Monday, 30 March 2015

A Simple Summary of Scotland's Economy

I've spend a lot of time looking at GERS and associated arguments - this is the simplest summary I can offer

1. Scotland's deficit relative to the rest of the UK (rUK)

  • When Scotland's deficit per capita is lower than the rest of the UK we are a net contributor (above the line); when it's higher we are a net beneficiary (below the line)
  • Scotland has been a net contributor to the UK economy in three of the last 15 years.
  • The five year historical period used for most of the Yes campaign's "average" assertions included a clear outlier in 2008-09
  • The Scottish Government White Paper was written using 2011-12 as a starting point - since then Scotland's performance relative to rUK has declined dramatically. As we'll see this is almost entirely explained by oil revenues.
  • As long as Scotland is in the UK and the Barnett Formula (or equivalent) is maintained the people of Scotland are spared from the impact of any relative economic under-performance because we pool and share resources UK-wide
  • In the two most recent recent years this pooling and sharing has been worth over £800 for every person in Scotland

2. How Scotland's revenue and expenditure compare with rUK

  • The gaps between the black revenue and red expenditure lines on this chart are the deficit figures we were looking at in the first chart
  • We can see that - as oft stated by the SNP - in each of the last 15 years Scotland (including geographical share of oil & gas revenues) has indeed generated greater tax Revenue per capita than the rest of the UK
  • We can also see that - as less oft stated by the SNP -  Expenditure per capita is consistently higher in Scotland (and that the gap has actually increased over the last 15 years)
  • The are some structural reasons for the higher per capita expenditure levels in Scotland. To quote directly from GERS "lower population density in Scotland relative to the UK [..] increases the cost of providing the same level of public service activity, particularly in areas such as education, health and transport"
  • Of course only when the relatively higher levels of Revenue raised exceed the relatively higher levels of Expenditure made is Scotland's deficit less than that of the rest of the UK.  Again; three of the last 15 years where the black line is above the red.

3. The significance of Oil & Gas

  • The difference between the black Revenue line in this chart and the preceding one is that I've simply removed Oil & Gas revenues
  • It should be clear to everyone that without the "bonus" of Oil & Gas Scotland consistently generates lower Tax Revenues per capita than the rest of the UK

4. The Trend & Outlook for Oil & Gas

  • The extent to which 2008-09 and 2011-12 were particulary good years for oil & gas revenue is obvious
  • The Scottish Government oil & gas revenue forecasts used in the White Paper were optimistic when it was published (the "low" scenario was 60% higher than the OBR forecasts that existed at the time)
  • The White Paper forecasts have subsequently been shown to have in fact been recklessly optimistic. The red portion of the graph is the difference between the White Paper scenarios and actual figures or (lightest grey) latest OBR forecasts
  • It is now widely accepted that even the levels of Oil & Gas Tax revenues enjoyed in 2013-14 are unlikely to be repeated in the foreseeable future

So What?
  • Given further oil revenue declines since the most recent GERS numbers, if today we were preparing for independence we would be preparing for every Scot to immediately be at least £1,000 pa. worse off 
  • Without repeating the indyref arguments let's simply note that this is before factoring in short term downsides of independence (currency negotiations, increases in unemployment due to jobs shifting South, one-off costs etc) or the (in my view highly debatable) possible long term benefits
  • If we succeed in achieving Full Fiscal Autonomy (as is the SNP's stated current aim) we will be making every person in Scotland over £1,000 worse off (unless oil booms again)
  • Over time we might see economic growth relative to rUK sufficient to off-set the higher expenditure we currently require - but that seems to be both a highly optimistic assumption and one that implicitly accepts years (decades?) of hardship before we'd get there
If you are curious as to the detail of where the revenue comes from and cost goes please read the following


The SNP are fond of quoting deficit as a percent of GDP when making comparisons.  This has some merit but is internally inconsistent because we are allocated a per capita share of the debt cost (not a GDP share) so what matters is our per capita contribution to that debt.  If the SNP want to argue that % of GDP is the right measure then GERS should allocate debt cost on a GDP share basis and when negotiating debt split on independence they should argue that Scotland deserves it's GDP share of the debt. They don't. There are also issues due to the high proportion of foreign owned Scottish GDP which means much of the benefit of that GDP doesn't fall to Scotland's citizens.  GNP may be a better measure but let's not get bogged down with that here. Caveats now given; for completeness here's the relative deficit graph on % of GDP terms;

Saturday, 28 March 2015

How Scotland's Economy Contributes to the UK

The Government Expenditure and Revenue Scotland (GERS) figures continue to be widely misunderstood and misrepresented so I'm going to have another go at trying to explain what they mean, what they do (and don't) tell us and how understanding them might impact the way you choose to vote.

