GERS methodology for 2013-14 (page 3), Scotland is assigned 2% of total expenditure on HS2, in line with the breakdown of regional economic benefits per the Department of Transport's economic analysis. Total UK expenditure on HS2 in 2015-16 was £360m7, so our 2 % share will have only been about £7m.

His assertion about attributing cost of "Nuclear power stations on the South Coast" is, I must confess, a bit of a mystery to me. I'm aware that in the UK CRA (Country and Regional Analysis), nuclear decommissioning is classified to the region where nuclear facilities are located, but in GERS (per the latest method statement) "nuclear decommissioning and associated expenditure is apportioned on a population basis" which leads to reduction in Scotland's allocated "nuclear-related" spending of £179m (a benefit of pooling and sharing I guess).

** Update on Nuclear **
An informed person who would rather remain anonymous offered me the following insight:

"I suspect he means future contributions via consumer bills to fund the contract for difference for Hinkley. This would only not be paid by Scottish bill payers if we had a separate power system (& in the white paper the SNP asserted a single energy market would inevitably continue between scotland and rest of GB (NI has separate arrangements and is integrated into RoI energy system). They did this because the cost of support for low carbon generation (renewables and new nuclear) is pooled across GB, and generation in Scotland receives around 1/3 of all support on less than 1/10 of billpayers. That gap is likely to grow in future as although new nuclear will be in England and Wales, offshore wind is 50% more expensive again and some of that will be in Scottish waters.

So it is complete bollocks as per most of what he says to suggest because they take a simplistic posturing position to be against Hinkley somehow Scotland would then not pay for support for low carbon power in the future. Either will be part of the single energy system, in which case will contribute as now so no saving (as there is no saving to E&W consumers paying for wind power in Scotland) or if had a separate system then the disparity between number of billpayers and subsidy levels in Scotland then costs to consumers would increase.

And that's before the fact that for part of 1 day in 4 when power is scarce (not enough wind) power flows from England to Scotland to keep system functioning. If we had separate energy system then that would be at a premium price, whereas any extra wind comes when there is an excess of supply and so no real revenue benefit to Scotland in supplying that to England."

** Update Ends **

Finally let's look at that £6bn bill for renovating the House of Commons. I've not dug too deep on this, but from press reports it seems that's a total figure relating to a 32 year period. So an annual bill of £189m, of which Scotland's population share would be £15m pa (and of course was zero in the 2015-16 deficit figure being discussed).

So let's sum all of that up on a worst-case scenario basis
  • £205bn for Trident over 45 years = £4.6bn pa x 8.2% = £0.38bn pa to Scotland
  • £56bn for HS2 over 16 years = £3.5bn pa x 2.0% = £0.07bn pa to Scotland
  • £6bn for House of Commons over 32 years = £0.2bn pa x 8.2% = £0.02bn pa to Scotland
I know Salmond doesn't think that people who listen to his rhetoric are capable of basic maths, but in the context of the £15bn annual deficit he was asked about, the items he listed don't even add up to £0.5bn.

In conclusion: when quoting a figure of "£30 to 35 billion" savings, Salmond is not "putting a gloss" on the figures, he's taking the proverbial.


1. The analysis suggests that if we remain in the EEA (the Norway model, where a customs border exists but no trade tariffs) the effect would be "only" a 10% reduction in trade and Foreign Direct Investment (FDI), whereas a negotiated bilateral agreement would lead to a 15-20% decline.

HM Treasury analysis: the long-term economic impact of EU membership and the alternatives (April 2016)

page 168
page 175

2. Scotland analysis:Fiscal policy and sustainability (May 2014)

page 5

3.  Scotland’s Gross Domestic Product, Quarter 2 2016
page 3

5.  Scotland’s Gross Domestic Product, Quarter 2 2016

It's worth noting (per the methodology guide) that "in practical terms" the figures don't include oil & gas extraction
6. GERS 2015-16

page 17

Wednesday, 12 October 2016

Nationalist Reflections

Following last week’s Conservative Party conference, SNP MP Mhairi Black used her column in the National to suggest that "I am not exaggerating when I say that the policies being brought forward are reminiscent of early 1930s Nazi Germany." She went on to explain that this was because the Tories were "even going as far as to say that businesses must list all foreign workers".

To be clear: the policy proposal that inflamed this reaction was illiberal, divisive and for many of us just plain wrong. But to draw comparisons between your political opponents and Nazi’s is at best immature and at worst downright irresponsible. Remember we’re not talking here about a hastily written and swiftly retracted tweet – it was a considered article in a national newspaper (of sorts).

Let’s get the facts straight first. Did the Tories really go so far as to suggest that businesses must list all foreign workers, or did Ms Black (and many other commentators1) react to a headline without checking the facts?

If you dig a little deeper (as I have done on this blog here) you’ll find that the policy didn’t feature in Amber Rudd’s speech or in any official press releases. It was instead “briefed” to a couple of newspapers. Those papers said the proposal might go as far as asking businesses to publish the proportion of their workforce that was “international”. It looks like a Times headline writer turned that into “Firms Must List Foreign Workers” and unleashed the outrage of shallow-thinking headline-skaters like Ms Black.

