Scottish spun-GERS

Update, 26/09/2020: The joke at the foot of this post, the pseudo-graph from pseudo Kevin Hague, has been picked up and republished by Munguin’s Republic, a lovely site with stunning nature pics, a strong but unencumbering commitment to Scottish independence, and jokes. Thanks, Tris, and best wishes in the ongoing struggle.

IT’S TIME for a brief look at GERS, the “Government Expenditure and Revenue in Scotland” report. The usual narrative is:

• Scotland has a deficit, because it spends more on public services than it raises in taxes.

• The UK funds that deficit by giving money to the Scottish Government (the “fiscal transfer”). This means that Scotland sponges on the UK.

• An independent Scotland couldn’t fund that difference.

All nice and clear, then – and all nice and falsely spun. Let’s look at those falsehoods.

Firstly, deficits are normal: all countries in the world have deficits, bar a handful of tax havens. What matters is whether a country’s deficit is “sustainable”. Having a deficit means that a country has to borrow money to spend on public services, and that means paying loan-interest. So it needs to generate enough revenue to cover the loan-interest. If it can do that, its deficit is “sustainable”. If it can’t, it isn’t.

The UK deficit goes up and down on a ten-year cycle, becoming a surplus in one or two years in each ten. Its economy generates enough revenue to meet its interest payments, so its deficit is sustainable. Virtually every country in the developed world has a sustainable deficit, unless its government is very silly. Scotland’s deficit too will be sustainable.

Secondly, it says above, the UK funds Scotland’s deficit by giving money to the Scottish Government, in a fiscal transfer. No, it doesn’t. There is no “fiscal transfer”, and no money changes hands. Scotland gets a block grant. But that “block grant” isn’t a grant at all: it’s simply the amount of Scottish Government spending that the UK will underwrite. The Scottish Government doesn’t have to spend it all, and in past years it hasn’t always; but if it spends more than the laid-down amount, Scottish ministers go to jail. The UK calls it a grant, but in fact it’s a cap.

Thirdly, Scotland covers its deficit by notionally borrowing money from the UK, and pays interest on that loan. Here is the line from GERS that tells us it’s a loan:

“Public sector debt interest” is the interest on the UK’s national debt, which is all the money that it’s borrowed since ever, less whatever it’s paid back up till now; this line shows Scotland’s share of that interest. Wrapped inside it is the interest Scotland is paying to fund its deficit (i.e. its shortfall for the current year). So the UK borrows money to fund Scottish public spending, and charges Scotland interest on the loan that the UK has taken out. This is normal and fair, and it means that the UK doesn’t pay for Scotland’s deficit. If the UK did pay for Scotland’s deficit, Scotland would be getting a free lunch, and free lunches don’t exist.

Scotland has no money of its own: all its tax revenues go directly to the UK, and the UK underwrites all its expenditure. Further, it has no borrowing powers: it “borrows” only from the UK. The Scottish economy, in short, is wholly controlled by the UK. Which leads us to:

Fourthly, why, after 300 years of economic integration, is Scotland so poor? Maybe it’s because its people are ineducable blockheads, whose only contribution to cultural life has been the work of Adam Smith, Francis Hutcheson, David Hume, James Watt, John Logie Baird and Alexander Broadie and the creation of four world-class universities. Or maybe it’s because the ineducable blockheads have recklessly wasted their natural resources, leaving Scotland, per head of population, with only one-and-a-half times as many farm animals as the rest of the UK, two-and-a-half times as much timber, twice as much cereal, six times the renewable energy (wind, wave and solar), and nine times as much hydroelectic energy. (Who could make a living out of that?) Or there again, it may just be 300 years of exploitation, under-investment and false accounting.

Let’s wrap this up with a graphic, so that it can be understood by even a prolix and repetitive blogger who nobody takes seriously any more:

A – Amount of Scottish deficit.

B – Amount that Scotland “borrows” from the UK, standing on a scaffold with both hands tied behind its back and its head in a noose.

C – Amount that an independent Scotland could borrow on the open market, so that it could elect the government of its choice, run its economy how it thought fit, and prosper like a normal country.