We Need To Talk About: GERS (2018-19 Edition)

“Fact be virtuous, or vicious, as Fortune pleaseth” – Thomas Hobbes

It’s that time again! The annual GERS report has been released and interested parties continue to analyse, pick apart and spin the numbers as required. And my now annual tradition of diving into the numbers continues with another installment.

GERS 2018-19.png

You can read my coverage of GERS 2013-14, 2014-15, 2015-16, 2016-17 and 2017-18 behind those links.

You can read the report and download all of the data tables for this year’s report here.

The headline figures show not too much in the way of surprises. The trends that have been developing for some years now are becoming established.

Scotland’s Gross Domestic Product continues to increase though as noted in a recent well received TED talk, Nicola Sturgeon stated a desire to begin deemphasising GDP as a metric of economic success. I would like to see a whole-hearted attempt to quantify our economy by wellbeing metrics but until that is the case then I think the next step would be for future GERS reports to start to include not just GDP but also Gross National Income as well. The first refers to the value of stuff created in Scotland by any company whereas the latter refers to the value of stuff created by Scottish companies wherever they may be in the world. If GDP is higher than GNI then it indicates that value is flowing from Scotland to companies based outside of Scotland. A report in CommonSpace indicated that this scenario is indeed the case and that in 2017 £9.2 billion left Scotland in this manner. I would like to know how that figure has changed since then.

03 - GDP

Scottish oil revenue is basically unchanged at £1.4 billion but total revenue has increased by almost £2 billion. Scotland economy is strengthening with income tax, national insurance and VAT revenue making up the bulk of the increase. This is a good sign as it points to the wages and spending power of ordinary folk increasing rather than the revenue gains being based on more volatile commodity blips.

Scotland’s net fiscal deficit has reduced from £13.7 billion in 2017-18 to £12.6 billion in 2018-19 whilst the UK’s fiscal deficit has reduced from £41.8 billion to £23.5 billion.

But the deficit means that Scotland – with 8.19% of the UK’s population – has been assigned 53.7% of the UK’s total deficit.

The reason for this can be seen in the trends tracked by the ONS’s annual Country and Region Fiscal Balance tables. We’ll have to wait till next summer for this year’s detailed figures including “GERS-like” fiscal balances for Wales, Northern Ireland and the regions of England but we have seen over previous years that the “Pooling and Sharing” of the UK’s economy into London and the South East has resulted in increasing notional budget surpluses for those regions at the expense of virtually everywhere else (including the rest of England).

01 - Fiscal Deficits02 - Fiscal Deficits w London and SE

The Financial Crisis a decade ago was a pivotal moment in the UK and has evidently resulted in a fundamental reshaping of the UK economy to cause this pooling in the South East. The lack of investment outside of London as well as outright wealth extraction towards the capital has been identified as a major driver of this regional unbalancing. It is not just Scotland that feels hard done by in this environment. I suspect that a great deal of the unrest in England which is manifesting itself in Brexit is being driven by similar feelings of alienation and abandonment by Westminster.

Scotland’s onshore economy may be strengthening but the wealth and income inequalities of the UK are still very apparent in the GERS figures.

If the UK’s economy, income and wealth was perfectly evenly spread around the country and Scotland’s revenue for each tax was equal to a population share of the UK’s then we’d bring in around £2.9 billion extra in income tax, £710 million in corporation tax, £356 million in capital gains and an extra £156 million in inheritance tax. Curiously, we’d bring in around £300 million LESS in VAT which probably goes to show that just because someone has one hundred times the wage that I get doesn’t necessarily mean that they buy one hundred times as much stuff as I do. The total “revenue gap” for Scotland by this measure is £2.5 billion – down from last year’s £2.9 billion but still within the bounds of a downwards trend set in the past few years.

