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.



Notes:

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.


FACT CHECK
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.

Wednesday, 21 December 2016

Impact of UK Austerity on Scotland's 2017-18 Budget

When Finance Secretary Derek Mackay announced his party’s Budget last week, he came under pressure for many reasons, not least because buried in the detail was the fact that the SNP are imposing a £327m cut in central Government support to local government services1.

Mr Mackay defended his budget by saying "Let me be clear, I will not pass the costs of UK austerity on to the household budgets of the lowest-income taxpayers"2 and in the budget document itself stated “The UK Government’s approach to public spending is having a significant detrimental effect in Scotland”3.

The problem here is that - as so often with the SNP - the rhetoric is plainly at odds with the facts. I’ve taken the time to study the actual figures in some detail, and it’s clear that attempting to blame UK Government austerity for cuts in Scotland’s 2017-18 budget is nothing short of blatant deception.

All you need to understand to realise that Mr Mackay is trying to pull the wool over our eyes is this simple graph showing the Total Scottish Budget in real (inflation adjusted) terms over the last 10 years. [Note y-axis does not start at zero]


I expect a lot of people in Scotland will find this graph hard to believe. After all, we hear so much from the SNP about Tory austerity that few would expect the real-terms trend in Scotland’s budget to be upwards over the last four years – but that is the reality. In fact, if you look carefully at the graph, you’ll see that Scotland’s Budget is now (just) higher in real terms than it was in 2009-10 before austerity cuts started to bite.

How come this plain reality isn’t common knowledge? Well the simple fact is that the SNP have gone out of their way to hide this information. If you take the time to look up last week’s budget report, you’ll find the summary tables they include show data for 2010-11 but then just miss out the four intervening years to 2014-155. That’s the first step they take to disguise the reality of the rising budget trend.

The second step they take is to bury this Total Budget information deep in an Appendix on page 169 of the report. They use the up-front summary tables to instead focus on a few sub-totals that exclude things like Annually Managed Expenditure (AME) which, for example, pays for NHS and teachers’ pensions4.

In some highlighted figures they even exclude Capital Borrowing4. This is a devolved power that enables Scotland to spend more by taking on further debt in addition to that we share with the rest of the UK. It’s a critical and growing source of funding for Scotland and it’s hugely misleading to focus on figures that omit it.

The third step they take is to distract from the budget year that’s actually being announced by providing a pretty meaningless longer term forecast. The longer term forecast they made last year has already been shown to be far too pessimistic6. To illustrate how flaky their latest forecast is, despite the clear commitment from the SNP to deliver a 50 per cent reduction in the “overall tax burden of APD” (Air Passenger Duty), their forecast makes no allowance for this £171m headline revenue loss4.


As an aside, it’s also the case that by the end of their forecast period the Scottish Government will control roughly half of the revenue raising powers involved. So when they forecast a real terms decline in “Fiscal DEL” (a subset of the total budget that excludes among other things, AME and capital borrowing), the Scottish Government appears to be forecasting that their own economic strategy will fail.


So by missing out intervening years, focusing on a measure which excludes very significant sources of revenue and stretching to an unrealistically pessimistic forecast year, the SNP are able to engineer a figure which appears to suggest “Westminster austerity” is causing the budget to decline. In fact, as the graph clearly shows, the opposite is true.

The reality of our fiscal framework agreement with the rest of the UK is such that the SNP is lucky enough to preside over a spending budget that’s rising in real terms.

The fact that the SNP are cutting Central Government funding to local government is their choice, not something that’s forced upon them - just as the fact that the SNP don’t use their income tax and benefits top-up powers to reduce tax for low-earners, redistribute wealth and address inequality is their choice.

Next time you hear UK austerity being blamed for specific Scottish budget cuts, remember this simple fact: over the four years from 2013-14 to 2017-18, the Total Scottish Budget has been increased in real terms by £1.9bn or 5.4% . 

It really is long past time the SNP stopped blaming Westminster for their own failings.



******

Notes
1. Table 9.02: Local Government and Central Government Grants to Local Authorities

3. page 2 of Budget Report
4. I provide a full audit-trailed explanation of the various figures on an historical like-for-like basis here: this table shows the sources I needed to access to create it (it was hard work)

5. See Tables 1.01 and 1.02 pages 3 and 4

6. See Spinning the Scottish Budget: Part II



Tuesday, 20 December 2016

Spinning the Scottish Budget: Part III

- Seriously Kev, you're still banging on about this?

- Yes, yes I am.

You see I've invested quite a lot of effort into understanding what’s actually been going on with our Scottish Budget, and in the process it's become clear to me that the Scottish Government have gone out of their way to obscure the reality. So I think it's worth me going out of my way to make that reality clear.


