Independence, GERS and how not to have a debate

With the dust settled on another GERS bun fight, what next?

For the uninitiated, GERS is the annual ‘Government Expenditure and Revenue Scotland’ publication by the Scottish Government. This year it has figures up to 2024-25. In effect, it tells us what Scotland’s fiscal balance – government revenues less public expenditure – is under current constitutional conditions.

And at present it doesn’t paint a pretty picture, with a fiscal deficit of £26 billion in 2024-25, equivalent to nearly 12% of the whole economy (GDP). The UK figure is larger in cash terms, unsurprisingly, but significantly smaller in relative terms, equivalent to around 5% of GDP.

To put this into more relatable terms, the deficit in Scotland is over £2,500 per person higher than it is for the UK average. Not great, especially given that the UK’s fiscal position is itself a cause for concern.

Summed up over the population, this additional deficit comes to over £14bn – or £18bn if North Sea revenues were set aside for a Futures Fund. The latter figure is getting near to the £20 billion that is spent on Health services in Scotland, so not a small amount.

Should we be concerned? Well, yes and no.

No, in the sense that, as part of the UK, different regions and nations will have different fiscal balances but it is only the UK’s overall one that really matters.

Yes, if you are an advocate of independence or at least of a move to a more fiscally devolved position.

Better under indy…

The argument that a deficit of this size poses stiff questions is sometimes played down by YES advocates because ‘things would be different’ under independence. Which suggests that spending and tax raising patterns would be different. Fair enough, but what exactly are you going to do differently? At this point we tend to hit a brick wall.

The last time a serious attempt was made to start answering the question was by the Sustainable Growth Commission, in 2018, led by ex- SNP MSP Andrew Wilson. Even given that report’s sunny disposition towards independence it still talked of up to a decade of adjustment and difficult budget decisions needing to be made. The report was pretty well received by the likes of the Institute for Fiscal Studies (IFS), less so by more resolute nationalists.

Since then, zilch. Which could be in part due to the fact that, if anything, the questions have gotten harder to answer, as:

• the annual deficit, excluding North Sea Oil revenues, is now around 14% of GDP, vs 10% back then;

• Pro-independence parties’ views on oil extraction have hardened against it;

• Scotland is now outside the EU and would need to negotiate to get back in;

• Defence spending will need to be significantly higher if NATO membership is foreseen, rather than smaller, as proposed by the Growth Commission.

And yet …. all of this has had no effect on polling support for independence, which is still running roughly 50-50 with those opposing it. How come?

Probably because no-one is talking about the figures, only the concept. The concept can be supported in terms of being pro-EU, pro-immigration, deriding Liz Truss and Boris Johnson and being opposed to cuts in benefit payments. All easy stuff. The difficult bit comes in saying what you would do differently and how you would pay for it. So best to avoid any discussion of it.

That promised alternative?

At one point former Finance Secretary Derek Mackay promised delivery of an ‘alternative’ GERS publication, but such talk ended at the same time as his political career. Probably just as well. Interestingly, the person who buried it was his successor, Kate Forbes. No surprise, perhaps, given that she was one of the original twelve committee members of the Growth Commission.

How sure can we be that this problem exists and is of the size that GERS suggests? On the first question, similar analysis and conclusions have been reached in past analysis by myself, the Fraser of Allander (FoA) Institute, the IFS (David Phillips) and others. Furthermore, the FoA states:  “Will the numbers change if you make different reasonable assumptions about the bits of GERS that are estimated? In short, not to any great extent.” So, the general scale of the problem is not really in doubt and hasn’t been for some time.

The main shift in the debate from the past is that oil revenues are no longer seen as a possible escape route. A run of good years for North Sea tax revenues from 2005-06 to 2011-12 allowed the 2013 White Paper to claim that “Over the last five years, Scotland’s public finances have been stronger than the UK as a whole by a total of £12.6 billion – almost £2,400 per head” and that future oil revenues would continue at around £7-8bn (in 2016-17 prices). Instead, oil revenues fell off a cliff, averaging under £1bn between 2014-15 and 2021-22, and, going forward, we’re looking at around £5bn and dwindling, as North Sea operations wind down.

So, where does all this leave us? I would argue in a worrying position, whether you are a supporter of independence or not.

If you are an open and honest supporter you would want to put forward a well-rehearsed argument as to how such a funding gap might be closed. The ‘faster economic growth with independence’ argument is for the future, at best – take note, Rachel Reeves – meanwhile the hard miles need to be acknowledged and the way through finessed.

If you are an opponent, the worry is that another referendum might come about with all the hard questions shoved to one side. Not unlike what happened during the EU referendum, when serious fiscal and economic claims were allowed to be made that have proved, as expected by ‘experts’, to be false. Hence a YES vote could arise based more on sentiment than on the full facts.

If the fiscal shortfall were only a few billion then fair enough, it’s not that important and we can deal with it when it arises, but not when it’s around £14-18bn. Facing up to it post-independence, when no real thought has gone into how it might be achieved, would be a massive challenge and potentially highly divisive across society.

No argument

Unfortunately, there seems little appetite to address the issue at present. Senior pro- independence supporters appear to care little about updating what is on offer and putting some meat on the policy bones. To wit, the dismal response of the current Finance Secretary, Shona Robison, to the latest GERS report, which was a hodgepodge of handpicked, misleading, statistics that the Fraser of Allander duly demolished.

Of course, it could be argued that we are in much more urgent need in Scotland of a vibrant debate about the future of: the NHS; schools and post school education; North Sea transition; an effective ferry system etc etc, rather than spending time on something that might never happen.

Fair point, but as long as we dwell in a political system that is run by a party which is, first and foremost, seeking independence, then some serious thought needs to be given to achieving that primary goal.