The policy proposal is still a terrible idea of course. The clear intention – implied but carefully never voiced by a quotable source – is that companies who employ “too many” foreign workers should be “shamed”. By briefing some journalists about this policy idea, the Tories cynically threw out a piece of raw meat to keep the xenophobes in their party happy. That they tied a rope to it so they could haul it back in (as they now appear to be doing) doesn’t make their actions any less contemptible.

Soon after this story broke, it was sobering to see a YouGov poll showed that 59% of the UK and 50% of Scots actually support the proposal that companies should “report how many foreign workers they employ”.

Rather than adopting Ms Black’s stance of branding half her country-folk as Nazis (and 46% of SNP voters, if the poll is to be believed), we might expect a mature, credible politician to instead have calmly explained why these people should maybe think again.

First of all we should be clear that HMRC already knows about all legally employed foreign workers through their PAYE records, so this isn’t a question about government information, it’s about making employers publicly share that data.

The underlying reasoning seems to be a misguided concern that companies might be favouring hiring “foreigners” over British nationals, but this frankly doesn’t pass a basic common-sense test.

Employers can’t pay foreign nationals less for the same job because it’s illegal to discriminate between workers based on nationality (as it is for race, religion or gender). Immigrants will often have a language barrier to cope with and Non-EU nationals have to pass strict work visa requirements to be lawfully employed here (something which may of course soon stretch to EU nationals as well).

As an employer it’s clearly prudent to hire somebody who faces no uncertainty over their right to remain in the UK - the deck is already stacked very much in favour of the British worker.

Some argue that immigration may be holding down wage levels, but that argument is weakened by the existence of a fast rising National Minimum Wage (we should refuse to adopt the false “Living Wage” branding this government applies to it). But even if you believe this is an issue, it’s one for government to deal with head-on, not via some back-door naming and shaming exercise of employers who are simply hiring the best people for the job at the rate the market determines.

It is to the SNP’s credit that they don’t pander to xenophobes and instead make a clear and welcoming statement to all EU citizens (unless you’re English and want to study here of course, in which case you have to pay).

But you don’t need to believe the SNP share the same racist tendencies as the worst of the English nationalists to argue that something links them. That "something" is a wish to narrow the definition of us, a desire to identify and point the finger of blame at them. The bogeymen may be different, but both strains of nationalism require that they exist to sustain their angry support.

Before grand-standing from what they see as their moral high-ground, the SNP should maybe consider that their continued grievance mongering towards the rest of the UK and "Westminster" is mirrored by those blaming the EU and “foreign workers” for all their ills.

This context might explain Mhairi Black’s poorly chosen and intemperate language. After all, nobody likes to be spooked by their own reflection.


1. Most notably James O'Brien who compared Amber Rudd's speech to an extract from Mein Kampf. I'm generally a fan of O'Brien's, but in this case I think he was guilty of some frankly pretty dodgy "straw-manning". I would suggest to justify an accusation of something as heinous as this he at least needed to be able to quote some actual lines from Rudd's speech. In O'Brien's defence, he's a professional agent provocateur, not an elected member of parliament. And I'm pretty sure he's not a nationalist.

Saturday, 8 October 2016

Listing Foreign Worker Numbers

Last week the Conservative Party floated a policy proposal to make companies report how many foreign workers they employ and - if press reports are to be believed - "shame" companies judged to employ too many.

The media reaction this proposal generated showed that I wasn't alone in instinctively finding this idea morally repugnant - but then YouGov published a poll that suggested the majority of voters instinctively approve of the idea ("By more than two to one the public support government proposals to make businesses publish how many foreign workers they employ");

So why does a proposal that appals many of us appear to find favour with the majority?

First we should try and be clear what the proposal actually is (even if those answering the YouGov question may not have been). This is not as straight-forward as you might imagine.

The headlines seemed clear enough: "Firms must list foreign workers - plans to shame companies..."

Interestingly you won't find any of these words in Amber Rudd's conference speech (> full text of Amber Rudd's conference speech) - the only relevant words I could find are:
we will shortly be consulting on the next steps needed to control immigration [...] examining whether we should tighten the test companies have to take before recruiting from abroad [...] The test should ensure people coming here are filling gaps in the labour market, not taking jobs British people could do. [...] So I want us to look again at whether our immigration system provides the right incentives for businesses to invest in British workers
Fairly run-of-the-mill stuff. I could argue with the phrase "jobs British people could do", but there's certainly no mention of  lists of foreign workers or shaming companies. So where do those words come from? I can't find any formal government announcement (> and nothing from the Conservative Press office (> press.conservatives), so it seems we have to rely on papers' interpretations of press briefings.

I make no apology for being forensic about this. When reactions to the proposal include claims of xenophobia and racism, we should be clear about who has said what and to whom.