To save me repeating myself: all growth percentages quoted here are real (i.e. inflation adjusted1) and all values are quoted in real 2016-17 terms.


Let’s get one possible source of confusion out of the way first: we’re going to focus here on the devolved Scottish Budget, not Total Managed Expenditure (TME) that’s shown in the Government Expenditure & Revenue Scotland (GERS) Report.

GERS TME is considered to be controversial by some because it includes per-capita allocations of defence, debt interest and foreign affairs as well as allocated costs for other reserved matters like the state pension. The following graph puts the Total Scottish Budget (blue line) in context against the GERS TME spend (black line);


I confess this is not the most exciting graph you'll ever see, but I think it's important to be clear how different the Budget (for which we now know both this year and next) is from the total GERS attributed spend on Scotland (for which we only know up to last year actual)

That black TME line is basically flat. From its peak in 2010-11 its down by 2.3% but since 2008-09 it's grown by 2.3% and last year it grew by 0.6%. But this includes stuff like debt interest and allocated defence costs and other things the Scottish Government doesn't control, so we need to focus instead on the blue Total Scottish Budget line - this is what the budget exercise is all about.

Let's zoom in by changing the y-axis scale (note it now doesn't start at zero) and adding some of the other spending definitions we'll need to understand to follow the various claims being made.




I'm astounded by how hard it has been to pull this together. I'd normally footnote this sort of thing, but to give an idea of the work I've had to do to get comparable cash figures, here's a table showing where I had to go to get like-for-like nominal (cash terms) numbers just for the most recent five years (no highlight means figures were explicit but not shown, yellow is unexplained differences2 and other background colours signify I had to source from different budget reports);


It's almost as if somebody didn't want anybody to be able to follow what's been going on since 2013-14. Anyway, all I had to do then was source the HM Treaury GDP deflator which the Scottish Government uses1 and convert the figures into comparable real terms values.



So let's now look at each of the lines on that graph.



Total Budget - the blue line
The Total Budget was cut over the three years from 2010-11 to 2013-14, but has grown since. That’s right: Scotland’s Total Budget has grown over the last 3 years and is in fact planned to grow by a further 1.1% in the coming year.

Between 2013-14 and 2017-18 the budget will have grown by 5.4% (remember: all these figures are real, inflation adjusted). For context, that's a £1.9bn increase in Scotland's spending budget over a period when North Sea oil revenues  have declined by £4.0bn.

The Total Budget for 2017-18 is in fact slightly higher than its previous peak in 2009-10 – so we’re back to pre-austerity spending levels.

You won’t find this mentioned anywhere by the SNP and you’d have to have made it to Appendix G table 4 on page 169 of the 2017-18 budget report before you'd see this data (which you'd have to adjust for inflation, as I have done).

Total Departmental Expenditure Limits (DEL) - the red line
Total DEL differs from the Total Budget because it doesn’t include Annually Managed Expenditure (AME). You’d need to make it to page 165 of the 2017-18 budget report to find just two years worth of AME data where you'd discover that for example in in 2016-17 it was £6.7bn,. The Glossary explains that AME is;
"spending that does not fall within Departmental Expenditure Limits (DEL). AME is generally less predictable than expenditure in DEL and is not subject to multi-year limits. It is set each year and contains those elements of expenditure that are not readily predictable. For example, NHS and Teachers’ pensions count as AME"
Now here I confess the limits of my tenacity and stamina were reached. Each year's budget only include two years of AME data and the information for DEL in these budgets only goes back as far as 2010-11. So I merely observe that (by implication) AME has grown faster than DEL over the graph period (i.e. the blue and red lines diverge slightly)

If you think only DEL matters and we should ignore AME, good luck explaining your logic to a Scottish teacher or a nurse whose pension is paid by it.

But even if we do look just at DEL, it’s still grown by 3.1% since 2014-15.

Discretionary Spending Limit - the grey then gold line
I've called this "Discretionary Spending Limit" as it's the last total in table 1.02 which has this title -  but that row is rather cumbersomely named "SG Adjusted Spending Limits" in the table itself.

To get from DEL to this “Discretionary Spending Limit” we need to subtract both “non-cash DEL” and “financial transactions”. Stick with me, we’re nearly there.