04 - Revenue Gap

Expenditure is more complex with around £9 billion being spent in Scotland more than our “population share” of UK expenditure. Some items like defence, debt interest and foreign consular services are already assigned as population share in GERS and would be the items most likely to change upon independence (see my paper Beyond GERS for the reasons why). Austerity’s claws appear here too with expenditure steadily decreasing when expressed as a percentage of GDP in both Scotland and the UK although in the latter case the falls are much more pronounced. The current EU average for public spending is about 44% of GDP. The UK is falling behind and a fragile economy and vulnerable population is the price being paid for that.

06 - Expenditure GDP

Speaking of population, the impact of Brexit is becoming apparent even before we have left the EU. Scotland and the UK’s population continue to increase but that rate of increase has fallen sharply in the past few years. Since the EU referendum, population grown in Scotland has dropped by three fifths from 0.5% in 2015-16 to 0.18% in 2018-19.

05 - Population Growth

The vast majority of this drop will be due to changes in immigration and emigration. Earlier this year, I noted that ONS migration statistics implied that the EU referendum coincided with an abrupt increase in the number of EU citizens leaving the UK and an abrupt drop in the number of EU citizens entering the UK. Extrapolating from pre-referendum trends I estimate that more than one million people have either left the UK or have chosen not to enter the UK since the EU referendum. Organisations like EU Citizens for an Independent Scotland have told numerous stories of people leaving (even to the point of their own organisational structure being disrupted by these departures) and Brexit is by far the most cited reason.

Scotland will be deeply affected by this for generations to come. Our aging population and dropping birth rates will require inward migration to maintain our workforce – assuming we don’t want to follow UK Tory proposals of working till we’re 75 or dead – and to maintain the current ratio of workers to pensioners even without changing migration rates we’re going to have to a maintain population growth rate of around 1.5% per year for the next 25 years. This simply cannot be done within the UK where the goal is to reduce immigration to the “tens of thousands”. Scotland will need at least 100,000 new workers every year on top of present migration and birth rates. We could soak that entire quota ourselves and still need more.

One final line in GERS unlikely to get much attention is one that I’ve mentioned in previous years’ analysis. The bill for PFI and NPD payments in Scotland broke the £1 billion per year mark last year and has increased again to almost £1.3 billion in the latest year. It is expected that this sum will continue to rise throughout the next decade before gradually tapering off. I’m still not convinced that Scotland has done everything it can to minimise these payments and it certainly hasn’t done enough to replace them with a better system (NPD is only marginally better than PFI and carries many of the same risks). The Scottish Government is now examining plans to launch a Scottish National Infrastructure Company to compliment the Scottish National Investment Bank and to find a much more sustainable way to develop public infrastructure but I hope that it will launch these bodies as quickly as it can.

I detect a note this year that GERS isn’t perhaps the touchstone that it once was in Scottish politics (though I and the other usual suspects will likely remain as obsessed as we have long been). This may change if another independence referendum campaign manifests over the course of the next year (and the next issue of GERS may be out just weeks before another independence referendum) but it may also continue to change if we start talking more about the weakness and shortfalls of the UK economy. A reasonable case for Scotland’s regional accounts GERS may be and a “starting point” for discussions around independence it will remain but as the UK continues to tear itself apart at the economic seams that discussion starts to appear ever more irrelevant to the real problems facing the Scottish economy, budget and people. Oh well. Till next year!

Versions of this article appeared on Common Weal and in The National.
The Common Weal Policy Podcast also discussed GERS here.

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3 thoughts on “We Need To Talk About: GERS (2018-19 Edition)

  1. The BBC showed fiscal conservative bias in reporting of the GERS deficit

    A fiscal deficit of 7% of GDP is on the low side. 8% of GDP is a more reliable deficit to sustain economic growth.

    The negligent fiscal conservatives forever try to cut the deficit, balance the books, thereby allowing the City of London banksters to help themselves to national savings, via low interest rates and quantitative easing, to fund their high lives of luxury and debauchery.

    Fiscal conservative politicians are guilty of aiding and abetting the banksters to embezzle public savings and should be subject to recall by their electors.