The independent helpfully quotes directly from "a briefing sent afterwards" (emphasis is mine)
In a briefing sent afterwards, it was made clear that other measures to be considered would be, “whether employers should have to set out the steps they have taken to foster a pool of local candidates, set out the impact on the local labour force of their foreign recruitment and be clear about the proportion of their workforce which is international, as is the case in the US."
That same independent article states
Businesses may even be “named and shamed” by being forced to publish what proportion of their workforce comes from overseas. 
Those quotation marks really matter: we must surely infer that either in the written or spoken briefing from the Conservative press office, those words were used?

The Times article doesn't explicitly refer to the briefing but clearly theirs is the same source (again emphasis is mine)
Under the proposals, to be included in a consultation paper, businesses would have to “be clear about the proportion of their workforce which is international”. It is understood that this would apply to non-EU workers initially but could be extended to all non- British workers after Brexit.
Businesses would be expected to publish the figures for each site where workers were based. Details such as whether the rules would apply only to companies employing a certain number of staff have yet to be finalised.
The Times article goes on to say;
Hitting back at critics in an interview with Today [..] Ms Rudd said she had been careful to ensure her speech did not to fall into the “trap” of stoking racial tensions.
Ms Rudd has a point insofar as it's clear that the words that caused the biggest headlines and most outrage were not in her conference speech; but it's also clear that the official press briefings given were much less circumspect.

The fact that the independent places "named and shamed" in quotation marks and that the Times refers to plans to "shame companies" suggests that this language was used in the briefing.

[The "must list foreign workers" in the Times headline looks like the work of a sub-editor to me, because revealing how many are employed is technically not the same as listing them.]

Enough of the forensics: Amber Rudd may have been careful not to deliver the inflammatory words herself, but she (her department, her party) are clearly responsible for getting the "name and shame" idea out there, along with the basic proposal that companies declare the proportion of their workforce which is international.

Of course all of the nuance above is lost by the time you get to public perception and the YouGov poll question to which the majority appear to agree1: "do you support or oppose government proposals to make companies report how many foreign workers they employ "

Now let me explain why I think this is a really awful idea.

I've made the point that the "list employees" headline is misleading, but the process for getting to the proportion figures requires employers like me to create real lists with real names of real people on them. Under these proposals I will be required to create lists of non-British employees. You don't have to be the keenest student of history to see why this is a deeply unsettling thing to be asked to do.

References have variously been made to "foreign recruitment", "international workers", "foreign workers", "comes from overseas" and "non-British workers". Each of these terms is open to interpretation and raise questions which - frankly - I don't think we should be having to ask (e.g. UK Home Office won't say if Irish people will be exempt from controversial list of foreign workers).

It's important to note that it is of course already illegal to discriminate at work on the basis of nationality (or race, religion, gender, age etc.) - companies can't pay non-British workers on a different pay-scale to British workers.  We already have a visa system which controls who can and cannot work in the UK and for how long. If a government wants to change those rules, they should do so explicitly, not via some dodgy back-door shaming exercise (which by the way appears to encourage discrimination).

Under these proposals we would be asked to segregate our employees into two categories: British and non-British. We would be explicitly encouraged to discriminate between these two categories - having "too many" non-British employees is something we are to be ashamed of, apparently.

This focus is clearly meant to be on hiring decisions, as ilustrated by the supplementary YouGov question (which 60% of respondents agreed with):

There's a major flaw with this question of course: unless we start cloning people, "all else about two candidates for a job" will never be equal. What this is really suggesting is if you're struggling to choose, don't bother thinking harder and forming your judgement based on the candidates' qualifications and your perception of their ability to do the job, judge them instead based on whether they're British or not. Whether the respondents realised it or not (anybody involved in recruitment knows the premis of the question is flawed), this is simply encouraging discrimination based on nationality.

But if we're to "name and shame" companies for employing "too many" non-British people, would the impact stop at recruitment? When performing staff reviews or facing difficult redundancy decisions, how can employers not be expected to be influenced by the consideration that having "too many" non-British employees is considered a source of shame for the company?

True Story: As an employer I've had to go through the extraordinarily difficult and soul-sapping process of making people redundant. When you go through that process you have to work out the objective selection criteria on which you decide who stays and who goes (tenure, attendance, performance reviews, disciplinary record, etc.). I hope I don't need to say we didn't have "British or non-British" as criteria on our list. I remember clearly how a Polish warehouse worker with an outstanding employment record wept when she was told she wan't going to made redundant - she told me she just assumed that the non-British workers would be first to go. I was shocked that she'd think that. It sickens me to think that the prejudice she feared would exist may be edging its way toward being encouraged through government policy.

Aside from the moral arguments, there are solid practical reasons why any actions that discourage migrant workers are a bad idea (and knowing you're on a list of an employer's non-British employees certainly doesn't seem like an employment perk). As this blog has covered before:
  • As people live longer, the proportion of our lives when we aren't contributing to the state but are instead benefiting from it increases (> Two Types of People)
  • The strong weight of evidence is that immigration has a positive impact on public finances, that immigrants make a positive fiscal contribution (> Immigration and the EU referendum)
Politicians are generally shy about saying this (although to the SNP's credit, they're not): we need to encourage foreign workers to come here, to work and to generate taxes (to help the state look after our increasing older population).