"Non-cash DEL” is basically depreciation, a figure that needs to be accounted for but is a “given” as far as planning the budget is concerned. It is (annoying inconsistently) described in the Budget Glossary as "Ringfenced Resource DEL (non-cash)":
"depreciation or impairment costs associated with the ownership of assets. HM Treasury rules mean that this element of the overall DEL budget cannot be used to fund pay or procurement costs and as such this budget does not represent spending power for the Scottish Government."
I'm not sure if that second sentence makes grammatical let alone logical sense - depreciation costs aren't cash, so it's hardly because of "HM Treasury Rules" that they can't be used to "fund pay or procurement costs" (answers on a postcard).

I'm tired and confess I’ve not really got my head around “financial transactions”. It seems clear to me that this is real money, albeit effectively in the form of borrowing for restricted use. The definition offered is
"Financial Transactions are allocated by HM Treasury to the Scottish Government and can only be used for the provision of loans or equity investment beyond the public sector. Financial Transactions facilities have to be repaid to HMT in future years."
We'll talk more about borrowing in a moment - but just because it's borrowing doesn't mean it doesn't count when it comes to money available to spend in the Scottish budget.

So we're now looking at a sub-set of the Total Budget that excludes loads of highly relevant figures - and this is basically flat over the last five years (actually +0.2%).

"Fiscal Revenue + Capital DEL" - the grey line
Prior to 2015-16 this was the same as the Discretionary Spending Limit, but as it doesn’t include Scotland’s devolved capital borrowing it's a pretty meaningless figure from 2015-16 onward.

I can't emphasise this point enough - to consider our spending capacity without considering the money we can borrow directly (as opposed to Westminster borrowing it on our behalf) is simply ridiculous.

The 2016-17 budget presented this figure as an emboldened total called "SG Spending Limits" and showed its growth relative to 2010-11 (when of course there was no devolved capital borrowing power). This is repeated in the 2017-18 budget when it is shown again as an emboldened total with growth figures in the "Discretionary Spending Limits" Table, just named "Total":
This is hugely misleading, it's a ridiculous figure to draw people's attention to. At least in this year (unlike last year) an "SG Adjusted Spending Limit" total is included below which at least does include Capital Borrowing but - as you will now understand - still excludes a lot of spending that is essential to the Scottish budget.


. ****
As explained in my previous blog the forecasts beyond the budget year in question are frankly a distraction and of marginal value at best.

So there you have it. Faced with a budget that's rising in real-terms and is now back to it's pre-austerity peak level, the SNP managed to come up with this summary:
"The UK Government’s approach to public spending is having a significant detrimental effect in Scotland. Between 2010-11 and 2019-20, the Scottish Government’s Fiscal Departmental Expenditure Limit (DEL) from HM Treasury will fall by over nine per cent in real terms – the equivalent of over £2.8 billion"
So that's taking a figure from the peak forward to a pretty meaningless forecast and - outrageously - that 9.2% means they're using the "Fiscal Revenue and Capital DEL" (aka Fiscal DEL) that excludes the impact of Capital Borrowing.

I'm sorry - that's just wrong.


*****

Notes
1. Using the HM Treasury GDP deflator as referenced by the 2017-18 Budget
2. The figures in this table show that (sourced from within the same budget report) the Total Budget does not equal DEL + AME  as we would expect.  But then taking the 2017-18 budget as an example, the Total DEL figures on page 168 do not tie to the figures in the up-front summary either (a £217m difference for 2016-17 year) so frankly I start to give up.

Sunday, 18 December 2016

Spinning the Scottish Budget: Part II

Yesterday I rushed out a blog looking at the figures that were (and just as importantly were not) shown in the Scottish budget (> Spinning the Scottish Budget).  I've had some time now to dig a little deeper and if anything the spin is worse than I initially thought.

Let's be very clear: the budget is for 2017-18 so that is the year that matters, the year for which decisions are being made.

So let's look at the figures shown for real year-on-year growth in "Fiscal DEL" (aka Discretionary Spending Limits) for each of the last four draft budgets;


Not showing the real year-on-year growth for 2017-18 in the 2017-18 budget is a glaring omission is it not? The data to calculate the figure is of course there, it's just disguised in cumulative percentages and absolute totals. So let's fill in the gap (and while we're at it we'll show what the actual prior-year real terms year-on-year growth figures turned out to be):


So the first observation we can make (as per my last blog) is that Fiscal DEL is budgeted to increase by 0.7% in real terms for 2017-18.  If you've been listening to the SNP's rhetoric you would be forgiven for thinking that this budget was severely hampered by spending cuts due to "Westminster Austerity" - it may be impacted by that, but the net effect still allows real spending growth.


Note also that Fiscal DEL doesn't include new capital borrowing powers - factor those in (and other adjustments) and Total DEL actually rises by 1.1% next year (the only year we're actually budgeting for here) - see last blog for more detail.


