{"id":8951,"date":"2019-08-23T07:33:22","date_gmt":"2019-08-23T07:33:22","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=8951"},"modified":"2019-08-23T07:33:32","modified_gmt":"2019-08-23T07:33:32","slug":"the-gers-divide","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2019\/08\/the-gers-divide\/","title":{"rendered":"The GERS divide"},"content":{"rendered":"\n

The publication of the annual GERS report has sparked the usual ill-tempered debate about its implications.<\/strong><\/p>\n\n\n\n

Although to call\nit a debate is perhaps disingenuous. There is an increasing tendency for the\nsupporters of the two \u2018sides\u2019 (for unfortunately, polarisation into\n\u2018sides\u2019 is what GERS tends to create) to cheer the disingenuous proclamations\nof their own ringleaders, whilst dismissing any vaguely\ndissenting view.<\/p>\n\n\n\n

\u2018Scotland\u2019s\ndeficit reflects economic mismanagement\u2019 say some. This is disingenuous at\nbest \u2013 Scotland\u2019s deficit largely reflects higher spending coming\nthrough the Barnett formula and is nothing to do with economic growth \u2013\nwhich in any case has matched the UK for most of the past 20 years.<\/p>\n\n\n\n

\u2018The GERS figures\nare absurd as they imply Scotland accounts for 60% of the UK deficit\u2019 say\nothers, apparently ignorant of the simple mathematical basis for this \u2013 that\nsome UK regions generate a fiscal surplus.<\/p>\n\n\n\n

So what can\nwe reasonably take from GERS?<\/h2>\n\n\n\n

The headline is of\ncourse about Scotland\u2019s \u2018notional\u2019 fiscal deficit, estimated to be 7% of GDP in\n2018\/19. The deficit is notional because it reflects what the fiscal\nposition of Scotland would be, taking the structure of reserved UK taxation and\nspending as given.<\/p>\n\n\n\n

Most people would agree that a deficit of this scale would be unsustainable for an independent country to run for any length of time. Indeed, this was recognised explicitly by the Sustainable Growth Commission, set up by Nicola Sturgeon in 2016 to advise on the economic and fiscal implications of independence.<\/p>\n\n\n\n

Debates about GERS and its findings tend to focus on two broad issues. First, to what extent is this measure of Scotland\u2019s notional deficit at all meaningful or robust? Second, assuming that the estimate gives a reasonable approximation of Scotland\u2019s notional fiscal deficit, does this notional deficit tell us anything about the economic case for independence?<\/p>\n\n\n\n

On the first issue, the reliability of the deficit figure as a whole, it is true that some of the Scottish revenue figures are estimated from surveys and are associated with some uncertainty. But the level of uncertainty is not sufficient to undermine or explain away the key headline. Furthermore, there are no grounds to believe that the existing approaches are biased in one direction more than another \u2013 yesterday\u2019s release for example revises up the estimate of VAT raised in Scotland in 17\/18, but this is more than offset by larger proportionate downward revisions to estimates of Scottish income tax \u2013 reflecting the availability of more robust tax data. <\/p>\n\n\n\n

Beyond the issues of statistical robustness, the methodological basis of GERS is also criticised more broadly. Here the main argument is basically that, whilst some reserved UK Government spending is attributed to Scotland, some of the public revenues associated with this spending are allocated to the UK (e.g. where the civil servants delivering such activity are based in other parts of the UK). The basis of this argument is not unreasonable, but the idea that accounting for this would fundamentally reduce the notional deficit figure by a substantial amount is not.<\/p>\n\n\n\n

Independence impact?<\/h2>\n\n\n\n

On the second question, there is no doubt that GERS is relevant to the independence debate. As we approach the five-year anniversary of the 2014 referendum, it is worth remembering that the independence prospectus, \u2018Scotland\u2019s Future\u2019, projected that Scotland\u2019s notional deficit would have fallen to around 3% of GDP (or lower) by 2016\/17. This was taken as evidence that an independent Scotland\u2019s public finances would be robust.<\/p>\n\n\n\n

But what does a\nhigh notional fiscal deficit mean? It does not mean that Scotland could not\nafford to be independent. But it is a reminder that things would have to be\ndifferent. To use the clich\u00e9d phrase, some \u2018difficult choices\u2019 would\nbe faced in the initial years of independence.<\/p>\n\n\n\n

To supporters of the union, the imposition of these choices is seen as an unwarranted downside of independence, as the choices would ultimate boil down to one of how the burden of further austerity should be distributed. To independence supporters, such choices provide a welcome opportunity to reconsider spending priorities or to rethink how we tax particular bases, and might not be so difficult \u2013 Scotland can spend less on various things for which there is limited public support, the argument goes, whilst debt interest payments might be somewhat lower than implied by GERS depending on how the UK\u2019s historic debt is shared. Revenues can be raised by taxing more efficiently \u2013 broadening tax bases and narrowing scope for avoidance \u2013 with limited impact on economic activity.<\/p>\n\n\n\n

A tax on what?<\/h2>\n\n\n\n

Fiscal policy in decades to come will have to change to reflect these challenges. This might mean taxing things that we don\u2019t tax now, or at least taxing them differently (wealth? carbon?) and it might mean changes in the way we fund particular public services.<\/p>\n\n\n\n

GERS doesn\u2019t\nprovide any insight into these issues (it is not intended to), but it does show\nthat an independent Scotland might need to consider them more urgently than the\nUK will. Perhaps that is no bad thing. <\/p>\n\n\n\n

We can hope that any future constitutional debate considers these long-term issues more seriously, preferably in an open and respectful way \u2013 although evidence from the annual GERS furore suggests that this may be a little too much to ask for. <\/p>\n\n\n\n

First published by the Centre on Constitutional Change<\/a><\/em> <\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

‘We can hope that any future constitutional debate considers these long-term issues more seriously, preferably in an open and respectful way \u2013 although evidence from the annual GERS furore suggests that this may be a little too much to ask for.’<\/p>\n","protected":false},"author":78,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[319],"tags":[308,708,179],"class_list":["post-8951","post","type-post","status-publish","format-standard","hentry","category-economy","tag-gers","tag-indyref-2","tag-scottish-economy"],"_links":{"self":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/8951","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/users\/78"}],"replies":[{"embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/comments?post=8951"}],"version-history":[{"count":0,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/posts\/8951\/revisions"}],"wp:attachment":[{"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/media?parent=8951"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/categories?post=8951"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sceptical.scot\/staging\/wp-json\/wp\/v2\/tags?post=8951"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}