CLAIM: BBC’s Douglas Fraser on 2020-2021 GERS: "Subtract the tax take from the spend total, you reach an estimate of the deficit with which Scotland would have been operating last financial year if it were independent and if nothing else were to change."

DOORSTEP ANSWER:

GERS takes Tory tax and spending plans and applies them pro rata to a post-independence Scotland - including keeping nuclear weapons. Who in their right mind thinks that is a plausible scenario?

WHO IS DOUGLAS FRASER?

Fraser is BBC Scotland's business and economy editor. Previously he was political editor of The Herald and Sunday Herald. He studied economics at Oxford University in the 1980s.

Fraser has been criticised in the past for his reporting on the annual GERS (Government Expenditure and Revenue Scotland) figures.  For instance, in 2018 there were complaints to the BBC after Fraser claimed (on Good Morning Scotland) that “no country” could sustain the reported notional deficit of 7.9 per cent. In fact, the UK had sustained a deficit of 10.1 per cent, 9.4, 7.5 and 8.2 through the years 2009-2012 respectively.

WHAT IS GERS?

According to the Scottish Government website, “Government Expenditure and Revenue Scotland (GERS) is a National Statistics publication. It estimates the revenue raised in Scotland and the goods and services provided for the benefit of Scotland.”  Note the word "estimates". GERS estimates the taxes raised and public monies spent in Scotland, and any associated financial deficit. These figures are not possible to determine without a degree of guess work and assumption. For instance, how should spending that applies to the whole UK (e.g. defence or foreign embassies) be allocated to Scotland?

GERS was published first in 1992 under the Conservative government of John Major, at a time when the Tories were opposing calls for devolution. In a leaked memo, then Secretary of State Ian Lang admitted: "I judge that [GERS] is just what is needed at present in our campaign to maintain the initiative and undermine the other parties. This initiative could score against all of them.” (See The National, 25 August 2016)

Since its inception, GERS has been criticised for its methodology. Expenditure that can’t be identified as spent directly in Scotland is allocated by a variety of rules: by population share for defence and atomic weapons, but by Scotland’s share of UK Gross Value Added for national transport infrastructure. Most important of all, GERS takes existing Tory government spending and tax policies and applies them to an independent Scotland. Yet nobody seriously imagines that an independent Scotland would continue Conservative defence plans or tax loopholes.

The National:

ARE FRASER’S COMMENTS VALID?

On August 18, the day the latest GERS figures were published (for 2020-2021), Fraser appeared on the Good Morning Scotland show.  He claimed that GERS indicated “the deficit Scotland would have been operating if it were independent … the notional deficit Scotland might have faced if had been independent last year … an unsustainably large number as a share of the total economy … it’s awkward this figure for the independence cause …”

Fraser went on to mention the 3% deficit “safe limit” that the EU proposes for member states. He also claimed that an independent Scotland would face higher borrowing costs.

We should also note that there is a simultaneous EU rule that member states keep their gross (total) public debt to 60% of GDP. Responses to the pandemic have forced EU members to break this rule. Total Eurozone debt is now in excess of 100% of output. Fraser does not mention the fact that an independent Scotland would likely start with zero debt, as liability of pre-existing UK debts would remain with the British Treasury (as the "successor" state). In this context, Fraser’s reference to Scotland facing higher borrowing costs is less than satisfactory. Borrowing charges are based on risk – the greater the gross debt the greater the risk of default. An independent Scotland starting with zero debt would by definition be a low-risk debtor state.

READ MORE: Michael Fry: GERS shows there are lessons to be learned on pandemic finance

Fraser’s inference is that the latest GERS annual public deficit (post Covid) - £35.1bn or 21.7% of GDP - is unsustainable economically and politically. This deficit (gap between spending and tax receipts) is indeed extremely high and well over the EU “safe limit” that Fraser mentions. However, Fraser did not mention the fact that the pandemic has caused all EU members to ignore the 3% rule (itself arbitrary) and spend what was necessary to deal with the emergency. Clearly then, high deficits are no barrier to national independence, as Fraser implies for Scotland. Journalistic rigour might have suggested that an economics commentator explain the European experience.

THE NUCLEAR TEST

However, it is Fraser’s general comment that GERS outlines the deficit Scotland “would have been operating if it were independent” that is potentially very misleading. Let us cite one example to show this is highly unlikely to be true. The GERS figures state that Scottish defence expenditure in 2020-2021 was £3.6bn or 3.7% of overall notional public spending. According to Douglas Fraser, this would be the actual state of affairs if Scotland “were independent and if nothing else were to change”.

The obvious problem is that this calculation involves allocating to the Scottish budget a proportion of UK nuclear spending. Yet it is hardly sensible to add nuclear spending as this is a prime candidate for change after independence. The SNP, Greens, Alba and Scottish Labour all oppose nuclear weaponry, so it hardly makes sense to include a calculation for public spending on weapons of mass destruction in the GERS figures. The same goes for the GERS estimate of Scottish public debt expenditures (2.4% of the notional budget). Therefore, the GERS numbers do not represent the true Scottish public finances at the time of independence, as Fraser fails to explain.

CONCLUSION

It is the true that Fraser adds the "get out" clause “if nothing else were to change” when citing the latest GERS figures as proof of a large deficit after independence.  We assume he is hinting at the possibility the government of an independent Scotland would pursue different taxation and spending policies than a Tory Westminster government. Precisely because this is a virtual racing certainty, we might have expected Douglas Fraser to do more than just hint there could be major fiscal changes after independence – changes that invalidate using GERS as a political guide.

FACTCHECK RATING:

Without making the necessary qualifications, Fraser over-simplifies GERS. What did they teach Douglas at Oxford?