Why you can’t rely on GERS figures to judge Scotland’s financial state
By Professor Richard Murphy
I had a meeting with a number of the SNP’s MPs about a year ago to discuss economics, money, tax and independence, all of which are issues to which I have given some thought. Summarising what I said is easy: that the SNP had run a great referendum campaign in 2014 barring issues relating to the currency, tax and the economy.
I stand by that. And my message now is that if the Yes campaign wants to win next time, then this is where things have to change.
First, let’s start with the facts.
Or rather, let’s start with the fact there are almost no facts to discuss on the Scottish economy. As an economist, I’ll tell you that to assess Scotland’s economy you need to know about how much people have to spend in the country, how much is invested in Scotland, how much the Scottish Government spends, what the country’s exports and imports are, how much is saved, and the total tax paid in Scotland.
Note that’s seven separate bits of data. And we only have reliable figures on some of what the government spends. As for the rest, Revenue Scotland is still struggling to work out which people are tax resident in Scotland and it has no clue at all on what corporation tax, VAT or other taxes are due, precisely because no-one has to declare those taxes separately for Scotland. It’s the same with imports and exports: no-one knows what these are because there are no border posts at Carlisle, Berwick-on-Tweed or Stranraer. On investment and savings, we’re equally clueless.
The message then is a simple one: when people say Scotland is in financial trouble, or running a deficit, or anything else, ask them how they know. If they say it’s the GERS (Government Expenditure and Revenue Scotland) report, tell them to read the home page for that report where it is quite candid about the fact that the data in it is estimated. If they retort that all financial data includes some estimates, feel free to agree, and then point out that does not usually mean that 25 of the 26 income figures in a set of accounts are estimates extrapolated from data for the UK as a whole and some consumer surveys. And yet that is the case for GERS. Estimates may be a part of financial life but this is ridiculous: what this really says, yet again, is that there is no financial data for Scotland.
That leaves two questions to discuss. The first is why is this the case? Here, my answer is simple: as matter of fact what we measure is what we think is important.
If Scotland was, right now, to have the data it needed to manage its economy then Westminster would have to agree to its production. But the fact is that Westminster does not think it is important that Scotland has it own economic data, so it does not measure it. It sends along half-hearted estimates instead. And in the process it makes clear that it is contemptuous of the Scottish Parliament managing the Scottish economy, which is clearly not possible without data.
To be blunt, Westminster is saying as loudly and clearly as it can that Scotland quite literally does not count by refusing to measure what happens there. So what can be done about this? I suggest three things. First, all with concern for Scotland need to demand proper data on its economy. That can start now. Secondly, it means that GERS has to be treated properly, with deep suspicion.
The chance that Scotland makes a deficit of the scale it suggests is remote. It is exceptionally unlikely that eight per cent of the population make 17 per cent of the UK deficit.
Thirdly, move the debate on. Discuss what Scotland can do. Put oil firmly in context, adding hydro, tidal and other energy into the mix at the same time. Talk about what Scotland could invest in if independent. Make clear that it would be England that would owe Scotland money if there was independence: that’s the real legacy of oil.
Talk about how Scotland could draw in new business, from England where many want to live in a Europe-friendly country, and from around the world where an English speaking base near Europe is desperately attractive. Tackle the big questions early, such as currency, tax and how social justice will be delivered by an equitable and well-funded tax system that ensures all cheats pay.
This is where the economic debate needs to be, and it could be if GERS and all the nonsense that goes with it is dismissed as another example of Westminster’s contemptible attitude to all things Scottish, which is precisely what it looks like to me. Make the economic narrative Scottish in other words, which is precisely what GERS is not. That’s made in England.
By Richard Murphy, Professor of Practice in International Political Economy at City, University of London