The other thing that jumps out (and has caused me some headaches) is that it appears the actual real-terms Fiscal DEL trend in prior years was nowhere near as bad as presented in the draft budgets. I've spent quite a while trying to work out why, and it seems it's all down to the difference between inflation assumptions used at the time and the actual HM Treasury GDP deflator now known. What matters is the bottom row in the table above - that is the actual real terms year-on-year changes in Fiscal DEL based on the actual nominal figures in prior draft budgets (the known actuals, not the forecasts) adjusted by the most recent HM Treasury GDP deflator (as used for the current 2017-18 budget).

This was been a real pain to pull together because neither the 2016-17 or the 2017-18 forecasts show the actuals for 2014-15 or before (despite showing the actuals for 2010-11). If I was a cynical soul I'd think this was a conscious decision to hide the fact that the real-terms decline in 2014-15 was nowhere near as bad as forecast at the time and that 2015-16 actually saw a real-terms spending rise despite the fall forecast.


The fact that 201-11 data is shown in all cases does give me reasonable confidence that the nominal figures I have deflated here are comparable on a like-for-like basis, but I can't be 100% sure. If anyone has an alternative analysis that contradicts my analysis (using the latest HM Treasury GDP deflator) then I'd love to see it and would be happy to compare notes


But what about the longer term forecasts that are included in the Draft Budget - don't they show we face further budget cuts down the line?  Well, let's just say that the forecast presented is at best extremely crude.

To illustrate, the graph below shows the real-terms discretionary DEL forecasts produced in each of the last four years (indexed to 2013-14):


Note that to be able to see what's happening the y-axis doesn't start at zero - the index makes it easy to scale the movements in percentage terms.

It's clear that the real-terms forecasts used have always turned out to be pessimistic - so despite the rhetoric of "Tory Cuts", in fact what we've seen is more like a real-terms spending freeze. Still painful of course, but not as bad as you'd think if you happen not to be obsessive enough to attempt this analysis yourself.

When it comes to how far forward to forecast, the Budgets are also hugely inconsistent (the longer term forecast has only recently been added as a distraction - sorry "innovation")
  • The 2014-15 budget forecast the budget year + 1 additional year
  • The 2015-16 budget forecast the budget year only
  • The 2016-17 budget forecast the budget year +3 further years
  • The 2017-18 budget forecasts the budget year +2 further years

Look at the differences between the 2016-17 and 2017-18 longer-term forecasts in the graph above and you get a feel for how uncertain they are.  Despite this - per my last blog - the figure focused on in the commentary relates to that 2019-20 forecast relative to 2010-11 actual (despite the fact that this is a budgeting exercise for 2017-18).

You might argue that, however uncertain the forecast, it's reasonable to highlight the speculative longer term view relative to the historic peak. Even if you accept that, it's surely an observation that should be made in addition to not instead of explaining that the actual budget year under discussion is one with real-terms year-on-year spending growth.

Like me, maybe you've started wondering what that longer-term forecast is actually telling us - after all, by 2019-20 the Scottish Government is assumed to be responsible for 46% of that revenue (i.e. 46% of revenue raising powers will have been fully devolved). So you might think this forecast long-term real-terms decline is in large part a reflection of the Scottish Government's assessment of the effectiveness (or not) of their economic strategy and the impact of them using those powers.

But you'd be only partially right. Whilst there are explicit forecast assumptions about income tax, LBTT and Scottish Land-fill Tax, there is no assumption at all about Air Passenger Duty (APD). The commentary would certainly make you think that the planned APD reduction has been allowed for in the forecast: 
"we will introduce a Bill in the first year of the current Parliament to establish the tax which will replace APD in Scotland from 1 April 2018. We remain committed to delivering a 50 per cent reduction in the overall tax burden of APD by the end of this Parliament"
A 50% reduction in APD would amount to a 0.6% reduction in total Fiscal DEL in 2019-20 (before taking account of the economic activity benefits that might flow) - so it's not an insignificant consideration. But the forecast simply uses the OBR assumption for Scottish APD based on current policies because (I'm told) the forecasts can't make assumptions about legislation not yet passed.

The point is: the forecast is of limited value at best and - given this is a budget for 2017-18 - we should really focus on what it tells us about Scottish Spending in 2017-18.

What is tells us is that despite "Tory Austerity", Scottish Spending (whether you're looking at Fiscal DEL, Discretionary Spending Limits, Total DEL settlement from HMT or Total DEL) is rising in real terms.

Simple really.


Saturday, 17 December 2016

Spinning the Scottish Budget

I haven't had time for more than a cursory look at this and am indebted to the ever-diligent Fraser Whyte for pointing out this latest example of presentational spin by the Scottish Government [you really should follow him: @FraserWhyte81].