But these practical considerations shouldn't distract us from the core issue here: context.

These proposals are made in the context of a winning Brexit campaign that shamelessly played to the xenophobes among us. I'm certainly not suggesting that most Brexit voters were xenophobic, but you can be pretty sure that all xenophobes were Brexit voters. To pretend that the EU referendum hasn't stoked the flames of narrow-minded nationalism would be disingenuous; to make proposals to appease those who seek to stigmatise non-British workers is downright irresponsible. And passing the inflammatory sound-bites to the press by holding them in a large pair of tweezers doesn't absolve Amber Rudd of responsibility either.

That this could be argued to be building on previous ill-judged sound-bites like Gordon Brown's "British Jobs for British workers" is no defence - two wrongs don't make a right.

My Scottish nationalist friends really hate me making this point, but the rise of nationalism in its various guises is a common theme here. Ironically this point was made by the SNP's erstwhile spin-doctor-in-chief, Kevin Pringle, when he tweeted "we're certainly living in a Nationalist state now"
Nobody likes to be spooked by their own reflection, so it's perhaps understandable that Mr Pringle acts as if the flavour of nationalism that drives these proposals bears no relationship to his beloved Scottish Nationalism. I was even told on Twitter that "at least Scottish nationalism is pure", which to be honest didn't comfort me greatly.

The two brands of nationalism we've been witnessing in the UK over the last few years are different, but they share a common, grubby thread. They both focus on"othering" - narrowing the definition of us and seeking to define a them to blame for all our woes.

Of course the source of Pringle's barely concealed glee is that this plays into the hands of the Scottish Nationalists. Continued grievance rhetoric from the SNP fuels an English back-lash that runs from calls for English Votes for English Laws (EVEL) to a rise in the mirror of Scottish Nationalism, English Nationalism. The gap between us grows and the SNP's dream of separation from "them" seems closer day by day.

But if the SNP are reaching for the YouGov poll to show how different we are when it comes to attitudes to foreign workers, they'll be disappointed. With all the usual opinion poll caveats required1, SNP supporters are if anything more likely to argue for prioritising British workers than Labour or Lib Dem voters;

From the same source, SNP voters also appear more likely to strongly support the proposal than either Labour or Lib Dem voters

So it seems Mr Pringle may have to swallow the fact that those who favour Scottish independence are - on this thorny issue at least - not so different from the rest of the UK, they're just different from Tory and UKIP voters (which, despite some of the more simple-minded protestations you might hear, isn't the same thing at all).

One last cross-cut of that YouGov data shows 50% support for the proposal in Scotland (vs. 59% UK-wide). I don't think a 50:50 split in Scotland really justifies the virtue-signalling on this issue that we've been hearing from the usual SNP suspects.

So Vive la similarité?  Well no, not in this case. I'd rather we were bound by a clear shared desire to welcome and treat foreign workers as we do any others, rather than roughly half of us having an apparent shared desire to discriminate against them.

Is it too much to hope that when people think this through a little further, the consensus will shift to condemning this as being a truly awful ideas?


1. YouGov base their surveys on a large online panel - these specific results are from a survey of 5,875 respondents. To illustrate the sample size implications, if split proportionately by party the implied coverage of SNP supporters is therefore likely to be c.240 (50% of 8.2% of the UK population). My twitter friends suggest therefore a standard error of +/-4% on those figures. Of course we are relying on YouGov's weightings to adjust from the online sample to a representative UK profile - I don't think anybody needs reminding these days that all opinion polls be treated with caution. That said, the result is so striking its impossible to ignore.

Thursday, 8 September 2016

Scotland, Scotland, Independence, Scotland

Just a bit of fun - no cheats, no repeats

p.s. I didn't create this (I wish I had)

Wednesday, 31 August 2016

Response to Prof Hughes Hallett Letter to the FT

The following letter from Professor Andrew Hughes Hallett  appeared in today's FT

I have sent this reply

Sir, with reference to today’s letter from Professor Andrew Hughes Hallet “Scottish Oil and the case of the missing 45%”, I’m afraid that the esteemed professor has failed to understand a rather fundamental point. North Sea oil revenues included in the Government Expenditure and Revenue Scotland (GERS) figures to which your editorial referred are generated by taxes on production profits, not revenue.

The only mystery is therefore not why they’ve declined so dramatically, but how a member of the SNP’s Fiscal Commission Working Group (FCWG) could be ignorant of this basic fact.
Kevin Hague
MD, M8 Group 

I kept it brief to increase chances of publication - with the freedom this blog affords me I'd add:

This is shocking not just because a member of the FCWG should be aware of this basic point, but that he chooses to leap to the erroneous conclusion that our national accounts must be flawed. It's almost as if he's trying to help the SNP by offering voters an excuse to ignore the hard economic facts.
Coming hard on the heels of fellow FCWG member Prof Joseph Stiglitz's admission that "Independent Scots currency union plan 'may have been a mistake', you have to hope that even Yes supporters are starting to realise that Sturgeon's "Council of Economic Advisors" might not be the infallible seers that she would have us believe.


