Monday, 17 April 2017

Richard Murphy: The Outlier

Well, I appear to have caused quite a stir by understanding and defending the historical economic data compiled and published by the Scottish Government. Who would have thought that doing such a thing would be so controversial?

My Twitter timeline has been over-loaded with notifications (of both abusive and supportive mentions) and I'm even told I was briefly a "trending topic". Go me.

An SNP MP has been quoting me as having "conceded" something I've consistently been very clear about, the cybernats have created a meme about me and others have created counter-memes1.

Now I even see an article ostensibly about my views [Kevin Hague thinks Scotland should know its place ...] is currently the National's "most popular2".  I know not many people read the National3, but it's not every day you find yourself in the eye of the storm, even if it is just one in a tea-cup.

The cause of all this is a spat (first online, then on radio, now in print) between a Professor Richard Murphy and me about the trustworthiness of the Scottish Government's GERS figures (GERS being the report which, quite explicitly, "estimates the contribution of revenue raised in Scotland towards the goods and services provided for the benefit of Scottish residents under the current constitutional arrangements").

I recommend you listen to the radio debate if you have time (it's about 20 minutes long): John Beattie Show.

Summary (tl;dr)

Last August, the National published an article co-authored by Ian Dommett, former Marketing Director of Yes Scotland, headlined "11 lessons the Yes campaign must learn to win a second referendum". Tacitly accepting that the economic case for independence lies in tatters, it resorted to appealing for people to discredit the Scottish Government's own figures.

As the months passed, it seemed nobody with even the thinnest veneer of credibility would respond to this clarion call. Then, just a few weeks ago, a Professor Murphy entered the Scottish Independence debate. His contribution was to assert that the National Statistics published by our Scottish government are nonsense, that we practically know nothing about the Scottish economy and that what figures exist can't be trusted and are probably rigged by Westminster.

Having since discovered he hadn't understood the methodologies and assumptions used (and that these are chosen by the Scottish Government themselves) Murphy seems to have backed down, now saying he's merely suggesting that the accuracy of the data could be improved.

That he has implicitly retracted some of his more swivel-eyed claims is a good thing. That the GERS-denying wing of the pro-independence movement will ensure his initial wildly inaccurate and ill-informed assertions will echo on social media for years to come is as predictable as it is depressing.

His apparently more measured calls for better data still make little sense. In fact he's merely exposed the fact that he doesn't understand the nature of data we do have and appears ignorant of the law of diminishing returns.

The issue is not that we're not allowed access to data, it's that the data he thinks we need isn't currently gathered.  To address this, he appears to champion introducing intra-UK border posts so that we can have more accurate import/export data. He implies that companies should face a four-fold increase in their reporting burden by forcing them to file separate profit and loss accounts and VAT returns for each devolved UK region they trade in.

Better data comes at a cost, a cost which would damage our economy but wouldn't materially change the debate about an independent Scotland's economic challenges.

The financial uncertainties we have to deal with when considering the possibility of independence are measured in billions.  The oil forecasts used in the White Paper were out by £6.8 - 7.9bn. We have no idea what currency we'd be using and how that would be supported. Battling to improve the accuracy of historic figures by a £100m here or there would be a pointless exercise given the latest GERS deficit is a whopping £14.8bn.

Focusing on improving the GERS data is less like rearranging the deck chairs on the Titanic, more like hearing the Titanic is heading towards an ice-berg at 15 knots and complaining that we actually only know that the speed is somewhere between 14.5 and15.5 knots  - and arguing that simply isn't good enough information on which to act.

It gets worse. Just in the last week Murphy showed his own hypocrisy by applauding analysis using the same data sources which showed - before taking our public spending into account - that Scotland "is doing just fine" as a UK region. This reinforces a point many of us have been making for years, namely that the issue with Scotland's economy is less on the revenue generating side and more on the spending side: GERS shows the Scottish onshore economy consistently raises only £400/capita less in taxes than the rest of the UK, but that we spend an eye-watering £1,300/capita more4.

It's telling that Murphy avoids engaging on the spending side of the GERS figures, despite this being the biggest issue GERS reveals. That's probably because the £1,300/capita higher spend is not based on estimates or surveys or per capita allocations of shared costs: it's nearly all explained by the Scottish Government's own budget and by actual welfare and pensions data from the DWP.  Nobody with any credibility denies that Scotland simply spends far more per capita on public services than the rest of the UK.

So to conclude: GERS data shows - to an acceptable degree of accuracy - that the tax revenues our Scottish economy currently generates are insufficient to sustain the level of public spending we are currently used to receiving. Many pro-independence campaigners rightly recognise this and are trying to find ways to credibly address the challenge.

Denying the validity of the GERS data, as Murphy has attempted to do, is simply not a credible stance to adopt.


The Tedious Audit-Trailed Detail

Let's unpick this by starting with Richard Murphy's latest slight strange article in the National.

His article starts by saying ..
"LESS than a month ago, I admit I had not heard of the political commentator Kevin Hague [...] Then I wrote a blog explaining why, in my opinion, that data was unsuitable for decision-making in Scotland".
.. and concludes with
"If only Kevin Hague realised that all change for the better is dependent upon someone, somewhere sticking their head above the parapet and saying that things aren’t good enough and could be improved, he’d have something much more useful to say. I’m happy to play that role of the person seeking change in this case"
So he's positioning himself as somebody who's merely said the data is "unsuitable for decision making" and "could be improved".  He is now, apparently, merely an agent of change. This is a climb-down to rival that achieved by Sir Edmund Hillary and Sherpa Tenzing after they'd conquered Everest.

In the last month or so he's written several blogs, tweeted extensively and written a column for The National on the topic. Here are some selected quotes for those who may not be aware what he actually said:
  • Twitter, 13th March"Three numbers Scots should not trust: Scottish GDP, tax take and total government spending. All easily rigged by Westminster"
  • Blog, 14th March
    • "forget Scottish GDP data: we just don’t know what it is"
    • "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."
    • "Westminster could pretty much manipulate this data at will [..] the last thing [the SNP] should do is trust that from London"
    • "it's nonsense data ..."
    • "But there is no data ..."
  • Blog, 15th March
    • "it could be manipulated"
    • "based on estimates provided from what I called London, which was a euphemism for the whole Westminster controlled machinery of government"
I could go on, but I think you get the picture by now.

For those who care, I carefully corrected his more obvious misunderstandings in my blog at the time: Richard Murphy: GERS denier. There was also an excellent blog from the University of Stratchlyde's Fraser of Allander Institute which made similar points, albeit using more diplomatic language.

Suffice to say that he strongly implied the data was "rigged" and "manipulated" by Westminster. He wrongly (and ridiculously) asserted that because some estimates are used, there is actually "no data" and that what data there is is "nonsense" (and comes from London so can't be trusted anyway). This is full-on fact-denial, and has rightly been treated with disdain by respected economists5.