Firstly: these numbers are - within pretty limited certainty bands - a matter of historical fact. They are produced by and relied upon by the Scottish Government. If there is any natural assumption bias it is likely to be to flatter Scotland.  In fact we should take confidence from the fact that the Scottish Government and HMRC are in pretty close agreement; GERS assumes only 0.36% more tax revenue for Scotland than HMRC.

Secondly: of course these are figures which show how Scotland's economy looks while within the UK.  But they give us a clear view of the starting point from which any changes the Scottish Government makes (using increasingly devolved powers, Full Fiscal Autonomy or indeed if we become Independent) can be understood.  These figures show us what it costs to run Scotland based on the taxes we pay today and the public spending we benefit from today.  It means we can understand what the immediate impact of changing tax or spend policies  will be on Scottish people and our Natioanl accounts.  Of course the long term impact of those changes (will they boost or damage economic growth) are far more difficult to assess - that's where politico-economic judgement is required.

Thirdly: they are a snapshot (or more accurately 15 snap-shots) in time. The time-series nature of these stats is extremely useful as it allows us to understand how volatile or predictable the various revenue and expenditure streams are.  We can judge if the latest figures are "just a snapshot" or a reflection of long-term trends.

I've already shown the breakdown of the last 10 year's figures (in absolute terms) in my previous post Analysis of 2013-14 GERS.

In this post I focus on how Scotland's Economy compares to The rest of the UK's (rUK's)2 over time. All figures are taken directly from the GERS data tables; I've just calculated rUK (= UK minus Scotland), aggregated some rows of data for presentational clarity and worked out the figures on a per capita (per person) basis so we can easily compare the figures between the two regions.

Let's start with relative per capita Tax Revenue generation excluding Oil & gas;

This graph shows very clearly that (before oil & gas revenues are considered) Scotland consistently generates slightly less tax income per capita than the rest of the UK - the 15 year average is £260 less.

Now let's look at the relative differences between the main sources of tax revenue that make up this figure;

Working from the top of the graph down: the only areas where Scotland's per capita figures differ materially from rUK are "Gross Operating Surplus" (mainly profits generated by State owned Scottish Water) and the "Sin Taxes" generated because Scots smoke, drink and (to a very small extent) gamble more than people in the rest of the UK.  The impact of the council tax freeze is observable but a relatively small factor - I guess this shows how some policies with relatively marginal economic impact can generate a lot of attention.

The striking point of course is that Scottish Income & Wealth Taxes3 consistently generate £400 - £500 less per person than in the rest of the UK.  Given the tax regimes are currently the same this must simply be a reflection of the fact that on average Scots consistently earn less. This - as with so much of the economic debate - is more a "regions versus London" issue rather than one of Scotland versus rUK.  The graph below (Equality Trust from ONS data) illustrates the point

So before Oil & Gas (or the "bonus" of oil & gas as the Yes campaign liked to refer to it) how does our relative revenue generation compare with our relative levels of public expenditure? This is easy to see by adding our relative public expenditure on to the same graph (the red line); this line is a graphical representation of the wdiely quoted "we spend £1,200 more per capita in Scotland than the rest of the UK). Of course the gap between this and our tax income (the black line) is the difference between our pre-Oil & Gas deficit.and that of rest of the UK

It's worth noting that the expenditure per capita difference between Scotland and rUK has in fact increased in recent years - we'll come back to that later. But it's time we introduced oil & gas income.

Scotland (when given it's geographic share - getting to keep "oor oil") of course generates considerably more oil & gas tax revenue per capita than rUK. Typically about 90% of the UK's oil & gas revenues fall to Scotland (it's not 100% because there are gas fields in the "English" North Sea waters - let's put aside arguments about definitions of where Scottish Waters ends and English waters start and just run with these figures using the definition accepted by the Scottish Government).

The volatility of oil & gas revenue over the last 15 years is clear to see.  We should remember also that these figures predate the oil crash - we already know the 14-15 figure will be well below £500 and 15-16 is expected to be lower still.

