Robin McAlpine: Be careful - it isn't GERS that's the con, it's the spin on it that's the problem

CommonSpace columnist and Common Weal director Robin McAlpine says GERS figures are put together in good faith but they aren't capable of representing Scotland's true financial position

SO unionists really, really want to talk about GERS and deficit? OK then, let's talk about GERS and deficit.

And let's cut to the chase – if France or Germany or Belgium or Italy were to have their fiscal deficits calculated through the GERS methodology, their deficits would spiral too.

Because GERS isn't a calculation designed to measure how a part of the UK would fare as an independent country. It is a calculation designed to show how how a geographical area would fare if it was a region under the control of the UK. That's quite a different thing.

Read more – Ben Wray: 10 things about 'the deficit' the No campaign won’t tell you

So celebrate GERS – it shows us that all sorts of successful independent countries would struggle if they were forced to become regions of the UK.

But first, let me be clear. I'm not here to rubbish the GERS figures and to be honest I'd encourage independence supporters not to see GERS in itself as a kind of fiddle or con.

More or less everything Richard Murphy has written on this and the really inadequate data on which GERS is based is right. Scotland is woefully under-measured.

I've seen that some unionist bloggers have tried to suggest that Richard doesn't understand economics because all economic data is based on estimates extrapolated out from sample data. Sure, unionist blogger, but the sample size of the data on which you build those estimates is rather important.

And in some cases the data for Scotland is based on subsets of data from a wider UK sample which leaves a very small sample response for Scotland. It makes the extrapolation less accurate. And in some cases the level of accuracy isn't all that far away from guesswork.

GERS isn't a calculation designed to measure how a part of the UK would fare as an independent country. It is a calculation designed to show how how a geographical area would fare if it was a region under the control of the UK. That's quite a different thing.

Have you ever wondered how it is that unionists can tell you to the penny what an independent Scotland's fiscal deficit is but they can't give you a basic breakdown of Scotland's balance of trade with the rest of the world?

It's a function of contemporary economics. If you come up with a number that is an estimate or a methodological step that is an assumption, modern economics deals with the inaccuracy by burying it under a mountain of additional estimates and assumptions. How a lot of economists have really made their money is by then pretending that the final number that comes out is an act of science, rather than an estimate made up of many estimates and lots of assumptions.

The methodology almost certainly misallocates spending, is filled with tack-on 'accountancy reconcilliations', and almost certainly underestimates aspects of the Scottish economy. But – importantly – none of these things are enough to make the 'deficit' disappear.

Unlike many of the very vocal unionists out there, Common Weal takes this stuff seriously. We've spent a lot of effort digging into the GERS methodology. We've met with each of the civil service teams that produce GERS and the Scottish export statistics.

While these teams are slightly trapped by a methodology they didn't initially produce and while they are struggling (like everyone in Scotland) with limitations in the data, I'm absolutely clear that these numbers are not being produced in anything other than good faith. That's why I can also agree with Graham Roy's response to Richard Murphy - but also Richard's response to Graham.

So celebrate GERS – it shows us that all sorts of successful independent countries would struggle if they were forced to become regions of the UK.

Because, give or take a load of assumption and methodological choices here and there, GERS isn't a conspiracy against Scotland. The con isn't GERS, it's how it's used.

GERS is in absolutely no way an estimate of what the fiscal position of an independent Scotland would be and anyone who says it is is being dishonest. To understand why, let's apply GERS to another existing nation state a bit like Scotland. Let's pick the Netherlands.

To calculate the Dutch 'deficit' in the way we calculate Scotland's, the first thing you'd do is take about 20 per cent of Dutch public spending – and stop spending it in the Netherlands. Instead you'd send all that money to London so it could be spent there instead.

And yes, that would immediately shrink the Dutch economy and its tax revenue at the expense of further boosting economic growth in London. Just as it does with Scotland.

You'd then want to force the Netherlands to virtually double its expenditure on defence. And here's the kicker – it'd end up in a worse position since London would spend the money on useless nuclear weapons, aircraft carriers that don't defend anything and fast jets that are only good for attacking other people.

Unlike many of the very vocal unionists out there, Common Weal takes this stuff seriously. We've spent a lot of effort digging into the GERS methodology. We've met with each of the civil service teams that produce GERS and the Scottish export statistics.

(Generally when people tell you you can 'spend less and get more' a pinch of salt is required. But not with GERS, because when you spend like a country rather than a region you spend in the way that works for you. UK defence doesn't work for Scotland.)

Then you'd increase the cost of building public infrastructure by about 15 per cent (average European infrastructure costs about this much less than doing the same thing in the UK).

And that's because you'd be forcing the Dutch to pay for outrageous PFI funding scams, policies which rig contracts in favour of corporate providers, poor project management of contracts and poor forward planning of infrastructure development – among other things.

Of course, the Dutch would almost certainly not be allowed to run their own railways either and would be compelled to give the contract to a foreign multinational that would put prices up and extract the profits from the Dutch economy.

The Netherlands would have to start paying for a foreign policy approach which is a legacy of a collapsed empire rather than that of a modern nation state. It'd start contributing the running costs of embassies and consulates in places it has no need of them.