** UPDATE **

A slightly edited version of my brief letter was published in the FT on 01/09/2016.

As an aside: the original FT piece he refers to mentioned factors which had “reduced Scotland’s notional share of British oil revenue from £9.6bn in 2011-12 to £60m in 2015-16”

A passing familiarity with these numbers would make it clear that these figures are government tax revenues, but one possible explanation for the Prof's confusion is he thought the decline reported related to value of output or GDP contribution.

A quick glance at GERS shows us that from 2013-14 to 2015-16, Scotland's oil generated GDP declined from £18.2bn to £9.7bn, a drop of 47%. This squares well with the prof's "price down 54% offset by modest production increases" logic - so no mystery there.

The only alternative explanation I can see is that - as I assume in my letter - he knew the figures were taxes but was unaware those taxes are raised on profits not gross output. An easy mistake to make perhaps, but certainly not grounds to assume that the UK's national accounts do not conform with the European System of National Accounts (which, see below, they of course do)


For details on sources of North Sea tax revenues, see GERS p 21, Table 2.1

For confirmation that the UK national accounts do in fact conform with the European System of National Accounts see (for example) the ONS statement here

Thursday, 25 August 2016

GERS - Good News for Scotland

The Scottish Expenditure and Revenue Scotland (GERS) figures for 2015-16 were published this week. Despite some of the headlines that followed, they were great news for Scotland.

Scotland’s onshore economy (as measured by the taxes we raise before including North Sea Oil income) grew in real terms by 3.6% in 2015-16 and is shown to have steadily grown by about 2.2% a year for the last 6 years. Our total public spending also actually grew by 1.0% in real terms last year, despite the much moaned about “Westminster austerity”. These aren’t the figures of an economy that’s suffering.

The reason for the doom & gloom headlines is of course the £14.8bn (9.5% of GDP) “Scottish deficit” caused by the decline in oil revenues following the collapse of the world oil price.

Four years ago Scotland’s oil revenues were £9,663 million. The independence White Paper assumed oil revenues in the range of £6,800 to £7,900 million for this year. The actual figure last year was just £60 million and - because of decommissioning costs and tax credits - it’s now forecast to be negative.

This loss of oil income means that, despite the strong growth of our onshore economy, our total revenues grew by just 0.3% last year and are actually down by a whopping 10.6% in real terms since 2011-12 (the base year used for the Independence White Paper). In contrast, since 2011-12 Scottish public spending has declined by just 1.1% in real terms.

This means that, while we now raise £400 less in taxes per person, Scots continue to receive £1,300 higher spending than the rest of the UK (as we have done for over a decade). That’s one of the benefits of UK-wide economic sharing - we’ve been able to maintain our higher public spending despite our dramatically reduced revenues.

If you add our higher spending and lower tax generation, you can see we are now responsible for £1,700 per person more deficit than the average for the rest of the UK. Gross that figure up by our population and you get just over £9 billon, the infamous “black hole”. Even the SNP can't deny that this means we now receive an effective £9bn fiscal transfer from the rest of the UK, that pooling and sharing works massively in our favour because we share the UK’s deficit rather than being burdened with all of Scotland’s.

So these figures are only bad news if you’re determined that independence has to be the answer, because then we’d have to fill that £9 billon gap some other way.

To close the gap simply by spending less, we’d need to reduce all public spending by 13%. Nobody wants that.

So if we’re to eliminate the black-hole that currently scuppers the case for independence, we have to find a way of growing our onshore economy faster than the rest of the UK. Unless we achieve that we’ll continue to be net beneficiaries of fiscal transfers. You don’t have to be a die-hard nationalist to want that to change.

Obviously the main way to grow public revenue is by increasing the tax base though creating jobs and paying people more (who then go out and spend more). That means creating an environment within which businesses can thrive.

The SNP appear to be pinning their hopes on achieving this by managing to keep Scotland in the EU. Unfortunately remaining in the EU now means leaving the UK, which means waving goodbye to that £9bn fiscal transfer. There’s also a logical problem when the reason being given is a fear that EU/UK trade will be hindered as a result of Brexit. This seems to ignore the simple fact that we export four times more to the rest of the UK than we do to the EU. If a UK/EU border hinders trade, being on the EU side of that would hurt us four times more than being on the UK side.

There is another option: the SNP could stop talking up the prospects of yet another referendum and focus instead on building our economy within the UK.

Investors don't like uncertainty so they’re put off by the threat of yet another referendum and the resultant uncertainty around our future currency and UK trade borders. But I'd argue the cost of continual threats of indyref2 is more than just the effect on big business and investor confidence - it runs much deeper than that.

