Quite a week past from the issue of the GERS figures, to the announcement by Nicola Sturgeon that the SNP have not forgotten their Raison d’etre and are actually thinking about independence again, but first the GERS figures and I will give my take on the renewed enthusiasm for independence by the SNP in my next blog.
The GERS figures ( Government Expenditure and Revenue Figures Scotland), A set of figures thought up by a one time secretary of state for Scotland Ian Lang . The purpose of which was at that time to give a skewed impression of how Scotland stood financially with a view to diverting thoughts of devolution in Scotland and now used to divert thoughts of independence in Scotland . I append a piece by Gordon McIntyre Kemp of business for Scotland. Please read this as it will better explain the true position and demolishes the farce of a black hole in Scotland finances and in fact shows quite clearly that the GERS figures simply reinforces the need for independence, in order for Scotland to cast of the inefficient and debt ridden ties to the UK . These figures as you will see are loaded with expenditure that an independent Scotland would not have, and debt interest liability built up by successive incompetent UK chancellors of the exchequer, the last three being Gordon Brown ,Alister Darling and George Osborn.
Gordon MacIntyre-Kemp: GERS crowing is nothing more than wasted hot air
Thus, just as I have been saying for years, Scotland’s economy is not reliant on oil. Although the deficit has worsened as a percentage of GDP most people have benefited from wages and employment rising faster in Scotland than the rest of the UK. They have seen record-low inflation driven by low oil and fuel prices make the pound in their pocket go further and far from sensing economic Armageddon or calamity, the vast majority not directly connected to the oil sector have done relatively well out of the fall in oil prices.
The rest of the UK has also done very well from low oil prices forcing down inflation, protecting consumer spend, which lowers the cost of business, especially in manufacturing and transport-related sectors. Essentially, the UK Treasury benefits from high oil prices in the good times because the revenues don’t stay in Scotland then benefits from low inflation in the bad times – heads they win, tails you lose.
This has led to overconfidence and unsustainable house price rises, especially in London and the South East, creating a housing bubble that will negatively impact on Scotland’s economy when it bursts, creating another economic slow-down.
ondon house prices have lost all contact with reality and there are fewer properties on the market, by about 35 to 40 per cent compared with prior to the banking crisis, and so prices have inflated due to lack of supply, even though demand is not much stronger. This leads many to believe that a housing market crash and another recession is likely in 2017/18.
The GERS figures actually highlight how being part of the United Kingdom and also subject to the failure of successive Westminster governments to instigate any protection mechanism to deal with the impact of oil price volatility, such as a sovereign oil fund, has damaged Scotland’s fiscal position.
This means that the UK has absolutely no incentive to protect Scotland’s budget from oil price volatility, where as such prudent financial management is essential for a smaller, independent nation. Norway, a small, independent, oil-rich nation, has far less of a problem than Scotland in fiscal terms, as in the mid-1990s they started setting money aside to deal with volatility and that fund is now worth about $800 billion. In December 2015, plans to spend 208bn kroner ($25.2bn) of that oil wealth this year were announced, topping up the 204bn kroner Norway predicts it will receive from offshore oil and gas fields.
When Aberdeen, the part of Scotland hit hardest by the oil price slump, asked the UK Government for help, Westminster couldn’t match Norway’s $25.2bn, offering only £125 million, an amount dwarfed by the Scottish Government’s own Aberdeen help package and an insult when compared to the more than £300bn in oil revenues booked by the Treasury in good times.
The UK can’t complain about Scotland’s short-term fiscal position without recognising its long-term fiscal contribution to the UK.
The GERS figures tell us nothing about how Scotland would have fared as an independent country under the same circumstances, as we would have implemented bespoke economic policies, had different tax rates and a radically different fiscal starting place. The 2014/15 figures released this week also cover a period before the referendum, and even the figures released in a year’s time will be for 2015/16 and won’t cover the first year of theoretical independence.
Another flaw in the Armageddon argument is that several of the expense lines in the GERS figures relate to UK membership and would reduce significantly and possibly even disappear completely with independence. For example, defence spending in 2014/15 was £3bn and that is the cost to Scotland for the UK’s power projection agenda, including nuclear warheads Scotland wouldn’t have and the cost of action in the Middle East Scotland wouldn’t support.
A Scottish Defence Force modelled on Denmark’s would save about £1.2bn a year. Civil service costs (salaries, rent and rates are lower in Scotland than London) would fall, likewise there would be lower costs for tax collection, border protection, security services and even not having to pay for Westminster and the House of Commons could save up to £600m per year. My highly conservative calculations on low pay in Scotland show that even full-time workers receive welfare payments that amount to between £800m and £850m a year in Scotland.
THE extra Income Tax and National Insurance contributions from implementing the Living Wage would also generate between £220m and £250m of additional revenue. This means that the Living Wage would benefit the Scottish budget to the tune of £1bn extra a year.
Finally, the Scottish Government offered to take a population share of the UK’s debt mountain if there was an agreement on currency. Legally, an independent Scotland would not be responsible for that debt and the Treasury actually confirmed that fact in 2014. Alex Salmond was clear: “No deal on currency, no deal on debt.” Without the pound, an independent Scotland would also not have the debt interest payments in its expenditure, which in the 2014/15 GERS amount to £2.76bn.
So, when oil revenues drop £2bn from the previous year’s figures it certainly isn’t good news, but that is dwarfed by the potential savings from independence amounting to nearly £3bn if a deal had been done on currency and £5.5bn if it hadn’t. This would radically improve the deficit to GDP ratio. Of course, had Scotland been independent for the years leading up to 2014/15 the figures would have had an entirely different starting point.
What the GERS figures really show is that as part of the UK Scotland can’t protect itself from oil price volatility but as an independent nation we would have the tools to do so, and that is significantly better than potentially being dragged out of the EU, and into a housing bubble-led recession as part of the UK.