The urban myth of the GERS figures

Recently The National newspaper had a week long series looking at the infamous McCrone report and Scotland’s energy potential, which successive Westminster governments have sought to minimise and downplay. As anyone who has paid even passing attention to the Scottish independence debate know, the McCrone report was commissioned by the British government in the 1970s and examined the economic potential of Scotland’s North Sea oil and gas reserves. The report found that Scotland’s fossil fuel reserves would give an independent Scotland almost embarrassing wealth and cause its currency to be one of the hardest in the world. But Westminster hid the report for decades and spent the ensuing years lying to the people of Scotland about this country’s true wealth. Then they squandered Scotland’s resources and now have the unmitigated gall to insist that Scotland has an unsustainable deficit which makes it too poor to be a successful independent nation.

The McCrone report was commissioned decades ago and Westminster has burned through most of Scotland’s oil wealth. We are now in a very different era where the energy future lies not in fossil fuels but in renewable energy, and yet again Scotland is blessed with a massive potential for energy production which opponents of independence do their utmost to minimise and trivialise. Yet the McCrone report retains a real and important relevance to the independence debate, because it proves that Westminster has a track record of lying to the people of Scotland in order to paint the economic prospects of an independent Scotland in as poor a light as possible. They still have the same motivation for lying, as they did when the McCrone report was commissioned, arguably more so given Scotland’s enormous potential for renewable energy production and the fact that the independence debate is now not only mainstream and normalised but dominant in Scottish political discourse in a way that it was not in the 1970s. Diminished as it is by Brexit, the stakes for the British state are so much higher now, and with it the motivation to lie about the true economic potential of an independent Scotland.

Opponents of independence base their economic arguments against independence on the Government Expenditure and Revenues Scotland (GERS) figures, which purport to show that Scotland is burdened with a massive deficit and is supposedly dependent on a huge transfer of funds from Westminster. As has been pointed out on this blog on several occasions in the past, the GERS figures were introduced by Thatcher’s Conservative Scotland Secretary Ian Lang in the early 1990s as a political tool to use against those who were arguing in favour of greater Scottish self-government. 30 years later they are still fulfilling the exact same political purpose. GERS forms the bedrock of anti-independence economic arguments despite the fact that even the most vociferous opponents of independence have been reluctantly forced to concede that the GERS figures tell us nothing about the financial position of an independent Scotland.

However new research threatens to destroy British nationalist claims that the situation depicted by GERS represents the economic starting point of an independent Scottish state and to dismiss the deficit claimed by GERS for Scotland as an ‘urban myth.’ There is a similar set of figures for Wales, which as in Scotland are used by opponents of independence to claim that Wales is an economic basket case which is too poor to flourish as an independent country.

Last year, Dublin City University Professor John Doyle, the Vice-President for research at the university was commissioned by Plaid Cymru to examine thr true financial position of an independent Wales. He found that the fiscal gap – the difference between raised revenue and government expenditure – in the early days of an independent Wales would be a small fraction of what has previously been cited for the country by the Office for National Statistics (ONS).

Figures from the ONS are often quoted as suggesting the deficit in an independent Wales on day one of independence would be £13.5bn, a huge sum for a country with a population of 3 million. However Professor Doyle – who looked at the figures for the financial year 2018/19 – found that the true deficit of Wales upon attaining independence would actually be £2.6bn when taking account of the fact in that a few central UK costs, such as UK debt charges and historic pension liabilities, which are typically lumped in with the Welsh equivalent of the GERS figures, would not be transferred to an independent state.

Leading Welsh economist Dr Edward Jones, a lecturer in Economics at Bangor University’s Business School, said he was surprised at the magnitude of the difference between the ONS figures and Professor Doyle’s findings but added that it supports the growing evidence that Wales is neither ‘too small or too poor’ to be an independent country.

Speaking about his findings Professor Doyle said: “It is not for me as an Irish academic to advise the people of Wales on their future constitutional choices, but the figure of £13.5bn, frequently quoted as representing the UK government annual subvention to Wales, is a UK accounting exercise, and not a calculation of the fiscal gap that would exist in the early days of an independent Wales.”

You can read the full report by clicking HERE

What he says about Wales applies equally to Scotland.

Now the methodology used by Professor Doyle in his study on Wales has been applied to Scotland. Robin Thompson – who worked in economic development with various Scottish councils has applied the same methodology to the GERS figures for the same year of 2018/19 in order to look at whether an independent Scotland really would inherit the gigantic fiscal burden that opponents of independence like to claim it would. The GERS figures for 2018/19 suggested the deficit in Scotland was £12.6bn, or a huge 7% of GDP, but Robin Thompson concluded that in reality an independent Scotland could inherit a surplus of £2.7bn. Even in what he regards as the “worst-case scenario” – where Scotland had to pay 100% of pension costs – he concluded the deficit would still only be £6.3bn or 3.4% of GDP, this is not too far off the 3% deficit which is a prerequisite for Euro membership.

Professor Doyle’s methodology assumes that historic public sector pension liabilities would be the responsibility of the government that made the commitments to retired and current employees and so would not be an inherited liability of a newly independent state, which would only bear the cost of future pension commitments. Scottish workers paid National Insurance to the UK in expectation of a pension and the UK does not get to simply walk away with these funds without compensating those who paid into the system. This figure is therefore not included within the estimate of the post-independence budget deficit.

The methodology also concludes the UK’s national debt would be a matter for the UK Government and cannot be assigned to a newly independent state. The UK Government itself accepted this point in January 2014. The methodology notes that defence expenditure post-independence is a decision for a future government to make and is not an inherited liability. It is vanishingly unlikely that an independent Scotland would choose to maintain spending on nuclear missiles or ruinously expensive aircraft carriers.

Whoever wins the SNP leadership contest should commission Professor Doyle to do a similar study for Scotland and to publish this annually when the GERS figures are published. We must stop allowing the British state to hide behind its lies and deceit

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