So we let's now add this oil revenue (the black line below is the summation of the graph above and the first graph) and see how Scotland's finances compare with the rest of the UK when we include oil & gas.  The fact that black line is always in positive territory is a graphical illustration of the SNP's oft repeated mantra that "Sotland has contributed more tax per capita than the the rest of the UK for the last 15 years".

Of course when the black (tax income) line is above the red (public expenditure) line Scotland's deficit per capita is not as bad as rUK's - when it's below it it's worse. For greater clarity we can simply plot Scotland versus rUK's relative per capita deficit (the difference between these two lines). Bars above the line mean Scotland's deficit (with oil) is lower on a per capita basis than rUK's - bars below the line obviously mean our deficit is worse.

The boxed area of the graph shows the 5 year history that was generally quoted by the Yes campaign when they used historical average figures - a period that usefully included the clearly exceptional year of 2008-09.  It's also worth noting that the 12-13 numbers were published 6 months before the referendum but the Yes campaign (including not just Wings Over Scotland's "Wee Blue Book" but also MSP's like Stewart Stevenson) continued to quote the 11-12 numbers as if they were the most recent ones availabel - they simply ignored the 12-13 numbers.

Of course the 13-14 numbers were published after the referendum but anybody who pays attention to these things knew they would be similar to 12-13 because the oil situation was clear for all to see.  Of course to mention this was to be accused of accusing Scotland of being "Too We, Too Poor, Too Stupid" - a remarkable effective strategy when it came to hiding the economic realities from a large proportion of the electorate.

We still have one last set of figures to look at and understand: the detail behind the public expenditure that is so much higher (and growing slightly faster) in Scotland than rUK.  The following graph breaks that expenditure down into its constituent elements; as with all these graphs we are looking at the per capita difference between Scotland and rUK.  Above the line means we spend more in relative terms in Scotland.

There are a lot of lines on there but a couple of observation are still easy to make
  • We have a higher per capita spend in Scotland on pretty much everything
  • Social protection (benefits, pensions, tax credits and admin costs) and in recent years Transport are the biggest areas of higher relative spend
Some of these figures will be explained by demographic differences, some by the intrinsic higher cost-to-serve of a geographically dispersed population, some by Scottish Government policy.

International Services, Public Sector Debt Interest and Defence do not appear on this graph as they are costs allocated on a per capita basis (so by definition the per capita difference with rUK is zero). It's worth reiterating the point that if Scotland wants to remain in NATO the absolute level of defence spend is likely to remain at similar levels to those allocated in GERS (to achieve the accepted NATO target of defence spend equating to 2% of GDP).  Although talk of scrapping Trident is always accompanied by big numbers (the £100bn lifetime cost) the reality of course is that scrapping Trident doesn't save the economy that money - it allows it to be redirected into alternative defence spending.

The "Accounting Adjustment/Other" line is worth mentioning (given its the only one were we currently spend less per capita in Scotland than rUK) but if your stamina is flagging skip this paragraph as this is not easy to explain (or indeed understand).  It's primarily the difference between capital expenditure and depreciation (and of course we are looking at the relative difference in this difference).  I think in simple layman's terms it means Scotland is (very slightly and only in the latest year) at a point where it's rate of investment in capital programmes (compared to its historical average) is lower than rUKs. I think.

Slightly more interestingly there are two lines that I think are worth extracting from this graph as they tell us something about the SNP's relative priorities. I've observed before how education spending in Scotland has remained static in nominal terms over the last five years.  The graph below shows that  - while e.g. public order and safety expenditure has relatively increased - the relative premium spent on education in Scotland versus rUK has been eroded under SNP control.  

The Scottish Government itself points out in the GERS commentary that "lower population density in Scotland relative to the UK [..] increases the cost of providing the same level of public service activity, particularly in areas such as education, health and transport". The inescapable conclusion is that the SNP are relatively less committed to education spending than the previous administrations. For those of us who believe that social justice starts with the best possible quality of education for all this is a damning observation.


So what?

By pooling and sharing with the UK Scotland effectively carries a per capita share of the UK's debt; we are allocated a per capita share of National debt interest in GERS and the default assumption used for sharing the debt in the indyref was that it would be on a per capita basis.