Scotland is a country where our political leaders invest their energies into trying to break our Union rather than working to build our economy.  Our young people are bombarded with negative messages, provided with excuses not to succeed, hampered by reasons they can't instead of encouraged with reasons they can. It's Westminster's fault, it’s the UK's fault - we're cheated, hard done by, put upon - we can't succeed unless we break from the UK, or so the SNP argument goes.

I can't think of a worse environment within which to try and encourage ambition, engender confidence, fuel entrepreneurial spirit and fill people with a sense of the possible - and yet that's surely what we need to do if we are to see our onshore economy out-grow the rest of the UK.

A parting thought. Consider how much of our time, energy and money has been expended fighting against the UK and pursuing the dream of independence at any cost.

Now imagine you could take just a fraction of that resource and invest it against positive, job creating, wealth building, economy boosting projects.

Just think what we could achieve.


This article appeared in the Daily Record on 26/08/2016

For detailed analysis of the GERS figures that supports this piece, please see > GERS: A Story Told Through Graphs

Wednesday, 24 August 2016

GERS: A Story Told Through Graphs

Today saw the publication of the Government Expenditure & Revenue Scotland (GERS) report for the fiscal year 2015-16.

Regular readers of chokkablog will be familiar with my predilection for helping us get our heads around large quantities of data by plotting some graphs. Well buckle in.

Let's start with the simple headline fact: Scotland's GERS deficit was £14.8bn last year. It has remained at similar levels for the last four years but has slightly deteriorated in the last two1.

As a percentage of GDP our deficit is now 9.5%. To place this figure in context, the EU's "excessive deficit threshold" is defined as 3.0%2

Of course we're not an independent country, we voted No. This means that the deficit that really matters to us is the UK's, because that's the one which we share. The UK's deficit, on the same basis, is 4.0% and improving steadily.

At this point somebody normally pipes up that this proves the UK's economic strategy is failing Scotland because the UK as a whole is improving but Scotland isn't. This is of course a rather daft observation. It's daft because it doesn't allow for the impact of North Sea oil revenue declining due to the global oil price crash and maturing North Sea reserves.

North Sea oil revenues are now effectively zero3, as the OBR and many of us predicted some time ago. This of course contrasts rather dramatically with the £6.8 - 7.9bn annual North Sea income that the Independence White Paper recklessly predicted. In fact - due to decommissioning costs and tax credits - the latest forecast is for the North Sea to represent a net fiscal cost for the foreseeable future.

We can easily exclude the impact of this North Sea decline by looking at Scotland's onshore economy only (the green line below).

This shows that our onshore economy has in fact been improving broadly in line with the trend for the UK as a whole4.

"But hold on Kev" I hear you ask, "if it's all about the loss of oil revenues, surely that's a problem for the UK as a whole as well?". The answer to this is simply that the North Sea is proportionately way less important to the economy of the UK than it is to Scotland. Here's that same graph on a total UK basis  -  makes the point pretty clearly I think.

So the apparent lack of progress on Scotland's deficit is really just due to the fact that we used to have oil and now we don't. The improvement in our onshore economy's performance is masked by the decline in our offshore revenues. But now oil's gone, why in relative terms is our deficit so much worse than the UK average?

This is easily explained by looking at Scotland's revenue generation and expenditure (on a per capita basis) versus the rest of the UK. Regular readers will be familiar with this graph5. The figures below are all in real terms (i.e. adjusted by the UK GDP deflator).

This graph shows us:
  • Red line: we consistently receive about £1,300 higher expenditure per capita than the rest of the UK
  • Green Line: we consistently generate about £400 per capita less onshore revenue than the rest of the UK
  • Black line: when you include oil revenue, we've historically generated considerably more revenue than the rest of the UK, sometimes (most recently 2011-12) enough that our higher revenue more than compensates for our higher spend.
The difference between the red and the black lines is our per capita deficit gap, the amount by which our per capita deficit exceeds (or not) that of the rest of the UK.

Here's an updated plot of this gap - the trend is clear

The Independence White Paper assumed the same average level of North Sea oil income as generated on average between 2009 and 2012, implicitly in perpetuity. The recklessness of that assumption is glaringly apparent.

What these graphs tell us - and what this blog has frequently argued - is that there's long been an onshore deficit gap of about £9.0bn between Scotland and the rest of the UK. This was simply masked by surges in oil revenue. When the oil revenue goes (as it has now), that deficit is exposed. The idea that oil was ever just "a bonus" for the independence case is risible.

There are arguments to be made for calculating this deficit gap either on a per capita or percent GDP basis and versus either the UK as a whole (including Scotland) or versus rUK (the rest of the UK). If you really care, you can read the arguments here (> FFA For Dummies; Methodology) but all you really need to know is it makes little difference. The graph below shows the size of this onshore deficit gap over time, calculated in both ways

We can safely say that, for the last decade and more, there's consistently been an £8 - 10bn onshore deficit gap between Scotland and the rest of the UK and there's currently no sign of it going away. This is the "black-hole" that some of us keep banging on about.