When it was pointed out to him that the data isn't "made in London", he hinted at a wider conspiracy involving the Office For National Statistics (ONS):

Here's how the ONS describe themselves: "We are independent of ministers and instead report through the UK Statistics Authority to Parliament and the devolved administrations of Scotland, Wales and Northern Ireland."

I'm sure Richard would point out it's naive to believe they're independent just because they're constituted to be so. It's clear he doesn't trust the ONS.

Or does he? I was amused to notice that just in the last week he was applauding analysis by Robin McAlpine of the Common Weal, saying: "What he quite effectively showed – using ONS and House of Commons data – was that Scotland is doing just fine as a UK region [..] I endorse [..] the analysis". 

I haven't checked the analysis, but at least in terms of economic activity as measured by GVA6 (i.e. the revenue generation side of the equation, before we consider spending) I agree "Scotland is doing just fine". I have consistently pointed out that the revenue generation of our onshore economy in Scotland is broadly in line with the rest of the UK. But then I do trust ONS data - it seems Richard only trusts it when he likes the answer.

He went on to use his platform in the National to make some even more ridiculous claims ("Why you can't rely on GERS figures to judge Scotland's financial state"National, 21st March 2017)
  • "The chance that Scotland makes a deficit of the scale it suggests is remote. It is exceptionally unlikely that eight per cent of the population make 17 per cent of the UK deficit"
This is a genuinely extraordinary statement - he either doesn't understand maths or thinks the readers of the National are dribbling fools. What is exceptionally unlikely is that the Scottish Government would consistently make the mistake of over-stating our share of the UK's deficit.

To illustrate: imagine a retailer has two stores, one large store with many employees and one small store with fewer. Both stores make similar sales per employee, but the small one pays its staff slightly more*. The big store is break-even, the smaller store loses money. The smaller store would therefore be responsible for 100% of the retailer's losses. There's nothing "exceptionally unlikely" about that. Now if 8% of the population was responsible for 17% of our revenue or 17% of our public spending, that might be surprising - but that's not the case.

*This analogy is not a bad one: Scotland and the rest of the UK generate similar revenue per capita (sales/employee) but Scotland has higher public spending per capita (cost per employee).

His initial National column continued
  • "it would be England that would owe Scotland money if there was independence"
Heaven knows I've heard some bizarre assertions during Scottish Independence debates, but this one's a doozy. It is of course offered with no justification - it seems Richard just feels like it should be the case. Incredible.

He concluded
  • "[the economic debate could be improved] if GERS and all the nonsense that goes with it is dismissed as another example of Westminster’s contemptible attitude to all things Scottish"
It seems Richard still hadn't grasped that GERS has nothing to do with "Westminster's attitude" to anything, because it's the sole responsibility of the devolved Scottish Government.

In an effort to put this misunderstanding to bed once and for all, I made a Freedom of Information request. The Scottish Government replied with the following (full Q&A in notes below7)
"The Scottish Government statisticians and economists who produce the report are responsible for the methodologies and assumptions it contains. [..] The revenue and expenditure statistics in GERS are produced in the Office of the Chief Economic Adviser, in St Andrews House, Edinburgh." - Scottish Government
The most charitable interpretation I can offer is that Richard waded in without doing his homework. Like a late arrival to a bar-room brawl, he charged in swinging blindly and didn't realise he was actually punching the Scottish Government's own economists and statisticians. In the face. Repeatedly.

Maybe he thought he was being helpful by responding to an explicit call for help that was voiced in the National last August:
"The opponents of independence have already shown their hand by focussing on and repeating the GERs figures [..] How can these be discredited, recalculated or reframed?" - co-authored by Ian Dommett, former Marketing Director, Yes Scotland
Let's be charitable: as someone who is new to this debate8 he's had a lot of catching up to do; we should maybe allow him to re-position himself from full-on "GERS denier" to someone who merely argues that the data "could be improved".

So let's continue by just looking at what he's now saying in his latest National column.

He makes three points. His first and second points are basically that GERS used to be fine but "times have changed" so it needs to be improved, we need better data.

This ignores the fact that GERS is already being continually improved. The 12 civil servants and the 16 external members who sit on the Scottish Economic Statistics Consultancy Group (SESCG) - including those independent consultants beloved by the Nationalists, Jim and Margaret Cuthbert - will I'm sure be very keen to hear some detail from Professor Murphy as to what they're missing.

The SESCG is meeting again later this month: who wants to run a book on the likelihood of Professor Murphy making the effort to be there? Will he have constructive suggestions to make to back up his bellicose rhetoric?

It's clear that Murphy has little or no idea of the amount of work that goes into continually revising and improving the GERS methodology. If he did he might bit a bit less cavalier with his insults towards the full-time dedicated team of Scottish Government economists and statisticians who compile them.

Let's be clear about one thing: as various Freedom of Information requests7,9 have confirmed, no data is "denied" Scotland by Westminster. The issue - as argued cogently by Neil Lovat on his blog here - is whether it is worth incurring the expense and disruption of gathering additional information to make the GERS figures more accurate.

I was heartened to read a sober and sensible perspective offered by (independence supporting) Marco Biagi in the National a couple of days ago, which tacitly accepted that the data is fit-for-purpose
"Are GERS estimates perfect? No. Significant uncertainties exist around them. Anyone who treats GERS figures as sacrosanct to 10 decimal places can safely be disregarded with your preferred euphemism for idiot. But substantial changes to how they are collected have already taken place. The methodology was substantially interrogated in 2007 after the SNP came to office: nearly every revenue estimate was revised. [..] The real question is what an independent Scotland would do with its economy. GERS represents, with some imperfection, Scotland-in-the-UK, not an independent Scotland. But Scotland-in-the-UK is the starting point for the journey."
But back to Murphy. He certainly hasn't made any practical suggestions as to how GERS should be improved, but he has given some examples where he thinks the data isn't good enough, so let's look at those.

In his first blog on this topic, one of his many goofs was to assert that "no one has a clue what crosses the borders from Scotland to England and Northern Ireland". As I pointed out at the time, Richard clearly hadn't looked at Export Statistics Scotland (ESS), which is where that information comes from. This is data compiled by the Scottish Government, primarily using the Global Connections Survey run by the Scottish Government. Like so many economic statistics, it's an estimate - but one triangulated with other sources and which qualifies for National Statistics designation.

What would Murphy need before he is satisfied that the data is good enough? Well his 21/03 National article actually tells us. He states:
"It’s the same with imports and exports: no-one knows what these are because there are no border posts at Carlisle, Berwick-on-Tweed or Stranraer."
Interesting huh? He's not suggesting something practical (like, say, that the survey needs to be more widely completed by putting greater pressure on more businesses to complete it). No, he explains that no-one knows because there are no intra-UK border posts. The implication is clear: to satisfy his desire for better data we need to put border posts up between Scotland and England. It's a ludicrous suggestion - and of course the data still wouldn't be perfect, not least because most of our rUK exports are services.