This matters because if - on a per capita basis - Scotland makes a higher contribution to that deficit (and associated debt) then we are being subsidised by rUK. Conversely when Scotland runs a lower deficit per capita than the rest of the UK we are net contributing. In the recent past we have sometimes more than paid our way (look at the bar chart); but given current and forecast oil revenue levels we can expect the Barnett Formula to mean we are subsidised for the foreseeable future.  That shouldn't be a source of shame or embarrassment - there will always be some regions that contribute less than others and we have more than paid our way in the recent past (just look back to the North Sea oil boom of the 1980s).  It's what pooling and sharing is all about; it's why the Barnett Formula exists.

There are alternatives of course. Nicola Sturgeon has stated “I want full fiscal autonomy for the Scottish government. I want us to be responsible for raising our own revenues and deciding how those revenues are spent".  A laudable objective; but to stand on our own feet fiscally within the UK means not continually running a higher deficit than the rest of the UK (given we would still be sharing a currency and our National debt).  Now look at the graphs above and it's surely obvious that we can only achieve that with either another oil boom or by dramatically increasing our tax take and/or reducing our public expenditure. Of course every government wants economic growth to increase tax revenue without having to change tax rates but there is no magic wand that makes that happen.  The truth is that the only way Full Fiscal Autonomy could be achieved for Scotland would be by pursuing policies of even greater austerity than the rest of the UK; we would be starting off £800 worse off for every man woman and child in Scotland.  That's the head-start we'd be giving the rest of the UK on day one.  This can't be dismissed as just a snap-shot historical view. Look at the graphs - we consistently, structurally spend more and raise less unless there is an oil boom. It's all about the oil.

To say the challenge would be tougher still were we to pursue independence is surely now self-evident.  We'd have to sort out a currency and somehow seek to counteract the adverse impacts on our tax take and welfare spend that would result from increased unemployment as at least some businesses relocate South of the border.

If you believe that further devolution or full separation is worth it anyway then fair play.  But have your eyes open and be honest enough to admit to the hardship that will result; hardship which will - as it always does - impact the least well-off most.  Don't kid yourself (or others) that separation will somehow deliver "social justice" when the figures are strikingly clear - we'd all be worse off on day one.

It's at this point in the economic argument that - defeated by the numbers - some say "well if we're not net contributing to the UK why are they so keen to keep us?"  There are two answers to this;

  1. Much as some Nationalists struggle to comprehend, there are people who believe in the long-term economic, social and moral merits of pooling and sharing - not everybody looks at the numbers and decides we should cut loose those who don't "pay their way" in a short-term economic sense
  2. They might be becoming rather less keen to keep us.  If you shout and scream at a point in time when you are a net contributor ("it's oor oil"; "we give more to Westminster than we get back") then you might come to regret framing the debate in terms of narrow economic self-interest ("we'd have been £8bn better off"; "we'd all be £500pa. better off") when the numbers swing against you.

As for the party politics of this, be in no doubt: a vote for the SNP is a vote for full fiscal autonomy - and that's a vote for immediate hardship.  It's also a vote for independence because that is the SNP's constitutionally defined over-arching objective.  If you think the hardship and immediate economic disadvantage is worth it for that end then fair enough; but if you think voting SNP is a tactically astute way to ensure Westminster focuses on Scotland's selfish interests you might want to seriously consider thinking again.


1. Accuracy of GERS figures

The GERS figures are created by the Scottish Government and underpinned the economic case for Independence - so it is fair to assume that if there is any bias it would be to skew the picture in Scotland's favour. HMRC produce their own figures (Table 4 in this HMRC Document shows methodological differences between HMRC and the Scottish Government)  and pages 38 and 39 of GERS show that the differences between HMRC and GERS estimates are are in fact very small. GERS estimate Scottish Tax revenues in 2013-14 to be 0.36%(£181m) higher than HMRC.
    The likes of Business for Scotland and Wings Over Scotland have made startlingly misinformed statements about VAT and Alcohol Duty that have led some people to doubt the validity of these figures.  If BfS and Wings were right it would be a terrifying indictment of the Scottish Government and the official Yes campaign's competence - but of course they are not right; the figures are sound.  References to VAT being "paid at companies' headquarters" and Scotland not getting attributed "Alcohol Duty at point of export" demonstrate a fundamental misunderstanding of how these taxes work and how they are attributed in GERS.  These are consumption taxes and GERS estimates Scotland's share of these based on consumption data.  There is no such thing as "Export Duty" on whisky (in fact you get Export Duty Relief); for the same reason we get to keep tobacco Duty despite not producing cigarettes.  A 2 minute search of the official GERS Method Statement is enough to dispel these myths.

