We originally wrote this article in March, in response to the Government Expenditure and Revenue Scotland (better known as GERS) figures for 2014-15. We’ve updated it to take account of events since that time, of which there’s been one rather major one.
Today saw the publication (just five months after the 2014-15 GERS) of the 2015-16 stats, which are again triggering a convulsive orgy of “BLACK HOLE!” articles across the media, as every Unionist in the land falls over themselves to portray their own country as a useless scrounging subsidy junkie without actually using the exact words “too wee, too poor, too stupid”.
And once again, everywhere you look there’s a “Proud Scot” screaming about how the figures – showing an essentially unchanged “deficit” despite an almost £2bn fall in oil revenue – destroy a case for independence that those same people have spent most of the last four years stridently insisting never existed in the first place.
So let’s recap the truth about Scotland’s financial books. Because for all the complex arguments, mad graphs ludicrously pretending Scotland is a less viable nation than Greece or Latvia or Cyprus or Malta and endless arrays of incomprehensible charts and tables, there are (now) only six things you really need to know about GERS.
KEY FACT 1
GERS is a really, really terrible advertisement for the Union.
Scotland has been part of the UK for 308 years. It’s had its own parliament for just 5% of that time. Even now, almost all key economic levers – taxation, welfare, immigration and many more – are directly controlled by Westminster, as is a huge chunk of “Scottish” spending. If the economy is a mess, 95% of that mess happened on the UK Parliament’s watch.
UK governments of all political shades have had 300 years to get Scotland into a healthy shape. They’re now telling us that they failed spectacularly in that responsibility, but that it’s somehow Scotland’s fault, so we have to leave them in charge to fix it. Maybe if we give them another 300 years they’ll get it right.
KEY FACT 2
GERS was deliberately designed from the outset by the UK government to make Scotland (and the non-Tory parties) look bad.
This fact was revealed in a leaked memo from the Scottish Secretary to the Prime Minister. But when Labour came to power in 1999 they did nothing about it, because they thought they’d control the Scottish Parliament forever no matter what, and therefore it couldn’t really hurt them. It would, however, still help to make the SNP and independence look bad, which suited Labour fine.
When the SNP took over at Holyrood they managed to improve GERS a bit, but there are still major issues – partly because the UK government refuses to give the Scottish Government access to a lot of important data – and as a result much of it is total guesswork.
KEY FACT 3
The “£15bn black hole” in GERS screamed across every newspaper this week is a fallacy, because the target balance of a government is not zero.
Almost every country on Earth – except for a certain oil-rich nation of 5m people bordering the North Sea which isn’t Scotland – runs a deficit. Governments don’t operate like households, which at some point have to balance the books and pay off their debts. Under normal circumstances governments always run a deficit because that’s how you create growth.
So you never have to fill that “black hole”. The only issues are whether the deficit is too big to service the debt payments on, and whether it’s permanently big (a problem) or goes up and down (generally not a problem). Scotland’s is the latter.
In 2010 the UK’s deficit was a bigger share of GDP (11%) than Scotland’s is in the latest GERS figures (10%), but nobody said it proved the UK wasn’t a viable independent country, because most people aren’t self-hating morons desperate to portray their own nation as a financial basket case. As long as the deficit isn’t ALWAYS that high you’re fine, and Scotland’s is usually much lower.
(And remember – the UK, which still controls around 40% of Scottish spending, doesn’t just generously gift Scotland the money to plug its deficit because it loves us so much. It takes out borrowing in Scotland’s name, whether it’s for stuff Scotland actually wants or not. Scotland gets no say in whether it wants or needs nuclear submarines or giant aircraft carriers or not. London makes the decision and puts it on Scotland’s tab.)
If a sustainable deficit is (say) £10bn and your actual deficit is (say) £12bn, then the size of the “black hole” you need to address in a bad year – by generating extra income, borrowing or reducing spending – is £2bn, not £12bn. But that makes for a much less dramatic newspaper headline.
KEY FACT 4
GERS – by the universal agreement of everyone except Unionist politicians and the Scottish media – has no bearing whatsoever on the finances of an independent Scotland.
That’s a fact which just can’t be repeated too often.
To name but one extremely significant example, an independent Scotland’s balance sheet would be massively affected – to the tune of billions of pounds a year, a huge chunk of the deficit – by the details of the independence settlement and in particular how much UK debt Scotland agreed to inherit.
It’s highly unlikely, for all sorts of reasons that we’ve explored in detail on Wings previously, that this would be a straight per-capita share, and a more realistic figure – half that or less – would instantly reduce the deficit to a degree that would have, for example, more than balanced the drop in oil revenues this year.
When Ireland gained independence from the UK, it negotiated an agreement which gave it none of the UK’s debt whatsoever. If Scotland – which has a very strong negotiating position – were to do the same its “true” deficit (see Fact 3), even in a very bad year like 2014-15, would be almost wiped out at a stroke.
KEY FACT 5
GERS is also totally irrelevant in the context of independence for a second crucial reason – the entire point of independence is to NOT keep doing everything in Scotland the same way it’s been done in the UK.
Scotland’s needs, strengths, weaknesses and priorities are different to those of the UK in all sorts of fields. Despite obvious similarities it’s a fundamentally different kind of country – much less densely-populated, with different industries and demographics and a different idea of its place in the world.
So it would almost certainly want to significantly rearrange its spending in ways so numerous and far-reaching as to change GERS out of all recognition.
KEY FACT 6
GERS takes no account of Brexit.
The most dramatic change of circumstances in Scottish politics since March, of course, has been nothing to do with the price of oil, but the fact that in June the UK voted to leave the European Union.
The “status quo” position represented by GERS is now even more irrelevant as a comparison to an independent Scotland, because the choice on offer in any second indyref will almost certainly be between an independent Scotland inside the EU, and a Scotland that’s in the UK and outside the EU.
The impact of Brexit on the Scottish economy is impossible to measure, but what everyone on all sides seems to agree on is that it’ll be bad. (Which is why all five Parliamentary parties in Scotland campaigned for a Remain vote.)
Data published by the Scottish Government yesterday suggested that the damage could range between £1.7bn and £11.2bn a year. There could of course also be economic downsides to remaining in the EU while the rUK left (depending on Scotland’s trading terms with the rUK), but it seems highly likely that the net balance of staying in the EU would be significantly positive for Scotland.
The point is that GERS factors in none of that, and is therefore an even poorer guide to an independent Scotland’s finances than it was already, by a long way.
Unionists desperate to use GERS to rubbish an independent Scotland’s finances sometimes admit its flaws, but defend it by saying it’s the only data we’ve got to go on. That’s like saying you don’t know what’s going to happen tomorrow so for want of anything better you’ll base your plans around your horoscope in today’s Daily Star.
And, y’know, that’d make you an even bigger idiot today than it did in March.