Let's be clear what GERS would demonstrate if we applied it elsewhere: GERS would show that if the Netherlands, for example, lost its sovereignty and became a region of the UK, its economy would become weaker.

Then it'd need to look at bills like £1.5bn for 'sport, culture and religion', which wouldn't be spent in the Netherlands (this is the per capita amount the Dutch would pay if they were paying the same amount Scotland currently is). Some of this it'd want to pay for in some form (for example, the support of elite sports), but I'm virtually sure some of it it just wouldn't.

I'm running out of space to give more examples. I've not even mentioned that the Dutch would be forced to adopt a tax system which is one of the worst in the world for capturing corporate profits, that they'd have to use a currency run by and for the City of London.

They'd have to subsidise the UK's crazy-expensive nuclear power developments at the expense of losing support for their own renewables industry. Their broadcast industry would be slashed and the jobs moved to England. You'd take away their borrowing powers. You'd slash their social security system and while that would 'save money', it would depress their economy.

Oh, and I've not even mentioned that the Dutch would have policies imposed on them which would soon reduced them to being the fourth most unequal economy in the developed world – and to face the loss of tax revenues that results from income inequality.

So let's be clear what GERS would demonstrate in this case: GERS would show that if the Netherlands lost its sovereignty and became a region of the UK, its economy would become weaker, its tax revenues would decrease and the costs of building public infrastructure would increase – among many other things.

However, (mainly) London would benefit substantially, which means the Dutch would gain the joy of being lectured about why the UK's 'pooling and sharing' is so important to a basket case like them.

However, (mainly) London would benefit substantially, which means the Dutch would gain the joy of being lectured about why the UK's 'pooling and sharing' is so important to a basket case like them.

Now just so there's no confusion, I'm not saying that independence for Scotland would 'automatically' change all of this. It isn't magic. For example, after independence we're still going to be stuck with insane PFI costs incurred when we were legally forced to use PFI by a London Labour government.

(On the other hand, repatriating large amounts of your public spending would have an immediate and substantial effect.)

What I am saying is that if you wanted to measure if the Netherlands could be a viable independent country, you wouldn't measure it as if it was a region of the UK, making it look smaller and weaker than it really is. That is every bit as true for Scotland.

Rather than measure Scotland's regional share of the UK economy and public sector, we need to produce a budget for what Scotland would look like as an independent country.

What I am saying is that if you wanted to measure if the Netherlands could be a viable independent country, you wouldn't measure it as if it was a region of the UK, making it look smaller and weaker than it really is. That is every bit as true for Scotland.

So be very careful about the sleight of hand here. Unionists claim that GERS shows that Scotland has a giant deficit and then virtually encourage us to attack GERS. We shouldn't bother – not because GERS is flawless, but because it doesn't show what deficit an independent Scotland would face at all.

That's the con, not the GERS methodology.

As I explained last week, Common Weal has done a lot of work on this but there are very real resource limits to how much further we can go. It is the Scottish Government which needs to act on this. Moving a long way past GERS isn't actually that complicated if we just create a functioning budget for the first year of Scottish independence.

(And incidentally, you should certainly also read my colleague Ben Wray's explanation of why deficit isn't the problem its presented to be in the first place.

So what do you think? Would you like to stop talking about GERS as much as I would?

Picture courtesy of Robin McAlpine

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Comments

iandl

Thu, 03/30/2017 - 14:06

As I understand the debate, one of the main weaknesses of the data is that income generated in Scotland is not adequately collected. Have you used the full scope of well targeted parliamentary questions and freedom of information requests to get proper figures from the HMRC (on the assumption that the Scottish Government also doesn't have direct access to these)? It would seem to be an essential step -- if the Scottish Government itself couldn't in some way legislate to be able to start collecting them.

Geejay

Thu, 03/30/2017 - 17:29

And the Netherlands might say, after 300 years as a region of the UK with Westminster in charge we are a basket case. And you think that is a good reason to stay with you? So, if we are such a drain on your resources why are you so keen to hold on to us?

Conrad Hughes

Thu, 03/30/2017 - 17:39

Also stretches credulity that for the last three years at least, GERS and equivalents suggest that Scotland/Wales/N.I. are each incurring debt (specifically, public sector net borrowing) at three times the rate per capita that England is (or worse). I'd love to see an explanation of this since most of the comparisons of tax and spending etc. between regions seem to speak of differences of ±10%, not ±200%...

RadioJammor

Thu, 03/30/2017 - 19:39

"As I understand the debate, one of the main weaknesses of the data is that income generated in Scotland is not adequately collected."

Not sure about that, but certainly in some instances, there has been no consideration, until recent times, by UK Government departments towards differentiating between English, Welsh, Scottish or Northern Irish incomes/outgoings, and when no one can really say how much moves between the four nations, it maybe asking the impossible - which in turn makes it all the more important that GERS is seen as indicative rather than gospel.

Take Income Tax for example. It is only now that HMRC has any kind of system in place which differentiates between Scottish taxpayers and the rest. There were only UK taxpayers as far as it was concerned before - so it had nothing in place to indicate how much income tax was being generated in Scotland, or for that matter in England, Wales or Northern Ireland.