So taking this step-by-step;

The Scottish Draft Budget 2017-18 has just been published. Chapter 1 (which sets the financial context) includes just two tables of figures:


There are some glaringly obvious questions about how this data is presented:
  • Why is 2010-11 there but not the other years prior to 2015-16?
  • Why are there no year-on-year percentage changes shown, only cumulative?
  • Why are 2010-11 and 2015-16 chosen as the base years for the cumulative percentages?
The accompanying text referring to "UK Austerity" states:
"The UK Government’s approach to public spending is having a significant detrimental effect in Scotland. Between 2010-11 and 2019-20, the Scottish Government’s Fiscal Departmental Expenditure Limit (DEL) from HM Treasury will fall by over nine per cent in real terms"
We can see the -9.2% in the last column of Table 1.02 above. This is clearly the number they want us to focus on, because one of Nicola Sturgeon's special advisors took to Twitter last night (of which more later) to drive the point home
So let's unpack what's going on here.

First of all we have to understand the various different DEL (Departmental Expenditure Limits) figures quoted. I created the table below by just taking the key figures in table 1.01 above and showing how the various totals and sub-totals relate

The "Total Discretionary Spending Limits" row is what is used in table 1.02, where these figures are simply adjusted to real 2016-17 cash terms (i,e. adjusted for inflation). So when the budget text states "the Scottish Government’s Fiscal Departmental Expenditure Limit (DEL) from HM Treasury will fall by over nine per cent in real terms"  they are referring to Total Discretionary Spending Limits, where these are defined as:
  • Total DEL
    minus
  • Capital borrowing (i.e. devolved borrowing powers)
    minus
  • Net DEL adjustments (i.e. impact of devolved fiscal powers)
    minus
  • Financial transactions (i.e. effectively borrowing1)
    minus
  • Non-cash DEL (i.e. depreciation charges2)
    equals
  • Total Discretionary Spending Limits
So when the text refers to  "Fiscal DEL from HM Treasury" they are not referring to either "Total DEL" or "DEL Settlement from HM Treasury".

When Sturgeon's SpAd referred to Discretionary Spending Limits as "DEL totals" in that tweet above, it was in direct response to this tweet highlighting the fact that "Total DEL" was not shown in real terms and there were no year-on-year percentages shown (both undeniably true).
It was late, maybe Colin was just tired - but you'd think if you're Sturgeon's SpAd  you'd be careful not to wade in without understanding the figures or reading what was being said.

So now we know what we're looking at, how do we understand and interpret the trends? As Fraser Whyte quite reasonably pointed out on Twitter, it's kind of weird that there are only cumulative percentages and no year-on-year figures. Surely the Scottish Government isn't trying to avoid showing something that doesn't fit their preferred narrative?

Well let's see.

I went back to the 2015-16 Budget to be able to fill in the intervening years and put all figures in the same real 2016-17 terms as used in table 1.02. In doing so I recreated the percentages used in table 1.02, highlighted below in yellow.


If you're struggling to read that, here it is again just from 2014-15 which is really all we need to see

So what did the Scottish Government achieve by not showing 2014-15 as a relevant comparison year? Well firstly they avoided showing that Total Discretionary Spending Limit increased in real terms by 0.4% in 2015-16.

The table above also shows us that the Total DEL Settlement from HMT actually went up 1.7% in real terms in 2015-16 and our Total DEL went up by 2.7%.  I can't think why they would have chosen to present the data in such a way as to avoid this being clear.

Note also that in 2017-18 our total DEL will increase by 1.1% in real terms and cumulatively from 2014-15 to 2019-20 will increase by 1.4% in real terms.

Look at the figures in green showing the year-on-year and cumulative from 2014-15 trend in Total DEL - tells quite a different story from the "over 9% real terms reduction" doesn't it?

The yellow highlighted figures presented by the Scottish Government are true - but they offer at best a partial and at worst a cynically skewed picture of how the capacity for Scottish Departmental Spending is impacted by the HM Treasury settlement.

Is it too much to ask that our Government stops treating us as fools and just presents a fuller, clearer picture?

[I've dug a little deeper, it gets worse > Spinning the Scottish Budget: Part II]

****

Notes

1. Financial Transactions are allocated by HM Treasury to the Scottish Government and can only be used for the provision of loans or equity investment beyond the public sector. Financial Transactions facilities have to be repaid to HMT in future years.

2. depreciation or impairment costs associated with the ownership of assets. HM Treasury rules mean that this element of the overall DEL budget cannot be used to fund pay or procurement costs and as such this budget does not represent spending power for the Scottish Government.