Monday, 27 February 2017

Nicola Sturgeon's Right: Scotland's Great Deal

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


Alastair McIntyre said...

Excellent post Kevin. I'd been trying to find some simple figures on just this topic and you've done it again... well done!

Anonymous said...

A comparison might be whether rUK would choose to lose a percentage of its exports to the EU, or to Scotland. We'd pick Scotland to give up. Scotland should pick the EU to give up.