Open Minds on Independence #6: The truth about the annual GERS figures

The first thing to remember is that Scotland’s overall budget is set by Westminster. Seventy per cent of its revenues are controlled by Westminster and 40% of its spending. If Westminster wants Scotland counts to show a false deficit than Scotland accounts will show a false deficit.

There is no set of official accounts that tells us how an independent Scotland’s economy would fare, nor what its finances would look like. Any attempt to analyse Scotland’s finances is instantly hampered by the fact that Scotland is not an independent nation and therefore does not have the same financial data, trade statistics, costs and revenue information available to work with that a normal independent country would have.

Of the 26 income figures quoted in GERS, 25 are estimated and there are no fully reliable Scottish-specific income tax, corporation tax, VAT or national insurance figures. So if GERS does not accurately indicate what Scotland’s true financial position is as part of the UK and it most definitely does not tell us what our finances would look like after independence had been achieved.

This is stated clearly and repeatedly whenever GERS is published yet every year the unionist media falsely claims it depicts a significant ‘’deficit’’ and undermines confidence in our ability to pay our way as an independent country. That is simply not true.

READ MORE: Open Minds on Independence #5: Was Britain's economy already broken or will Brexit break it?

The fact that GERS is a set of accounts for Scotland as a region of the UK and not as a separate nation impacts on how the GERS figures are compiled. This is important to know for three key reasons:

1. It means that multiple UK-wide costs such as, a population share of the UK’s debt even though the borrowed money was not spent in Scotland, are applied to Scotland’s expenditure in GERS which are not controlled by the Scottish Government and therefore many of the major expenditures reported in GERS are actually under the control of the UK Government. Those costs are nominally applied to GERS as a population percentage of the UK’s expenditure. This happens regardless of where the expenditure was applied, which Government spent the money, and without any reference to where the economic benefit of any expenditure accrued. Thus Scotland’s costs are deliberately inflated and its true economic performance deflated.

2. Several of the key revenues such as oil and gas taxation, corporation tax and VAT are controlled by the UK Government, which can make decisions that significantly lower or raise Scotland’s income without any reference to the Scottish government. Loading Scotland accounts with debt that was never invested in Scotland and lowering oil and gas company tax to less than zero (in some cases) decreases Scotland revenues and crates a false deficit.

3. Even with these issues having a drag effect on the Scottish economy, GERS demonstrated that for 38 years in a row Scotland had higher GDP per head and a lower illustrative deficit as a percentage of GDP. The last few years, where the GERS illustrative deficit has been higher than the UK’s, relate to the UK Government’s decision to lower taxes on oil extraction and thus lower Scottish revenues.

Norway for example didn’t decided to give oil companies zero taxation rates and has over the last 35 years produced 150% more revenue from oil and gas than the UK Government despite having produced 3% less oil and gas.

Scotland’s finances as part of the UK Let’s look at the most recent figures. GERS recorded record revenues for Scotland of £65.9 billion for the year 2019-2020, an increase of 0.7% from 2018-19. The UK Treasury received most of those revenues, while the Scottish Government retains some revenues related to new Scottish income tax bands and other devolved taxes such as land and buildings tax.

Scottish Government expenditure is calculated by the UK chancellor, who sets a budget for England based on the bids by UK ministerial departments. Scotland is then allocated a block grant, which is essentially a population percentage share of the UK budget. This is calculated by applying a population share of the changes in devolved areas, versus the previous year’s baseline block grant.

The Scottish Government must always balance its budget and cannot overspend. The Scottish Government can now borrow up to £600m per year for cash management and forecasting errors, but that has only been the case since February 2016.

Yet the same report record public spending for Scotland increased from £78.6 billion in 2018-19 to £81.0 billion in 2019-20, reported as representing an increasing deficit. But much of that spending doesn’t ever reach Scotland but is spent elsewhere in the UK. The UK Government declares billions of spending outside of Scotland as “on Scotland’s behalf” and adds them to Scotland’s accounts.

In previous articles in this series we have explained that the UK allocation of interest charges on Westminster Government debt that Scotland did not generate nor benefit form is the key tool used to force GERS to show a deficit. So, what DOES GERS tell us about the UK’s management of Scotland’s prosperity? Well, it provides indisputable proof that Scotland could be significantly wealthier if it were an independent nation.

The question that everyone in Scotland needs to ask about GERS is this: If being a part of the UK offered Scotland some form of economic advantage, how come other smaller independent nations in Europe who don’t possess Scotland’s natural wealth and economic advantages have economies that out perform not just Scotland but the UK as whole on a per head basis?

We have previously demonstrated that Scotland possesses natural wealth unequalled by any other small northern European country. Those nations all have far lower levels of natural wealth than Scotland. Even Norway, which has produced almost the same amount of oil and gas as Scotland, is not as naturally wealthy overall. It does not, for example, have whisky exports of £25 per second, Scotland does. Nor does it have Scotland’s reputation for quality food and tourism. It is not the home of golf or the host of the world’s largest cultural festival – albeit interrupted by the Covid 19 pandemic - that helps drive our tourism industry.

Scotland’s economy (its GDP) over the last few years has averaged around £32,000 per head. To put that into context that’s larger than the per capita economy of wealthy independent nations such as France, Spain, Italy even Japan and our revenues albeit downplayed by Westminster accounting practices are more than enough to run a successful nation - of course that are!

Conclusions GERS is published by the Scottish Government but uses accounting practices dictated by the UK Government and revenue estimates that the UK Government has a guess at . The result simply tells us how much the UK is costing Scotland in terms of lost economic opportunity and lost wellbeing for its people. This is particularly evident when we compare the figures to smaller independent nations that would love to have Scotland’s economic advantages and natural wealth.

Scotland’s economy, when benchmarked against similar sized independent nations paints a vivid but miserable picture of the impact of Westminster’s continued economic mismanagement. Scotland as part of the UK suffers from that lost opportunity but still managed to economically out perform the UK economy on a per head basis for 38 years despite the Westminster cooking-the-books. Imagine what would be possible if Scotland economy was made the full focus of Holyrood rather than a Westminster afterthought.

Scotland’s chance to become a wealthier nation sits with independence and not with staying tied to the self-destructing UK economy, and a disastrous Brexit that we didn’t vote for.