14 April, 2013

Scottish independence: go figure

Scottish independence: go figure
Scotland's share of the UK's debt would be a part of any negotiations following a Yes vote

A new volley of statistics has been fired during the past week by the Scottish government. To what end?

Well, the political intention is clear: to kill off the notion that Scotland is incapable of paying its way.

That used to be an argument often made against Scottish independence, often helped by citing, in isolation, the higher spending per head on Scottish public services.

It's only heard these days from those who have failed to keep up with the debate.

The SNP's latest publication, 'Scotland's Balance Sheet', provides campaigning ammunition pointing to Scots paying more in tax and spending less, as a share of the economy as a whole, on services such as pensions and welfare.

These were released before we were allowed to see the whole report.

But it has now been released, focussing on the five years from 2007-08 to 2011-12.

This was a period when the UK public accounts were in their worst ever shape, and when oil and gas revenues make Scotland's fiscal position look particularly healthy.Debt deal

Along with full publication, we're also getting the argument that an independent Scotland could expect to inherit public sector debt at a lower level than the UK as a whole, when measured as a share of the nation's economic output - £92bn equates to 62% of Gross Domestic Product (GDP, the main measure of national output) compared with the UK's 72%, or £1,100bn.

If you put a particularly positive spin on it (from a nationalist position, that is), it even argues that Scotland could get back the benefit of the oil and gas taxation that went to the Treasury over the past 30 years.

That would take Scotland's debt, in 2011-12, down to 38% of GDP, while the UK's figure was heading towards 80% while the deficit remains stubbornly high.

What 'Scotland's Balance Sheet' doesn't mention is the argument you can expect to come back from the Treasury: that if Scotland wants credited with all that oil and gas revenue, it can also expect to be saddled with the debt from higher spending per head from which it has benefited over the past 30 years.

In 2011-12, Scottish government figures show that the average Scot had £12,134 of spending, compared with £10,937, a difference of £1,197. Or to put it a bit more simply, for every £100 spent on UK public services, Scotland got an extra £10.90.

For more on balancing the outlook on tax revenue with that on spending, you could do a lot worse than read the analysis by Professor Brian Ashcroft, of Strathclyde University's Fraser of Allander Institute.Higher needs and costs

That higher spending has been justified by higher need and cost, as Scotland has more poverty, a less healthy population and it's more rural, with those long country roads to maintain and smaller schools to staff.

But the unspoken reality is that higher spending has also been the Treasury's way of recognising the contribution from offshore oil and gas from under Scottish waters.

This has been accounted for as coming from the 'UK Continental Shelf' to avoid allocating it to any part of onshore UK.

But as Professor Ashcroft graphically shows, higher public spending in Scotland has quite closely tracked higher tax take from Scottish oil - at least after the oil boom years of the 1980s when Scotland could have been running large surpluses.

This focus on what an independent Scotland could have had from oil and gas revenue is becoming all the more important to the economic debate about Scotland's future.

And to return to St Andrew's House's figures in Government Expenditure and Revenue Scotland (GERS), you can see how important oil and gas would be to Scotland's economy.

Without offshore oil and gas, Scotland would have had GDP of £125bn in 2011-12.

Put in a population share of its benefit to the UK as a whole, and you get to £127bn.

But if the oil and gas under Scottish waters were all attributed to the Scottish economy, GDP would be £151bn.

To put it another way, one sixth of the Scottish economy would be in its offshore oil and gas fields.Whose oil?

Now, that's a huge resource, and it's rightly pointed out that countries with oil are unlikely to wish they could do without it.

But is it really Britain's now, or could it really be Scotland's in future? And is it really Gross Domestic Product?

The tax revenue from production accrues to the Treasury and could accrue to an independent Scotland's finance ministry (It's worth noting that no-one is disputing that an independent Scotland could expect to have control of most of the UK's fields).

But the profits don't come to the UK Treasury or a Scottish one. They go to owners of that asset, and the vast majority of them are shareholders outside Scotland.

So despite the big figures for GDP and claims of being the sixth richest country in the world, an independent Scotland would see a huge outflow from its economy.

Similarly, Ireland sees a big outflow of profits from the many multi-national inward investors there, which is why Gross National Product (GNP, which includes inflows and outflows of profits) is seen as a more relevant figure to guide its economic thinking.

By contrast, the UK sees profits going abroad from oil and gas assets in its waters, but it also sees a vast inflow of profits from British investments overseas, which is one of the reasons Britain is able to live with persistent trade imbalances.

Another statistical health warning about these figures; GERS is based on a lot of estimates. In statistico-speak, the 30-year analysis of tax take is 'experimental'.

It's relatively easy to identify how much is spent on devolved services, pensions and benefits. It's more open to dispute how much Scotland benefits from reserved spending on defence and the Foreign Office.

But it's much more difficult to identify how much is raised in taxes from Scotland, beyond tax on fixed assets such as house sales.

And everyone looks to Professor Alex Kemp, the offshore oil guru of Aberdeen University, to tell us where the value and taxation lies offshore, when at least one maritime border is open to dispute. Let's hope he's getting it right.

In short, GERS is the statisticians' best guess, or rather, a lot of best guesses.Negotiating strength

And a final observation. Nicola Sturgeon, the deputy first minister, tells us that these figures put Scotland in "a strong position in these negotiations" on independence.

Then she says it again: "What share of UK debt Scotland takes with independence will be one of the crucial areas of negotiation between the Scottish government and the UK government, and Scotland will be in a strong position".

Surely Ms Sturgeon has learned from her time in politics that thinking you've got a strong argument is not the same as having a strong negotiating position?

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