Let's clear a common point of confusion: the "black-hole" doesn't mean the deficit. It means the amount bigger our deficit would be than that we now share with the UK ... if we were independent and still raising and spending public funds at the rate shown in GERS.

This matters in part because we could continue our trajectory of onshore revenue growth and slower spending growth and eventually we would eliminate (or at least reduce to manageable levels) our deficit - but we wouldn't close the gap with the rest of the UK unless we raise revenues faster or increase spending more slowly than them. As long as we perform on the same track that gap remains - a gap that translates into an effective fiscal transfer from the rest of the UK to Scotland of £9bn a year or £1,700 for every man, woman and child in Scotland.

Is it fair that we should receive that money? Well there are two ways of answering that.

Firstly you could argue that the principle of union is that we receive equal levels of service from the state (not equal levels of spending) and so if an area is high "cost-to-serve" it should receive more public funds. Think Scottish islands and rural areas being subsidised by Scottish cities. Scotland is high cost-to-serve relative to the rest of the UK because of low population density and dispersed communities, but also because we have health and demographic challenges (see Two Types of People). 

Secondly you could argue that it's the quid pro quo for the fact that when we have a windfall like North Sea oil, we share it. We definitely did share it of course - if you start the clock in 1980 (the most favourable point to do so from Scotland's perspective) we can see clearly that for a long time Scotland was a massive net contributor (black above red) to the UK's economy.

For what it's worth, if you sum up the total real terms net contribution by Scotland to the UK over this time period we are still "in credit" by just over £10k per capita (so at the current rate of transfer we'd still be in credit for another 6 years). Nobody in Scotland needs feel embarrassed by the fiscal transfer - we are pooling and sharing over time as well as geographically. Of course we could try and run this calculation from 1707, but that way madness lies.

Nobody is arguing that an independent Scotland wouldn't want to and indeed have to do things differently - but GERS does show us the starting point, the run-rate, the pro-forma accounts on which an independence case needs to be built. Those who champion independence have to make a credible for case for how and why and by how much we'd change the GERS figures by being independent. Just saying "the GERS figures tell us nothing" simply doesn't wash - they tell us what happens if we were to keep taxing and spending at these levels (and why we can't).

So let's look at where we spend the money today: here's our total managed expenditure in real terms over the last 17 years

Of course some of that money is controlled by Westminster. In the cases of debt interest and defence these cost are allocated to us on a per capita basis. The other main reserved expenditure is elements of social security, most notably pensions, which are allocated on an actual spend basis.

What strikes me is the fact that, despite the austerity rhetoric, our overall public spending has increased in the the last year by £650m or 1.0% in real terms (this compares to spending in the rest of the UK having risen by 0.8%)

If you strip out the reserved and per capita allocated (and highly contentious in terms of "value") categories of debt interest, defence & international services we still received £650m higher spending in real terms. 

Go a step further and strip out the world of pain that is accounting adjustments and the remaining categories have seen a spend increase of £1,420m or 2.5% (having been flat last year). We can debate how the pain has been spread, but the overall level of spending on key services has in fact risen as a result of the ongoing UK fiscal framework and the wonders of the Barnett Formula.

Remembering that the value of the fiscal transfer from the rest of the UK to Scotland is £9bn, it's worth noting that if you (ridiculously) assume no debt and no defence costs at all we'd still be missing £3bn a year if we were out of the UK and wanted to continue to spending these other sums.

You're probably wondering in what areas are we spending more than the rest of the UK on a per capita basis? Well we have a graph for that

The simple answer is basically "everywhere". We used to spend less per capita on 
Public order & Safety, but the centralisation of Police Scotland appears to have put paid to that. There has been a long overdue - but to be applauded - marked increase in Education and Training spend.

The only area where we spend less is "Accounting Adjustment" which needs a little explaining. In this graph this includes "EU transaction costs" which are broken out in GERS this year for the first time. Although EU membership is a net cost to Scotland (about £39 per capita) it's £85 lower than the cost for citizens in the rest of the UK. The other main source of difference is "English Housing Associations" which have been reclassified into the Public Sector in England and account for £132 per capita spend in England but zero in Scotland as they have not (yet?) been reclassified into public spending here6.

So we can see where we spend more and this adds up in total to £1,300 per capita (presumaby it will be more if ONS decide Scottish Housing Associations should also be classified as public expenditure). If we're to close the deficit gap - to reduce our dependence on Barnett - we could of course simply spend less. The figures above give you a starting point to try and find £9bn. Suffice to say a £9bn reduction in spend would be an order of magnitude greater than any cuts we've seen under "Tory austerity"

So let's look at the other side of the equation, our onshore revenue generation

This shows a very encouraging real-terms growth trend which is in-line with the UK as a whole4. The onshore revenue growth in the last year of £1.9bn is greater than the £1.8bn loss of North Sea revenue, so it's true that overall our revenue has grown. Of course we've already seen our spend has grown as well, which is why our deficit has very slightly deteriorated.