    The main area of uncertainty in GERS figures is how Corporation Tax would split between Scotland and rUK.  Businesses are not currently required to report profit split between Scotland and rUK. so nobody knows how profits (and therefore taxes) would actually fall.

    There seems to be a bizarre amount of confusion out there around what GERS actually tells us.  I've covered the detail of what GERS means elsewhere (here and here); basically it tells us how Scotland's accounts would compare to the UK if we were fully fiscally autonomous based on continuing with the same tax and spend policies.

    This is useful if we look at the long term trends as it helps us understand what we have become used to in terms of tax and spend levels in Scotland (and by implication we can start to think how dramatic the tax rises or cost cuts would need to be to cover the deficit gap we have versus rUK).

    2. Scotland versus rUK

    In all these analysis I compare Scotland to rUK (where rUK = UK - Scotland).  I find this preferable to comparing Scotland to the UK as a whole. I've seen the fact that the UK as whole includes Scotland causes remarkable confusion in debates (with people e.g. arguing that the UK shouldn't be getting the oil revenues).  By comparing to rUK I hope to avoid this confusion.

    3. Income & Wealth Taxes

    The is an aggregation of the following GERS items; Income Tax, National Insurance Contributions, Capital Gains Tax, Stamp Duties, Inheritance Tax and "Other Taxes on Income & Wealth"

    Sunday, 22 March 2015

    SNP/Tory Coalition - Think It Through

    Back in February there was an intriguing tweet from Lord Ashcroft (erstwhile Deputy Chairman of the Conservative Party and provocative pollster) saying that "Of course there could be a Tory/SNP coalition #thinkitthough"

    I tend to focus on economic facts in this blog but I also like a challenge so - having discussed this with a few people who know a lot more about the realities of political deal making than I do - here's my attempt to think it through;

    What would the SNP do if they were offered Full Fiscal Autonomy (FFA) in return for supporting a Tory government in Westminster?

    Why would the Tories offer that deal?  If it comes with a commitment from the SNP on English Votes for English Laws (EVEL) and keeps the Tories in power why not? It's economically beneficial to the rest of the UK (to the tune of £7-8bn on current figures) and the hardship that would result in Scotland isn't going to affect any Tory seats. From Cameron's perspective - a man surely now starting to consider how history will remember him - he can claim saving the Union as his legacy.

    Why would the SNP accept such a deal?  It's true that Nicola Sturgeon has stated unequivocally that the SNP wouldn't support a Tory government but she has also made clear the SNP's desire for FFA. Remember that with Full Fiscal Autonomy we get to keep "our oil" and have total control over tax and spend (with only defence and foreign affairs remaining reserved). It's not a massive leap to see Sturgeon arguing that saving Scotland from the Tories and achieving FFA in return for supporting a Tory Westminster government is an acceptable political compromise.

    Surely though the SNP know that FFA would cause economic hardship for the Scottish people?  Here we have to remember that the SNP's raison d'etre is not improving the lot of the Scottish people. It is - as defined in the SNP's constitution - independence for Scotland.  They don't actually say "at any cost" in their constitution but it's implicit; no caveats are given.

    So how does FFA serve that over-riding objective?  Again let's think it through.

    With FFA the Barnett Formula is scrapped.  Scotland no longer experiences the benefit of economic shocks being smoothed out across the UK.  We get to keep "our oil" (which may or may not prove to be a massive economic boon again some day) but in return we accept we will not benefit from any similar geographic windfalls that may lie elsewhere in the UK.  If - for example - the Home Counties turns out to be the source of a shale gas boom, under FFA Scotland would not share in any of the spoils.

    The GERS numbers show us that in the short term Scotland would certainly be worse off under FFA. Indeed unless there's another oil boom it's hard to see why we wouldn't continue to be worse off for at least many decades to come.  Most of the benefits of Union would have been discarded but we would still be under some fiscal constraints (due to our shared currency) and decisions around defence spending and international affairs would still give the SNP plenty of reason to still complain about those bastards at Westminster.  We would have many of the downsides of independence without the full freedom that independence would offer. Under that scenario it's fairly easy to see how the SNP could still argue for independence. By then - frankly - what would we have left to lose? All the SNP would need to do is succeed in continuing to blame Westminster for our woes (anybody who has watched how the SNP operate knows that even with FFA that wouldn't be beyond them) and come up with a credible currency solution.