He also complains that "Revenue Scotland is still struggling to work out which people are tax resident in Scotland". There will be some issues at the margin here for sure (issues that would exist even if Scotland were independent), but the materiality of this problem might be contested by the 300,000 Scots who are affected by the lower higher-rate taxation threshold in Scotland. HMRC seems to be finding us without too much difficulty.

He also moans that the Scottish Government  "has no clue at all on what corporation tax, VAT [raised in Scotland actually is]" .

Had Murphy done his homework, he'd have known that corporation tax and VAT are in fact good examples where the economists who compile GERS have been willing to over-ride HMRC assumptions to move the figures in Scotland's favour:
  • In 2013, HMRC estimated Scotland's share of onshore corporation tax revenues at £2.5bn but the GERS figures used a different methodology and so assumed £3.0bn. Similarly, GERS assumed £1.3bn more North Seal oil revenues should be attributed to Scotland than HMRC did10
  • In the most recent revenue figures, GERS assumptions differ from HMRC's in four areas (Corporation Tax, VAT, PRT and Shares) - in all cases GERS assumes higher revenues attributable to Scotland than HMRC11
If the GERS figures have any bias, it's likely be in Scotland's favour.

With VAT and other consumption taxes, the current methodology rather neatly uses consumer spending data to attribute these to Scotland. On this basis it's worth noting that Scotland gets attributed more per capita income than the rest of the UK for VAT as well as tobacco, alcohol and gambling duties12 - so the GERS figures benefit from this approach compared to crude per-capita allocations.

What is Richard's proposed better methodology? Again his article gives us the answer - we don't know the right figures "because no-one has to declare those taxes separately for Scotland".

It's clear Prof Murphy is an academic and not a real-world businessman. He seem to think that imposing additional reporting burdens on UK businesses would be a worthwhile price to pay to tighten the accuracy of the GERS data. Is he seriously suggesting we get all businesses that trade UK-wide to file four VAT returns every quarter, one for each devolved UK region? Does he want to enforce the (frankly meaningless) burden of regional profit reporting in audited accounts?

Corporation Tax is a special case worthy of an aside. The only way we could get better data here would be by forcing companies to report profit for each area of the UK in which they trade. This would not only be an onerous task but a spectacularly pointless one. If Scotland were to become independent, many things would change (not least, depending on corporation tax rates, where companies would choose to base themselves and report their profits). Nobody can know which jurisdiction companies would choose to report their profits in were Scotland to become independent. We can't make the historical data meaningfully "more accurate" if what we want to know is what would an independent Scotland's corporation tax take be - there are so many variables the best we can do is allocate UK corporation tax based on economic activity levels. Which is precisely what GERS does.

Standard statistical analysis tells us that the survey based revenue allocations in GERS are accurate to +/-£0.6bn13. Is it really worthwhile to introduce more administrative costs and tie businesses up with the burden of four-fold additional reporting requirements to improve accuracy further? In a word: no.

To illustrate with two examples:
  • The current GERS deficit is £14.8bn. If it was £14.2bn or £15.4bn it frankly wouldn't make a jot of difference to the economic narrative around independence
  • The White Paper oil forecasts were out by £6.8 - 7.9bn. What's the point in mithering about a hundred million here or there in our historical actual figures when the forecast uncertainties are measured in billions?
His third "point" is that apparently recent events have vindicated his position
"in the last couple of weeks the UK Office for National Statistics has said data of the sort I have suggested, based on real tax income, should now be used for UK-wide decision-making. So why should that not be the case in Scotland as well, I argued."
He's relying on the fact that readers of the National will take that assertion at face value and not check what was actually said. On his blog he points to this FT article as his source. Here's what the ONS were actually saying:
"statisticians have found that the forecasting techniques used for the initial GDP estimates — which are published one month after the end of each quarter — “struggle to pick up turning points” when the economy lurches downwards or up. [..] VAT data will increasingly be used as the primary source of initial estimates of the size and growth of the economy" 
It's very clear that the issue here relates to data used for initial estimates, not the data used for the actual figures (which are published later). It's frankly pretty desperate for Muprhy to suggest this somehow vindicates his position.

So we've covered what he's said, but the astute reader will maybe have noticed that all of this recent talk has been about revenue allocations in GERS and there's nothing being said about cost. During our radio debate [listen here] he asserted that when it came to decisions about how we spend in Scotland "the variations are relatively small". I wasn't given a chance to respond to that statement, but it's absolute nonsense.

GERS shows that Scotland overall spends £1,324 more per capita than the rest of the UK. The one thing we can be absolutely sure of is this has nothing to do with Defence, Debt Interest and International Affairs costs which are allocated on a per capita basis (because the per capita difference in these cases will necessarily be zero, obviously).

In fact this higher spend is almost all accounted for by Scotland's own devolved budget areas (health, education, etc.) or by non-devolved social protection spend (primarily pensions) where the information comes directly from the DWP (and is known, not estimated). I was amused that in the radio debate Murphy suggested that those DWP costs are "dumped" on Scotland - that's an extraordinary way to describe pensions and other welfare payments. This higher per capita spending in pretty much every public service area has been consistently true for years14.

This is the core issue - Scotland is a high cost-to-serve country, we are used to a level of spending on public services that our onshore economy's tax generation simply could not sustain. All of Murphy's attempts at obfuscation and fact-denial have been aimed at distracting people from that simple point. [The fact that this blog has been so long suggests that in that regard at least he can claim some qualified success.]

Let me finish by recalling how the radio debate concluded [listen here]. When the presenter/moderator John Beattie suggested that there's a problem if half the country don't believe GERS is good data, I pointed out this wasn't the case, that Richard was in fact very much an outlier.

At the time Richard responded "oh come off it [...] I'm not an outlier." You will perhaps forgive me, therefore, if I allowed myself a small chuckle when I read in his latest National column that he now embraces that term (as I suggested he would): "I happen to think being an outlier is a virtue, not a failing".

It's a good job he embraces being an outlier, because when it comes to rubbishing the GERS data, he definitely is


1. Meme and counter-meme

2. The National's "Most Popular" (13/04/2017)

3. The National quotes a print Circulation of just under 8.5k - for what it's worth, I confidently predict that this blog post will be read by more than twice that number of people

4. Real terms revenue and spend/capita data from GERS

5. Responses to Murphy's initial assertions:
“All economic statistics involve sampling and estimates. But when the UK Statistics Authority designate figures as ‘National Statistics’ that’s hugely significant. This is a kite-mark showing they meet international statistical standards. Anybody who says these figures are “easily rigged” or “nonsense data” frankly doesn’t deserve to be taken seriously. The people who work to create these statistics are honest, hard-working and dedicated public servants who aren’t allowed to answer back to defend themselves. Anyone who questions our national statisticians’ honesty and integrity should take a hard look at themselves.”
Professor Angus Armstrong, Director of Macroeconomics at the National Institute of Economic and Social Research (NIESR) 