Any breakdown of these figures, by country, couldn't possibly have been actual. It would have to have been estimated.

Some of you may recall the issue HMRC had in identifying Scottish taxpayers for the SRIT.

http://www.bbc.co.uk/news/uk-scotland-south-scotland-31194496

MauriceBishop

Thu, 03/30/2017 - 19:48

Oh good grief. Everything Richard Murphy has written has been torn to shreds by professionals who work with the data on a daily basis. You know that GERS denialism is embarrassing but you just can't let it go. When GERS painted the picture the separatists wanted it was hailed as the authoritative publication on Scotland’s public finances. It paints a different picture now not because of "bias" but because the separatist belief in the economics of independence was spurred by an unsustainable oil bubble.

brucemaher01

Thu, 03/30/2017 - 22:50

Maurice Bishop, can you provide some specific names and references to the articles written by the professionals you talk about, who have torn Richard Murphy's writing on GERS to shreds - I'd be extremely interested to read them in detail. Many thanks.

RadioJammor

Thu, 03/30/2017 - 23:56

As with Bruce, I would be interested in this. Is Maurice perhaps referring to an online article from someone who says they worked on them, who said this:

"In short, GERS estimates the contribution of public sector revenue raised in Scotland toward the public sector goods and services provided for the benefit of the people of Scotland.

It’s important to remember that GERS does this taking Scotland as a mini-UK, and the constraints and protections that the current constitutional arrangements bring..."

"...Secondly, there’s a good reason (under the current constitutional settlement) why estimation is used – collecting data for the purposes of a statistical publication can only be justified if costs are proportionate. Collecting real-time data on alcohol duties for example, would require monitoring each and every alcohol sale in Scotland (and cross-border sales). This would be required for every betting and gaming transaction, tobacco purchase, when you filled up your car with fuel and so on."

https://fraserofallander.org/2017/03/28/estimating-scotlands-fiscal-posi...

geacher

Fri, 03/31/2017 - 11:35

I agree with Mr Bishop, and I can't help feeling that this article is just a feeble attempt by Robin to jump on the GERS deniers bandwagon...it is all a bit wishy-washy with no meat on the bones at all.
"And in some cases the data for Scotland is based on subsets of data from a wider UK sample which leaves a very small sample response for Scotland." OK, statement made, so what examples are you given to substantiate it? Nothing. It is just gobbledegook, a melange of buzzwords.
"The methodology almost certainly misallocates spending, is filled with tack-on 'accountancy reconcilliations', and almost certainly underestimates aspects of the Scottish economy." "Almost certainly." Twice. And nothing to back it up. Really really unconvincing stuff here, almost certainly.
I could ask how Robin comes to the conclusion that "UK defence doesn't work for Scotland."(I mean, how do you measure that? We have a EWS at RAF Boulmer which covers Scotland's entire coastline...that works!) or to explain his "To calculate ....Dutch 'deficit' in the way we calculate Scotland's, .......... 20 per cent of Dutch public spending.... spending it in the Netherlands. Instead..... to London so it could be spent there instead." Is Robin saying that over £12billion of Scottish taxes is spent on "boosting economic growth in London?" Oh I would love Robin to back that one up, but doesn't, and he won't. He's probably forgotten that the money goes on paying pensions and welfare, y'know mundane stuff.
Everyman and his uncle know that the economic case is the one that will bury indyref2, so the Deniers are lining up to rubbish the methodology, and oddly all are assuming that all the alleged errors in GERS are detrimental to Scotland's figures. Yesterday I asked Prof Murphy whether in his opinion the pc GDP deficit of Scotland was overstated by the usage the alleged bogus figures and he replied " I have not said that"
So there we go, there is nothing to say that any errors in GERS actually make our economy appear better than it actually is... it could be worse!

DaveS

Fri, 03/31/2017 - 10:43

I'm an engineer, not an economist, but favour applying common sense. The GERS figures suggest that Scotland has the weakest economy in Europe. Given Scotland's resources and the fact that it has a positive goods trade balance (unlike the UK's massive trade deficit) that conclusion seems unlikely to put it mildly.

Aviemoreman

Tue, 04/04/2017 - 12:12

Robin...you may be fed up talking about GERS but for people to make informed choices they need to critique the evidence. To that end could you provide some empirical analysis/ evidence to support your interesting claims please? Thanks.

Therapymum

Fri, 08/25/2017 - 20:31

Conrad Hughes
I agree with you. The fact that devolved nations run such large deficits is out of all proportion and given the population size seems highly unlikely. Additionally the economy of any newly independent country is an unknown. Maurice Bishop is doing his usual "Richard Murphy is discredited" spiel. Not so as Deloitte UK, James Ferguson of The MacroStrategy Partnership and M S Webb of the FT agree with Professor Murphy about the effectiveness of GERS as a predictor of an Indy Scotland. Maurice Bishop might have no respect for Prof Murphy, however he is a Professor of Economics, and is also employed by the EU on tax matters. I would much rather respect the economist than Mr Bishop whose BritNat credentials are frequently on show here.

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