    It seems to me that if - as Lord Ashcroft advises - you think it through, the SNP might be delighted to support the Tories at Westminster if FFA is the "prize".  Not because they believe this in itself would benefit the Scottish people - you would need to be an economic illiterate or a border-line certifiable optimist to believe that - but because they would see this as a step on the road to full independence.

    Many believe independence for Scotland is the right answer no matter what the short, medium or long-term economic cost and they should of course be voting for the SNP.  But anybody thinking of voting for the SNP believing they are voting for an SNP influenced Labour government might be taking a bigger gamble than they realise.

    24/03/2015: Addendum (for the doubters)

    For those who (perhaps understandably) scoff at my hypothesising: since I wrote this post there have been a few mainstream commentators taking a similar line

    Iain Martin (political journalist with the Telegraph) seemed to like this logic

    Even Guido Fawkes seemed to think I was on to something

    Thursday, 12 March 2015

    Simple GERS summary

    Yesterday I was asked for 400 (simple) words on GERS for today's Daily Record. I wrote this:


    If Scotland had voted Yes in September we’d currently be preparing to stand alone next year.  We voted No, but the SNP are now campaigning for Scotland to be fully fiscally autonomous (which means Holyrood controlling all Scottish public expenditure and having to fund that exclusively with Scottish taxes or debt). Within this context yesterday’s Government Expenditure & Revenue Scotland (GERS) report makes for very interesting reading.

    We should remember these are last year’s numbers; they can’t tell us what a Yes vote would have meant for our economy as we grappled currency questions and job losses caused by businesses moving South to avoid becoming exporters to their main market; they can’t tell us how a radically different set of economic policies might (over time) change the shape of Scotland’s economy. What these figures can do is give us a better idea of where we’d be starting from.

    The good news is that Scotland (if we got to keep our oil) generated £400 more tax income per head than the rest of the UK.  The bad news is that the oil revenue within that was £600 per person lower than the worst case scenario the Scottish Government used in the Independence White Paper (and these numbers pre-date the recent dramatic oil price collapse).

    Tax revenue is only half the story of course and at least - due to oil - we’re still generating more per head than the rest of the UK.  The other half of the story is public expenditure where (as has consistently been the case) £1,200 per person more was spent in Scotland than the rest of the UK (because we spend more on health, social protection, transport etc.).

    The net result is that Scotland’s deficit (the difference between taxes raised and money spent) was over £800 per person (or about £4.5bn) worse than the rest of the UK.

    This money has to come from somewhere.  Right now it comes from the Barnett Formula (the additional money we get from Westminster to fund our higher spending) but if we were independent or (as the SNP are suggesting) fiscally autonomous we’d need to find it by raising taxes, cutting expenditure and/or taking on even more debt.

    If you think that’s not a problem consider this:  £4.5bn is the equivalent to a 40% increase on all our income taxes or a 40% decrease to the Scottish health budget.


    With the freedom of this blog I would add the following:

    Of course one of the ways to increase our tax income is to grow the economy. This is as true for the UK as it is for Scotland - every politician would rather grow the economy than drive unpopular cost cuts and tax rate rises.

    Those campaigning for full fiscal autonomy argue it's the magic key to unlocking growth for Scotland. The question remains unanswered as to quite how or why.  What is clear is how much has to be achieved  - based on current oil revenues Scotland would need 10% real economic growth (above and beyond that which we are achieving in the UK) just to get back to being no worse off than we are now.  If you're not used to looking at macro-economic figures let me tell you that's quite an ask.

    Maybe that can be achieved - its not unfeasible - but remember that during that period (5 years? 10 years?) we'd require either additional austerity measures (although probably not because it's argued these restrict growth) and/or more debt than we are currently creating within the UK.  So the argument appears to be: with full fiscal autonomy we could run a higher deficit and increase borrowing at a faster rate to stimulate growth.  Remember that because we already run a deficit our (Scotland's and UK's) debt is still growing at the moment; we didn't hear many politicians arguing during the indyref that the UK's problem was we weren't increasing our debt fast enough.

    There are further implications of this strategy.   There is certainly no room for tax cuts or public spending increases - if these are made the size of the debt mountain increases faster.  There may be opportunity (which I would personally welcome) to redistribute who carries the larger tax burden or who benefits most from public spending - but that's a zero-sum game: for every winner there is an equal loser.  The SNP do not have a track record of implementing redistributive policies; we wait to hear who they propose the losers will be if they are serious about tackling social injustice.