 "It is important to note that that GERS is a national Statistics publication and assessed by the independent UK Statistics Authority. The statistics are produced by civil servants, and not by a partisan group, and are best practice in the sense that they meet the Code of Practice for Official Statistics, a code that is consistent with the European Statistics Code of Practice. As in practically any statistical exercise the GERS statistics depend on estimates and there is nothing unusual about that. In that regard it is noteworthy that the statistics produced and reported in GERS come with standard confidence intervals indicating the uncertainty with which the central estimates are held. An examination of these confidence bounds demonstrates that the generally accepted position on Scotland’s fiscal and trade positions are unchanged. This is why mainstream economists, statisticians and commentators will continue to use these statistics in their work."
- Professor Ronald MacDonald, Research Professor in Macroeconomics and International Finance at the Adam Smith Business School 
"These are the sorts of questions we should be debating. Questioning the integrity and robustness of National Statistics is not one of them. "
- Dr Graeme Roy, Director, Fraser of Allander Institute 

6. NUTS1 regional GVA

7. Freedom of Information request detail

8. Late Arrival: Richard is a prolific blogger, but during the first independence referendum he appears to have only blogged on the topic once, to ask what we'd call the rest of the UK if Scotland left

9. Has Scotland been denied data by HMRC?  An FoI request via Neil Lovatt

11. HMRC vs GERS revenue methodology differences: HMRC, October 2016

12. Income/capita

13. Survey based allocations: confidence intervals (GERS 2015-16)

14. Scotland's higher public spend/capita, by cost area over time

Thursday, 23 March 2017

Joan McAlpine, GERS Denier

On Wednesday (22/03/2017), SNP MSP Joan McAlpine used her column in the Daily Record to attempt to cast doubt on her own Scottish Government’s GERS figures, the official numbers that tell us how Scotland’s economy performs. When oil was booming, McAlpine and her SNP colleagues were quick to quote GERS figures as proof that Scotland was a wealthy country, so this U-turn might seem surprising.

If McAlpine’s column represents an approved party line, it looks an awful lot as if the SNP are trying to avoid an honest debate about the economic challenges an independent Scotland would now face.

It would be like the big tobacco companies who, when faced with solid evidence of the link between smoking and cancer, focused on questioning the science and placing doubt in peoples’ minds. When facts are your enemy, confusion and doubt are your friends.

To be fair, we’ve yet to see the leadership of the SNP suggest that we can’t trust our own government’s figures - but we’ve also yet to see them shut-down those within their own party who, like Joan, seem to be becoming GERS-deniers. Maybe the SNP hierarchy think a bit of doubt and confusion is helpful?

So let’s look at McAlpine’s claims more closely. She incorrectly refers to GERS as “the UK Treasury’s understanding” of Scotland’s economy; she really should know that in fact they represent the Scottish Government’s understanding.  So how can she suggest her own Government’s figures are “absurd”?

She relies entirely on the wild-eyed claims of one Professor Richard Murphy. He’s a chartered accountant and the self-proclaimed architect of “Corbynomics” - but let’s not worry about his CV, let’s worry about whether what he said is true.

Those hoping to foster confusion and doubt would be delighted for people like me to fill column inches explaining why Murphy is wrong. That way they stop us talking about what the figures actually tell us. McAlpine’s advice to people being presented with inconvenient truths was hardly subtle: “throw three words at them: Professor Richard Murphy”. Who needs to deal with facts when you’ve been taught the name of a tame professor who gives you permission to ignore them?

For what its worth, Murphy clearly doesn’t understand the GERS figures. He doesn’t realise that the Scottish Government compile our export data, so it isn’t “the UK Government making this up”. He fails to grasp that it’s the Scottish Government’s Chief Economist who decides on the assumptions behind the GERS figures, so nothing is “what the UK Government decides it should be”. I explain more of his mistakes here, but his biggest error is to claim that the figures can’t be trusted simply because estimates are used.

I asked a couple of exceptionally well qualified economics professors to comment on Murphy’s claims and you can see what they had to say below. Put simply: nearly all economic statistics are estimates, but to be qualified as National Statistics (as GERS are) the figures have to be shown to be trustworthy. End of discussion.
“As in practically any statistical exercise the GERS statistics depend on estimates, there is nothing unusual about that […] that is why mainstream economists, statisticians and commentators will continue to use these statistics."
Professor Ronald MacDonald, Research Professor in Macroeconomics and International Finance at the Adam Smith Business School
“All economic statistics involve sampling and estimates. But when the UK Statistics Authority designate figures as ‘National Statistics’ that’s hugely significant. This is a kite-mark showing they meet international statistical standards. Anybody who says these figures are “easily rigged” or “nonsense data” frankly doesn’t deserve to be taken seriously.”
Professor Angus Armstrong, Director of Macroeconomics at the National Institute of Economic and Social Research
So let’s focus instead on why some Yes supporters now want to deny the economic reality described in GERS - what are they so desperate to distract you from?

Well the figures effectively tell us four things:
  1. Firstly they tell us how much tax revenue the Scottish economy generates from our current economic activity and the taxes we’re all used to paying: income tax, VAT, council tax and the like.
  2. Secondly they tell us how much money is spent to deliver the public services we’re all used to receiving. So that’s things like health, education, pensions, social welfare, policing and so on.
  3. Thirdly they show how much it costs us if we pay our population share of expenses incurred for the benefit of the UK as a whole - mainly defence, debt interest and international affairs.
  4. Finally they show what happens if you take that revenue and subtract those costs. In the most recent year that shows we’d be in the red by £15bn – that’s the infamous £15bn “Scottish deficit”.
Of course that wouldn’t actually be Scotland’s deficit if we were independent, but all credible economists and responsible politicians (and even the SNP) use the GERS figures as the starting point to work out what an independent Scotland’s figures might look like.

So, for example, we could assume we’d spend £0.6bn less than we’re currently allocated of UK-wide costs (like defence) and we could assume we’ll generate £7.9bn a year of oil revenue. That’s what the SNP’s Independence White Paper did last time round. They based our ability to maintain public spending on a reckless gamble about oil revenues. In fact, oil revenues this year will be approximately zero.

If you understand GERS the implication is clear: to survive as an independent country, Scotland would have to make dramatic spending cuts, cuts far more painful than any “Westminster austerity” we’ve seen to date.

Are the SNP prepared to be honest about the price we’d all pay for independence? If they allow high profile MSPs like Joan McAlpine to publicly rubbish their own figures, it’s surely not a good sign.

In the interest of honest and informed debate, let’s hope the SNP leadership condemn those who pretend we don’t know basic facts about our economy and instead face the difficult truths those facts reveal.

Saturday, 18 March 2017

The SNP's Indyref2 Mandate

There's a lot of nonsense being talked about the SNP's mandate to request a second independence referendum, so I thought I'd try and very quickly clear it up.

Let's start with what most people will probably have seen and heard - what was actually said during the final Holyrood 2016 TV debate (02/05/2016, just 3 days before the election):

So no ambiguity there, couldn't be clearer: 
"what I'm talking about is the Scottish Parliament having the right to propose a second referendum if it becomes clear that a majority of people in Scotland want independence, it would have to be a majority of people that want it"
Is it so naive of me to expect that Nicola Sturgeon might actually stand by her words?