Now depending on the cut of your cloth you either see this as showing that Westminster's economic policies work for Scotland as well as they do for the rest of the UK or (if you aren't too busy arguing that GERS numbers show us nothing of value) that they show what a super job the SNP are doing. Given the SNP have refused to use our hard-fought-for tax raising powers to any meaningful degree, I find it hard to conclude that this is anything other than the UK's economic strategy working for Scotland's onshore economy.

Now I imagine you'll be wanting to know why we consistently generate less revenue per capita than the rest of the UK, so let me throw one last graph at you:

As noted before on this blog, we depressingly raise more per capita in sin taxes (tobacco, alcohol and gambling duties) and the corporation tax assumption is the one big "punt" in GERS: companies don't report profits split between Scotland and rUK so it's frankly a guess. The key point is that this guess is not a material factor in explaining the lower revenue generation we see - that's clearly down to lower income and wealth taxes. Basically, on average Scots are paid less and we are less wealthy than the rest of the UK.

I sense a grievance building, but as Nicola Sturgeon was at pains to point out today: "Scotland, in terms of economic output per head – and even excluding offshore revenues – remains the most prosperous part of the UK outside of London and South-east England"


So I think we've understood the GERS figures through these graphs and they produce no surprises. If we'd have voted Yes the oil decline would still have happened and the gap that is being filled by fiscal transfers from the UK would have to have been filled from elsewhere - some combination of spending reductions, tax rise or even higher borrowing. That's before we even start to consider the immediate cost of independence, currency issues, business flight etc. We can safely conclude that those of us who voted No helped us dodge a bullet.

Even Yes voters can't deny that we now receive an effective £9bn fiscal transfer from the rest of the UK, that pooling and sharing works massively in our favour.

The question remains: how do we improve the economy of Scotland, how do we deliver not only onshore revenue growth in-line with the rest of the UK but revenue growth that's superior to the rest of the UK? Only by answering this question can we reduce the fiscal transfer without drastically cutting our public spending.

Well I have some thoughts. Obviously the way you grow public revenue is by growing the economy, creating jobs and paying people more (who then go out and spend more). That means creating an environment within which businesses can thrive.

The EU question is a thorny one and it's right that all options are explored to see how we can maintain our links with the EU whilst remaining within the UK. But any solution that proposes leaving the UK to join the EU has to address two major issues;
  • Leaving the UK means leaving behind the £9bn pa fiscal transfer - the "black-hole" becomes very real and would have to be filled through tax rises, spending cuts, yet more borrowing or (hardly likely) the EU picking up the tab
  • If the reason given for leaving the UK to join the EU is a fear that EU/UK trade will be hindered, that reason has a very simple logical flaw. If EU/UK trade is hindered as a result of Brexit, we lose far more being on the EU side of those borders than we do by being on the UK side (because we export four times as much to the rest of the UK than we do to the EU)
Investors don't like uncertainty. Continually threatening them with the disruption of yet another referendum and all of the contingent risks that entails (what currency, what tax regime, what trade barriers?) hinders investment and doesn't help our economy.

But I'd argue the cost of continual threats of indyref2 is more than just the effect on big business and investor confidence - it runs deeper than that.

Scotland is a country where our political leaders invest their energies into trying to break our Union rather than working to build our economy.  Our young people are bombarded with negative messages, provided with excuses not to succeed, hampered by reasons they can't instead of encouraged by reasons they can: it's Westminster's fault, its the UK's fault - we're cheated, hard done by, put upon - we can't succeed unless we break from the UK.

I can't think of a worse environment within which to try and encourage ambition, engender confidence, fuel entrepreneurial spirit and fill people with a sense of the possible - and yet that's surely what we need to do if we are to see our onshore economy out-grow the rest of the UK.

A parting thought. Consider how much of Scotland's population's time, energy and money has been expended fighting the UK and pursuing the dream of independence at any cost. Now imagine you could take just a fraction of that resource and invest it against positive, job creating, wealth building, economy boosting projects. Just think what we could achieve.



1.As with every GERS release there have been some adjustments made to prior year figures. The most material of these for Scotland have been on the expenditure side - I haven't unpicked these
2. The EU uses a slighty different deficit definition than that in GERS, but it's not significant in this context
3. Actual North Sea revenues were £76m of which Scotland's geographic share was £60m
4. per GERS page 3: "Non-North Sea revenue in Scotland grew by 3.7% in 2015-16, similar to that for the UK as a whole, 3.8%."
5. I produced this graph way back when 2013-14 were the most recent figures available - I think it stack up pretty well compared to the actuals

6. See GERS page 2: "The ONS reclassified English Housing Associations (HAs)1
 into the public sector on 30 October 2015. In 2015-16, this increased UK public sector revenue by £6.9 billion and UK expenditure by £10.8 billion, resulting in a £3.9 billion increase in the UK net fiscal deficit. A similar impact is seen in earlier years. Scotland is apportioned none of this additional revenue or expenditure in GERS. The ONS have not yet announced a decision on the classification of Scottish Housing Associations". I haven't yet understood the implications of this