    A final note: the value of your economy can go down as well as up.  There is certainly no guarantee that full fiscal autonomy will unleash economic growth for Scotland - that argument seems to hinge on faith in the competence of politicians in Holyrood over those in Westminster - all we know for sure is that full fiscal autonomy would give us a starting handicap versus the rest of the UK.

    Wednesday, 11 March 2015

    Analysis of 2013-14 GERS

    This is a quick and dirty blog post; I've written a pithy summary which should be in tomorrow's Daily Record so protocol dictates I should wait until that's published before sharing here.

    What I can share quickly is the raw data analysis, graphs and headlines.

    There are no surprises for anybody who has followed my previous blogs or simply been paying attention.
    • As expected the Scottish deficit per capita continues to be worse than the rest of the UK to the tune of about £900 per head (or £4.75bn)
    • In only one of the last 5 years has Scotland's deficit been lower than rUK's and then only marginally (£140) - that was of course the year on which the Independence White Paper case was founded
    • Longer term average deficit per capita is higher for Scotland than rUK: by £260 over the last 10 years and by £440 over the last 5 years
    • We already know that 2014-15 will be worse again due to known oil price collapse
    • rUK have consistently reduced their deficit per capita over the last 5 years

    Some points worth noting
    1. I show figures versus "rest of UK" (rUK) i.e. UK excluding Scotland as I believe that's less confusing and more insightful than comparing us to the total UK which includes us.  [I still show total UK for comparison purposes in the table at the foot of this post because those figure are so widely quoted]
    2. I think Per Capita comparison are appropriate when looking at our deficit versus rUK  - debt interest is allocated on a per capita basis and during the indyref the default assumption for debt allocation was to base it on population share.  If we are being apportioned debt on a population basis it makes sense to see what our per capita contribution to that debt (as a result of running a deficit) is. [I show % GDP numbers below]
    3. There have been some major restatements (by HMRC and Scottish Government) for prior years (for reasons that are too tedious to document here) - so I have updated the historic figures appropriately
    4. I've extended to a 10 year time series because it helps us understand longer term trends and volatility (and because the GERS data tables make this easier to do now!)

    For those who like to see Deficit/GDP figures this trend is show below.

    Even using the SNP's preferred deficit/GDP measure Scotland is running a materially higher deficit than rUK in recent years and has been doing over both a 5 year and 10 year average period.

    [The headline impact of historical restatements (by Scot Govt and HMRC to match European System of Accounts) seems to have been to (relatively) boost rUK's GDP.  I haven't dug into this further yet]

    Stepping back from the rUK comparisons and looking at the absolute figures for revenue generation in Scotland: the total stack is public money spent, up to the black line is from taxes, the balance in red is deficit;

    The numbers may be hard to read - but basically increases in revenue raised through employment taxes and VAT have been offset by decline in oil & gas revenue.  Remember we already know next year's figures (to be published in March 2016) will show a further £2bn+ drop in oil & gas revenue.

    Looking at where the money was spent: the black line represents what was raised in taxes, anything above that is deficit

    What strikes me about this graph is that education spending has decreased in cash terms over a period in which (for example) health and social protection have increased by 10%.  The Capex vs Depreciation figure declined last year suggesting a slowing of the capital investment program. Clearly these are just superficial observations at his stage.


    Here are the underlying figures for the deficit graphs for those who like to dispute them

    Sunday, 8 March 2015

    Why Do I Care?

    One of my teachers used to explain his inability to solve a problem by saying he was "too close to the board". While attempting to contribute to Scotland's constitutional debate through this blog I feel like I've spent most of the last year with my face pressed firmly up against that board.  So excuse me while I wipe the chalk-dust off my nose and take a few steps back.

    We all suffer from a tendency to have a view and then seek data and arguments to support it. Where economic facts are involved we should be able to control that tendency and apply rational objectivity - indeed that's what much of this blog has been about.  But when it comes to more subjective or judgmental issues none of us can be immune from our own preconditioning; we have instinctive reactions and then seek to justify them.

    This matters.  We can argue about political policies and economic strategies, we can debate what our priorities should be, what trade-offs we should make - but if we ignore our fundamental differences in perspective we will never understand each other's positions.