The response from the SNP would of course be that what technically matters is the Manifesto that the SNP stood on.

So I took a look at the "Easy Read" copy. It is indeed an easy read and makes only one reference to another referendum (my highlighting):
"We believe that the Scottish Parliament should have the right to hold another referendum if it is clear that more than half of the people in Scotland want independence."
At this point I would suggest that - given their rhetoric and their "easy read" manifesto - the SNP morally only have a mandate to propose a second referendum if it is clear that a majority of people in Scotland want independence.

Needless to say a quick visit to What Scotland Thinks confirms what any fule kno: the "clear majority support for independence" condition isn't close to being met:

So how do the SNP justify attempting to drag us into an inydref2 against our will? By falling back on the fine print. In the SNP's long-form manifesto you will find - not in the Summary, not in the Vision, not in the Next Steps, but on the left-hand side of page 23 - that an additional clause has been added (highlighting mine)

So technically it is correct to say that the SNP's manifesto states:
"We believe that the Scottish Parliament should have the right to hold another referendum  if there is clear and sustained evidence that independence has become the preferred option of a majority of the Scottish people – or if there is a significant and material change in the circumstances that prevailed in 2014, such as Scotland being taken out of the EU against our will."
Given we're into fine detail here, it seems fair to be picky about these words. Stating that you believe something should be the case is not making a manifesto commitment to do it or indeed asking for a mandate to call for it - it's simply a statement of belief.

Semantics aside, this is akin to Amazon pointing out that they can do pretty much whatever they like with your personal data because you ticked their Terms & Conditions box1. The SNP may be able to argue that technically their manifesto gives them a mandate to ask for indyref2, but - given their pre-election rhetoric and summary messaging - morally they're on distinctly dodgy ground.


1. I wonder how many people who shop with Amazon realise they've accepted "Terms & Conditions" that state Amazon "reserve the right to make changes to any Amazon Services, policies, terms and conditions including these Conditions of Use, and Service Terms at any time."?

Wednesday, 15 March 2017

Richard Murphy, GERS Denier

Twitter has been been rife with “GERS denial” over the last 24 hours, triggered by a bizarrely ill-informed blog written by "the man behind Corbynomics", Richard Murphy.

It's clear if you read his blog that he hadn't read the GERS methodology statement before he wrote it and - being brutally honest - he appears not to understand the basic principles of economic and statistical analysis. But as this blog will show: you don't have to take my word for that.

His core argument is that because estimates are used in GERS that means there's no data involved. I know, right? But seriously - he took to twitter to make his position on this extremely clear (follow the links if you don't believe me)
What is extraordinary here is that Richard appears not to understand that almost all economic analysis relies on estimates and that the estimates in question here are very much based on actual data. Suggesting the term "estimate" is somehow synonymous with "no data" shows that - frankly - he's either an idiot or that he assumes the people following him are.

Nearly all analysis of national statistics relies on estimates. That's why there are codes of practice that civil servants have to follow, why we have independent bodies to assess and qualify reports and why statistical calculations are used to determine what confidence intervals are appropriate to any findings.

Richard didn't stop there though - he went on to malign the integrity of those involved in producing these figures
We're now getting into conspiracy theory territory.

But who am I to question the opinions of the Professor of Practice in International Political Economy at City University? I am, after all, just a businessman and blogger - albeit a reasonably well informed one who has a hard-earned reputation for knowing what I'm talking about on this subject. So predicting the usual ad hom responses1, I decided to ask for help from a couple of the experts I'm fortunate enough to know.

I asked Professor Ronald MacDonald for his thoughts on the subject. Professor MacDonald is Research Professor in Macroeconomics and International Finance at the Adam Smith Business School; he has acted as an advisor on currency and exchange rate issues to the European Commission, IMF, World Bank, European Central Bank and a number of other central banks. He was previously Bonar Macfie Chair of Economics and Adam Smith Chair of Political Economy at the University of Glasgow and Professor of International Finance at the University of Strathclyde. I think we can fairly say that Professor MacDonald knows his stuff .

He offered the following comment:
"It is important to note that that GERS is a national Statistics publication and assessed by the independent UK Statistics Authority. The statistics are produced by civil servants, and not by a partisan group, and are best practice in the sense that they meet the Code of Practice for Official Statistics, a code that is consistent with the European Statistics Code of Practice.
As in practically any statistical exercise the GERS statistics depend on estimates and there is nothing unusual about that. In that regard it is noteworthy that the statistics produced and reported in GERS come with standard confidence intervals indicating the uncertainty with which the central estimates are held. An examination of these confidence bounds demonstrates that the generally accepted position on Scotland’s fiscal and trade positions are unchanged. This is why mainstream economists, statisticians and commentators will continue to use these statistics in their work."
Professor Ronald MacDonald
That really should be an end of it, the very foundation of Richard Murphy's "they're just estimates" case is shown to hopelessly naive and fundamentally flawed.

If you're struggling with how come estimates are acceptable: your watch estimates the time, your speedometer estimates your car's speed, your scales estimate your weight. You still know with reasonable confidence the time, how fast you're driving or how much you weigh.

In case you still need convincing, I also asked Professor Angus Armstrong for his response.  Angus is Director of Macroeconomics at the National Institute of Economic and Social Research (NIESR) and was previously Head of Macroeconomic Analysis at HM Treasury. It would be fair to say he too knows this subject better than most.

He offered me the following reply
All economic statistics involve sampling and estimates. But when the UK Statistics Authority designate figures as ‘National Statistics’ that’s hugely significant. This is a kite-mark showing they meet international statistical standards. Anybody who says these figures are “easily rigged” or “nonsense data” frankly doesn’t deserve to be taken seriously. The people who work to create these statistics are honest, hard-working and dedicated public servants who aren’t allowed to answer back to defend themselves. Anyone who questions our national statisticians’ honesty and integrity should take a hard look at themselves.
Professor Angus Armstrong


I shouldn't really need to go on, should I?

Just in case some of you think by picking on Richard's tweets I'm ducking what he actually wrote in his blog, I'll quickly cover the detailed points. His is a blessedly short blog, so here's a very quick pass at some of the more obvious gaffes he made

"So forget Scottish GDP data: we just don’t know what it is."
This will come as a shock to those who believed the SNP during the independence referendum when (because of oil) they were able to say (of the then recent past): “Scotland is the 14th richest nation in the world” and "Scotland’s GDP per head is £2,300 higher than the UK as a whole”. According to Richard we can't possibly know that.