    Blame the SNP government for not demanding the right to borrow and spend Scotland’s own deficit but rather settling for the borrowing crumbs by signing up to a bad-deal, austerity Fiscal Framework Agreement with the UK Tory government.

    I believe that last year’s 8% of GDP was the ideal size of fiscal deficit and reducing the deficit down to 7% this year is, in my opinion, a retrograde step for Scots and a further unwelcome embezzlement of our national savings by the bankers.

    In my humble opinion, it’s not an “improvement” for anyone except the fiscal conservative puppets of the banksters who have waltzed away with £1.1bn more of Scots savings than they did last year.

    The banksters have stolen £1.1 billion more from Scots than they did last year. That’s only an “improvement” if you are a bankster or one of their puppets.

    SNP Secretary for Finance and the Economy Derek “Pigsty” Mackay is not an economist. The SNP government don’t have any economists worthy of the name advising Mackay. Certainly Andrew Wilson of the SNP’s “Growth” (actually Recession) Commission Report is clueless about such matters.

    So the press might as well have asked someone at random from the Aberdeen AUOB “march for independence” last Saturday for the answers about the fiscal deficit than to ask Mackay or expect him to know the answer to that or to any other difficult question.

    If you want to know the answer to that question, you have to ask an independence supporter who actually knows something about economics and in particular who knows that government fiscal deficits are normal, funded by government borrowing from its own central bank and necessary for the government to direct efficient investment of the nation’s savings, say 8% of Scottish GDP, £14 billion a year, and that having a lower deficit causes economic problems as the banksters waste the people’s savings instead of competently investing them as only good government will do.

    So if you want the correct answers, you have to ask someone like me, for example, and I will tell you that £13 billion is slightly on the low side for the ideal fiscal deficit for Scotland – that £14 billion would be a bit more like what Scotland needs for its fiscal deficit.

    The answer is – that if there is anything wrong with a £13 billion deficit for Scotland, it is that it is too small a deficit and that £14 billion would be better for growth and prosperity.

    I’d also tell you that the independence movement would be crazy to rush into another independence referendum wherein the hard questions like this one were being answered by “Pigsty” Mackay on the BBC.

    First we must win home rule of broadcasting and Holyrood must establish a Scottish Broadcasting Corporation – replacing the BBC in Scotland with a truly Scottish public broadcasting service which bothers to ask the Scots like me who know the answers and which doesn’t give clueless numpties like Mackay the time of day – before we dare risk going anywhere near running another independence referendum.

    Peter Dow
    Science and Politics
    Aberdeen
    http://scot.tk

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  2. If the figure of £953 million in the link below is accurate or even quite a bit less, highlighting what the GERS debt consists of is surely the way to expose it for what it is. Allocating each part of the GERS ‘debt’ to each specific ‘asset’ (HS2, Hinckley, Crossrail etc) would draw attention away from much of the hot air about GERS and allow a realistic overview to become clear.

    It’s ironic that the UK uses a financial argument as such a key part of support for maintaining the union when it’s the finances that are weakest part of being in the union (eg PFI’s). Clearly this falls under the ‘tell a big lie often enough and people will believe it’. But it seems that even that huge porky wasn’t big enough, so they’ve made it an even bigger one now.

    https://www.taxresearch.org.uk/Blog/2019/08/21/the-gers-data-is-ludicrous-scotland-does-not-generate-60-of-the-uks-net-fiscal-deficit/

    You won’t debunk such a monstrous lie as the GERS debt among the general public with wordy analysis. If that worked it’d have worked by now. Get the GERS debt broken into it’s constituent parts and I think the ‘debt’ will then become clear to most people, something that probably doesn’t exist at the moment, hence the annual to and fro about it. Once it’s clear where and on what the debt is being spent, then it also becomes clear that GERS is only a reflection of Scotland as it is within the union. Not the best of arguments for it.

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