    I think I have something to contribute to the debate about the impact that businesses have - can have and should have - on our society. But I should be clear about my own prejudices; I need to explain a little about where I'm coming from.

    I don't hold with the view that somebody should be embarrassed by a privileged upbringing.  Going to a good private school and enjoying an Oxbridge education shouldn't disqualify you from having a view on the needs of wider society.  You don't have to have been cold and hungry or to have come from a broken home before your are qualified to care for those who have.

    But if you have it probably affects the way you think.

    By the time I was 9 I'd had three dads, gained and lost a step-brother, had my first name changed once and my last name twice.  By the time I went to university yet another man (I'd never consider him a dad) was on the scene; he suffered from severe mental health problems.  Simultaneously (and not coincidentally) I watched a step-father (who I hated) mentally decay to the extent that his parents had to come and take him home.  I know something about the challenges that result from growing up in a dysfunctional, broken family. I also know a little about mental health issues, alcoholism, and domestic violence - but those are topics for another day.

    I know what it means to have very little.  As a child growing up in Norfolk we lived in caravans, boats and various houses without electricity or running water.  For a brief period of time I went to primary school whilst living in a ridge-tent on the sea-cliffs at Mundsley (my mum & then step-dad lived in a ridge-tent alongside me).  I moved from primary school to primary school; I was the grubby, smelly and sometimes bruised child who teachers would worry about.  My school diary was a record of the life I imagined others must lead, not my own.

    When I was 9 we moved to Islay:  a new step-dad, another new name, a new primary school, a fresh start. After living in another couple of caravans and a derelict house we eventually settled on the West of the island.  This meant one last primary school and - finally - a house with electricity, a flush toilet, hot running water, a television.  Trust me when I tell you that I still appreciate the differences those things make.

    I was living on an Island with only one high school - so when my social worker mother picked clothes for me from the charity donation pile it was inevitable that I would end up sat in class enduring the mocking laughter of the kids who'd thrown out the clothes I was now wearing. I washed properly only once a week and my mum laughed at me when I decided to start cleaning my teeth.  I lived in a cold, filthy house that I was ashamed to invite friends to. I was on the bottom rung; social mobility is not an abstract concept to me.

    If you think this all adds up to me having an unhappy childhood ... well you'd be right as it happens; it was fucking miserable.  But that's not my point. I never went hungry and there are plenty who have had it far worse than me. I'm not seeking sympathy here but I am sharing all of this baggage for a reason.

    I'm not going to use this post to "sell" my business experience but suffice to say as a moderately successful businessman it's clear why I have a perspective on how businesses work (and sometimes don't work) and how business people think.  What might be less obvious without knowing something of my background is why I'm particularly interested in businesses' role in alleviating poverty and providing opportunity.

    I care about the least well off not because I'm some bleeding heart liberal who's guilty about my cozy life; I care because I remember how shitty it can be to feel stuck at the bottom of the heap. I care about the role education can play as a stepping stone to creating a better life because I was lucky enough to have the opportunity to go to university and broaden my horizons.  I care about enterprise and entrepreneurship because I know from first-hand experience how rewarding and fulfilling it can be to create businesses.  I care about social mobility and providing opportunities to all because I believe passionately that where you happen to start from shouldn't limit where you might end up.

    There are sound logical arguments for encouraging an enterprising culture in Scotland to drive economic growth ... but there are equally compelling compassionate arguments for pushing businesses to provide rewarding employment and offer pathways out of poverty.

    The context of the independence referendum is significant here. Putting aside for a moment concerns about the false prospectus: a significant proportion of the 1.6m people who voted Yes appeared to do so because they believed any change must be better than what they have now. We can - as I often do - argue that they were misguided in that belief but we shouldn't lose sight of the underlying problem this vote highlighted. That hundreds of thousands of Scots feel so disenchanted with their lot that they will grasp at any chance of change must give us pause.

    I think Scottish businesses can and should be seen to be playing a more positive role in building better lives for the people of Scotland. Education is - as ever - the key here: educating people to understand the positive role businesses can play and encouraging them to grasp entrepreneurial opportunities and engage in enterprise; educating businesses to adopt discretionary policies that improve employees' lives and provide opportunities to a wide spectrum of society; educating our policy makers to the realities of how business works and how legislation can support (or hinder) positive progress.

    That's an ambitious set of objectives but it's all based on a simple belief: Good businesses do good.

    You can expect to hear a lot more from me on this topic in the coming months.