"The allocation of government spending to Scotland will be arbitrary: how much defence should it pay, for example? Or interest? The arbitrary areas will be too great for this number to really be reliable."
Notice how he says "will be" twice in this paragraph? That's a clue to the fact that he hadn't actually bothered to check; he was asserting what he assumed "will be" the case.
Anybody who has taken even a passing interest in the debate will know that what is the case is GERS apportions the two specific examples he quotes on a per capita basis. "International Affairs" is the other category allocated this way - if he'd read GERS he'd have probably thought to include that example too.
It's widely understood that while we're part of the UK we pay our population share of expenses like these that are "incurred on behalf of the UK as a whole". More importantly: when making the case for an independent Scotland these three figures are normally the first to be looked at precisely because we can see them clearly identified in GERS - that's why everybody (including the SNP with their White Paper and as we'll soon see with their Growth Commission) start with the GERS figures and then make assumptions about what would replace them if we were independent.
Richard says of all these figures "to base debate on them would be a serious mistake". That would only be true if you were to make the serious mistake of not understanding how the figures are compiled and what they tell us. In fact the data provides a perfect platform on which to base a debate about an independent Scotland's finances - that's why everybody from the SNP through to the IFS do precisely that.
Oh: and the three areas mentioned above? The only ones so crudely allocated and the one's always considered separately in debate? They represent less than 10% of Scotland's Total Managed Expenditure. In fact in 2015-16, fully 63% of TME was fully devolved expenditure; is Richard claiming Scottish Budget figures are arbitrary? Of the balance the biggest element is social protection, mainly pensions; maybe Richard doesn't believe that "London" is really paying these (hell I don't know - it's not easy trying to follow his thinking) 
"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 here we're moving away from GERS to something else Richard clearly hasn't looked at: Export Statistics Scotland (ESS). This is data compiled by the Scottish Government, primarily using the Global Connections Survey run by the Scottish Government. Yes it's an estimate - but one triangulated with other sources and which qualifies for designation as National Statistics (which as we hopefully now understand, really means something). I suppose at some level all numbers are "made up", but to suggest the extensive work carried out by the Scottish Government in this area amounts to "no one has a clue" is as witless as it is insulting to those involved.
"Westminster could pretty much manipulate this data at will."
An astonishing statement, and one that could only be made by somebody who has never communicated with those responsible for this report, namely the Scottish Government's Chief Statistician and Chief Economic Advisor. The idea that Westminster could have been consistently pulling the wool over the eyes of the Scottish Government when it comes to our national finances is not only ridiculous, it's deeply insulting to the professional integrity of the honest, hard-working civil servants involved.

If you are one of those who believes that there is some Westminster conspiracy which has been so brilliantly performed that the Scottish Government haven't noticed, I've honestly no interest in debating with you - feel free to not read this blog, I won't miss you.

"if there is to be meaningful debate on this issue then the SNP have a lot of work to do to produce best possible data. The last thing they should do is trust that from London"
Well it's easy to see that Richard is new to this debate.  What on earth does he think the SNP were doing during the years they prepared for the independence referendum while they were in government? I imagine there are more than a few exhausted civil servants who will be thrilled to hear that someone who demonstrably hasn't read any of their rigorous, detailed and professional work thinks they have "a lot of work to do". In fact I'm sure a few SNP politicians will find it amusing that Richard thinks they blindly "trust that from London"
I could go on, I really could but - like me - life is too short.

I'll leave with this simple table that clearly Richard hadn't seen before writing his blog. It appears on page 47 of the GERS report itself, so you don't even need to go to the separate Methodology statements to find it. This table explicitly deals with the question of statistical significance and confidence with respect to each of the survey based apportionments

So to recognise the fact that there are of course estimates used in compiling these figures, instead of saying "Scotland's GERS deficit is £14.9bn" we could say "we can be 95% sure that Scotland's GERS deficit is in the range of £14.3 - 15.5bn"2. It would be tedious if we said that every time though, I'm sure you'll agree.

To finish with another example of how confidence intervals work: when Richard Murphy repeatedly claims "there is no data", we can say be 100% sure that he doesn't have a clue what he's talking about.


1. apparently the fact that my little £20m turnover online business (employing people in Scotland, of course) sells - among other things - dog food means I can't have any credibility in this debate. Who knew?

2. as many of us have pointed out, there is one other significant allocation uncertainty on the revenue side which is not survey based but assumption based and that's corporation tax. After a few years of disagreement, on this figure HMRC and GERS make very similar assumptions, basically assigning £2.9bn or 7.3% of corporation taxes to Scotland. As a sanity check, Scotland account for 8.3% of the UK's population. The simple truth is that given companies are not currently required to report profit split between Scotland and the rest of the UK, nobody knows what these figures would be were Scotland to be independent - changes to tax rates and corporates' decisions around where to base activities and how to report profits make this figure a moving feast anyway.

Monday, 27 February 2017

Two Wrongs Don't Make a Right

Like a Hollywood producer who can’t find any original ideas, it seems First Minister Nicola Sturgeon is determined to make Indyref2: The Sequel. Her problem is that nobody wants to see the same old story told again just with a different cast of actors. There’s a reason they didn’t make Groundhog Day 2.

Of course the SNP’s argument would be that indyref2 is justified because Brexit has changed the story; but does that really justify Scottish voters being subjected to yet another soul-sapping referendum before we even know what Brexit actually means?

It would be the worst sort of political opportunism to call indyref2 while Westminster is distracted with Brexit negotiations. The polls still suggest we’d vote No1, so surely we want Westminster focused exclusively on achieving the best possible Brexit deal for all of us in the UK? When those negotiations are completed and we know what Brexit actually means, then would be the time to take stock and ask the people of Scotland if they have the appetite for yet another referendum.

It’s not as if the SNP don’t have enough on their plates exercising the increased powers they now have. Our First Minister is undoubtedly a talented politician, but her party isn’t blessed with great depth in talent. My sense is that hard-working Scots would rather see the SNP’s scarce resources directed away from creating division and towards improving our lives here and now.

Nicola Sturgeon once famously said that her party’s obsession with independence “transcends the issues of Brexit, of oil, of national wealth and balance sheets and of passing political fads and trends”. This is really just a long-winded way of saying “independence or bust”. I believe her too. On the SNP’s watch our education system has declined from being one of the best in the world to being no more than average2. Hospital waiting times in the fully devolved Scottish NHS have risen3. Having been granted the tax powers to redistribute wealth more fairly and the welfare powers to top-up benefits for those hardest hit by austerity, the SNP have chosen inaction. This is what happens when you have a party governing Scotland who dismiss anything other than furthering the cause of separation as “passing political fads”.

But a leopard doesn’t change its spots and the SNP never knowingly miss an opportunity to stoke grievance if it helps them create division. Their relentlessly repeated assertion that Scotland is being “dragged out of the EU against our will” certainly strikes an emotional chord with many - but Scottish voter aren’t mugs. Most realise that sometimes having to accept the wider democratic will of the whole UK is a price worth paying for retaining the benefits of pooling and sharing with our closest neighbours.

Some claim the Brexit vote shows Scots are somehow emotionally closer to the EU than the UK, but that argument doesn’t withstand a moment’s analysis. The people of these islands quite clearly have more enduring historical, linguistic, cultural and economic bonds with each other than we do with our European cousins. The current dominance of the Tory party in England may be a concern for many, but the rise of populist right-wing movements in France and Holland is arguably a greater worry. Opposition parties may be in disarray, but political winds change and tides turn; decisions about the very existence of the UK should transcend party politics.

Whatever the reasons, the polls show that Brexit hasn’t been the game-changer the SNP clearly hoped it would be. Perhaps this is because Brexit has actually made the choice clearer. In an indyref2 the question would effectively be: do we choose to remain in the UK single market or hope to remain in the EU single market?

The economic case couldn’t be simpler. After over 40 years of free access to the EU market, Scottish exports to the rest of the UK are four times greater and still growing faster4. If we have to choose which side of any EU/UK trade barriers to be on, we surely have to choose the UK side.

In the UK we currently pay about £150 per person a year as members of the EU. In contrast, Scots are currently “paid” (receive an effective net fiscal transfer of) £1,700 per person a year as members of the UK5. This is money we’d immediately lose if we left, it’s a direct benefit of the on-going pooling and sharing the No vote guaranteed. The SNP’s White Paper on independence attempted to disguise this reality by making the hopelessly optimistic assumption that this year we’d generate £6.8 – 7.9bn of oil revenues to help plug that gap. We now know the actual number will be close to zero; they tried to sell us a pup.

Then there’s the practical question of when and under what conditions Scotland might actually join the EU if we leave the UK. Given we don’t have our own stable currency and run what in EU terms is called an “excessive deficit”, there are no guarantees. An independence referendum could well see Scotland end up outside the UK and outside the EU, further isolated in an increasingly uncertain and unstable world.

Leaving the EU may well be harmful to our economy, but Scotland leaving the UK wouldn’t fix it. Put simply: two wrongs don’t make a right.


1. See Scotland Decides

2. See Scottish Schools Drop in World Rankings
Scotland's schools have recorded their worst ever performance in an international survey of pupils.
Scotland's scores for maths, reading and science all declined in the latest set of Programme for International Student Assessment (Pisa) figures.
It was the first time since the tests began in 2000 that all three subject areas were classed as "average", with none "above average".
3. See ISD Scotland: Hospital Waiting Times

4. See ESS data

5. for £150 EU membership cost/capita see Thoughts on EU Referendum

 For £1,700 effective fiscal transfer see The £9bn Fiscal Transfer vs the £15bn Fiscal Deficit

Nicola Sturgeon's Right: Scotland's Great Deal

[This piece orginally appeared in the Daily Record on 26/01/2017]

On Monday, First Minister Nicola Sturgeon used her column in this paper to talk up the benefits of living and working in Scotland. After listing many of our country’s wonderful attributes, she concluded by saying: “To put it simply, if you are a taxpayer in Scotland you get more for your money, a much better deal, than anywhere else in the UK.”

I couldn’t agree with her more. It’s refreshing to hear the SNP leader recognising that Scotland gets a great deal out of our membership of the UK. It is, after all, only because of ongoing UK-wide pooling & sharing of resources that, despite the collapse in North Sea oil revenues, we’re able to maintain Scotland’s higher levels of public spending.

In fact we can see how much of a “better deal” we get by simply looking at the Scottish Government’s own Government Expenditure and Revenue Scotland (GERS) report for 2015-16 and comparing Scotland’s figures with those for the rest of the UK.

Using round numbers, in Scotland we raise £400/person less in taxes but we receive £1,300/person more in public spending. This means we receive an effective fiscal transfer from the rest of the UK of £1,700/person - that translates into £9bn a year.

Despite what you might read among the murkier backwaters of social media, these GERS figures are robust1. It’s worth noting also that per person spending differences have nothing to do with allocated Defence, Debt Interest or International Affairs costs, because those are apportioned on a population basis.

So where does the extra spending go? Well let’s look as some examples where that money allows different choices to be made in Scotland;

  • We get £151/person more spent on Health, which helps fund free prescriptions and personal care for the elderly
  • We get £216/person more spent on Education and Training, which helps fund tuition-free higher education
  • We get £185/person more spent on Transport, which supports greater road and rail infrastructure investment (and helps keep bridges toll-free)
  • We get £122/person more spent on Enterprise and Economic development, which allows our First Minister to boast of a £500m Scottish Growth scheme for businesses

The list goes on: Scotland spends more per person than the rest of the UK in pretty much every area.

Those who argue that Scotland’s GERS deficit is somehow a poor advert for how Scotland is served by being in the UK miss this basic point: the UK allows us to spend more on public services than we could otherwise sustain - that’s the main reason we have a higher deficit, why the £9bn deficit gap (the famous “black-hole”) exists.

This isn’t about being “subsidy junkies” either. A core principle of our economic union is that public service levels should be similar wherever you live in the UK. Scotland’s geographically dispersed population, remote island communities and particular demographic challenges means it simply costs more to deliver the same levels of public services in Scotland. This argument is of course somewhat undermined when we have a Scottish Government that diverts money away from helping the most needy and uses it instead to fund vote-winning freebies that well-off Scots (but not our English neighbours) get to enjoy. But that’s a debate for another day.

If you’d rather take a more transactional view of the union, it can reasonably be argued that higher public spending in Scotland now is simply payback for sharing “our oil” during the boom times. Indeed it can be shown that, despite our ongoing higher spending levels, Scotland is still a net positive contributor to the UK economy since the oil boom began in 1980. We have no need to feel embarrassed about getting our reward for that today.

So I can agree with our First Minister that Scots taxpayers currently get a great deal out of being in the UK. So what is it about Brexit that makes the SNP insist it’s worth reconsidering independence and guaranteeing we’d lose that £9bn fiscal transfer?

As a Remain voter I get the emotional arguments, but as a businessman I also appreciate the hard economic realities. Scotland currently enjoys free access to two single markets: the UK and the EU. In the context of a hard Brexit, it’s increasingly clear that a second independence referendum wouId require Scots to decide between free access to one or the other.

The graph below shows that Scotland exports over four times as much to the rest of the UK than to the EU and that – over a period when we have enjoyed free access to both markets - exports to the rest of the UK have grown much faster than those to the EU.

Combine this with the £9bn fiscal transfer and it’s clear: the economic arguments for Scotland remaining in the UK are stronger now than they’ve ever been.

Interviewed on the BBC’s Daily Politics show, SNP MP Joanna Cherry tried to play up the importance of the EU market vs the rest of the UK by saying “for us, at the moment, the growth market is the EU”. The graph above shows the latest statistics released yesterday: she’s simply wrong. She also asserted that it was a "little known fact" that "Scotland is actually England's largest export destination"; this too is demonstrably false, as demonstrated by the table below

1. See  GERS Deniers if you're seduced by any of the attempts to undermine the credibility of GERS figures

Tuesday, 17 January 2017

Anyone for Tennis?

Political debates sometimes seem a bit like tennis.

First Minister’s Questions (FMQs) is a serve and volley game: a question is served, the First Minister returns with as much spin as she can muster and her opponent might get just one chance to volley it back. There’s no time for lengthy baseline rallies to expose each other’s weaknesses, the serve dominates the game.

This is why opposition parties who challenge the SNP on why they aren’t raising taxes against the rich make a tactical mistake. The smarter serve would surely be to ask why they don’t reduce taxes for the poor?

The SNP now have the powers to do so if they wanted to. The basic rate of income tax chosen by Westminster is 20% and applies to earnings above £11,000. The Scottish Government could help those subjected to in-work poverty by simply lowering the basic rate* and/or raising the amount you need to earn before you pay it.

So why don’t they? Of course they’d need to make difficult decisions about how to fund that tax cut, but that’s what a party of government is supposed to do.

Maybe they could decide that some higher earners can afford to pay for their prescriptions or their children’s tuition fees, maybe they could have the courage to tax higher earners a bit more. The point is that the debate should start with why the SNP aren’t choosing to do more to help the poor - addressing how that help should be funded is the secondary question, something for later in the rally.

But if FMQs and debates in the chamber are serve and volley tennis, Holyrood’s committee rooms are the clay courts. Dominated by long and often tedious baseline rallies, this is where politicians need to be able to show that they can do more than simply block back questions with well-rehearsed replies.

Which brings us to SNP Finance Secretary Derek Mackay’s rabbit-in-the-headlights performance before last week’s Finance and Constitution Committee.

Regular readers of this blog will know that - despite SNP rhetoric about “Tory cuts” - the total Scottish budget for 2017-18 shows a whopping £371m real-terms year-on-year increase1. It’s even increased in real terms since the pre-austerity peak of 2009-102, despite North Sea oil revenues having declined by nearly £6bn since then3.

Of course this is only possible because we voted against independence and continue to pool and share our resources within the UK. This simple fact bears repeating: taking our fair share of the UK’s costs - as determined by the Scottish Government when compiling the Government Expenditure and Revenue Scotland (GERS) figures - we now effectively get back over £9bn more from Westminster than we send in taxes4. That’s over £1,700 for every man, woman and child in Scotland.

So Derek Mackay is a very lucky man. He has more money to spend and more power than any Finance Secretary before him. He could take pressure off the poorest in our society by topping-up benefits and he could address in-work poverty by shifting some of the tax burden onto those with the broadest shoulders.

When Tory MSP Murdo Fraser asked Mr Mackay to confirm the growth in the Scottish budget, his response was astonishing.

(see here). 

He admitted to the increase this year (how could he not?) but on the longer-term question he kept insisting that there had been a real terms 9.2% reduction. It quickly became embarrassingly clear that Mr Mackay was neither familiar with the various spend categories in the Scottish budget nor with the difference between the actual budget year under discussion and some flaky longer-term forecasts5.

Maybe there aren’t many people who understand the differences between the Total Budget and Departmental Expenditure Limits (DEL), non-cash DEL, financial transactions, capital borrowing and Annually Managed Expenditure (AME)6 – but surely we should expect our Finance Secretary to be one of them?

Here I confess to feeling some human sympathy for Mr Mackay. He is clearly out of his depth, a man promoted well beyond his ability. That’s not his fault, the responsibility for that must lie with the person who promoted him: my new fellow Daily Record columnist, Nicola Sturgeon.

To be fair to our First Minister, it can’t have been easy choosing a Finance Secretary when the talent pool is so shallow. This was illustrated just in the last week, with MSPs Gil Paterson and Sandra White following their colleague Paul Monaghan’s lead by taking to Twitter to advertise their ignorance about how Scottish Export Statistics work7.

I started this blog comparing politics with tennis - but tennis is just a game and politics is about real people’s lives. So I hope Ms Sturgeon uses her new platform in the Daily Record to do more than just deflect blame onto Tories, Westminster and Brexit; I hope she shows the Record's readers enough respect to start honestly addressing the economic realities of the choices we face.


*It's been rightly pointed out by a reader (see comments below) that the Scottish Government does not in fact have power to change the personal allowance (the limit at which you start paying tax). Whilst this is technically true, they *do* however have the power to create new tax bands, so they could simply introduce a new zero-rated band to effectively increase the personal allowance as I hypothesise - my point still stands.

1. £371m real-terms budget increase

See Annex G, Table 4, p172 of the Scottish Draft Budget 2017-18
Total Scottish Budget 2016-17 = £37,031m
Total Scottish Budget 2017-18 = £37,945m
Growth in Nominal Terms = £914m (2.5%)

Applying UK GDP deflator (as used elsewhere in Scottish Budget) of 1.45% for 2017-18
Total Scottish Budget 2016-17 = £37,031m
Total Scottish Budget 2017-18 adjusted for Inflation= £37,403m
Growth in Real Terms = £371m (1.0%)

2. Real-terms budget increase since 2009-10

Using same sources as note 1. above (see Spinning the Scottish Budget part III)

3. £6bn decline in North Sea oil revenues

See GERS 2015-16: Support Tables, Table 2.1
North Sea Revenues 2009-10 = £5990m
North Sea Revenues 2015-16 = £76m

4. £9bn effective fiscal transfer

see The £9bn Fiscal Transfer vs The £15bn GERS Deficit

5. Derek Mackay's "9.2% real-terms decline"

See here: Mackay repeatedly refers to "over a 10 year period a real-terms reduction of 9.2%" and says later "has been reduced" by 9.2%.

As explained in Spinning the Scottish Budget: Part III, the -9.2% is taken from Table 1.01:
As I explain in the above blog post, this figure is based on a frankly flaky forecast to 2019-20 (so Mackay is simply wrong when he says "has been reduced") and even more importantly this figure excludes critical elements of the Scottish Budget (see note 6. below).

6. Here are the various components of the Scottish Budget that Derek Mackay excludes when he erroneously refers to a 9.2% decline (in addition to the fact he uses the flaky 2019-20 forecast year instead of the 2017-18 budget year under discussion):
  1. Annually Managed Expenditure (AME) - which pays, for example, NHS and teachers' pension
  2. Capital Borrowing - an essential part of the Scottish Budget (whether the borrowing is directly by the Scottish Government or by the UK government on our behalf, it's still debt and it still funds our spending)
  3. Net DEL adjustments - the assumed impact of using devolved powers
  4. Financial Transactions (effectively more borrowing) &Non-Cash DEL
More detail can be found in Spinning the Scottish Budget: Part III

7. Some SNP MSPs like to suggest that Scottish goods leaving the UK are not counted as Scottish if they go via English ports. This is simply not true, as the Scottish Government website makes clear on at least three separate occasions

This doesn't stop the likes of Gil Paterson and Sandra White spreading memes that suggest the opposite.

In both cases - when politely made aware of the misleading nature of what they'd shared they made no effort to correct the misconception.

In fact Sandra White thought the whole sorry affair was hilarious
By knowingly perpetuating a lie that helps their argument, these MSPs show total and utter contempt for their followers, for Scottish voters.