GERS proves Scotland's real economy is getting stronger

The work of the former two in the 1990s up till the 2010s were absolutely critical in turning GERS from the outright propaganda piece it was originally devised to be into a useful – even core – part of government monitoring statistics today. The latter, whose continuing work you’ll no doubt be reading in this publication, continues to probe at the limits of that usefulness as the statistics reflect on the state of Scotland as part of the UK.

If I could name a fourth, it’d probably be myself whose analysis of GERS starting in 2015 led to folk looking a little deeper than the headline soundbites of “whose deficit is mightier than thou’s” and to start to try to look at the context from which the numbers are derived.

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I’m happy to say that the GERS figures of today are not those of 2015 and before and that substantial improvements have been made not just in the calculation and presentation of the figures but in the communication of them, as what they don’t say is at least as important as what they do. In particular, they have been better in recent years in explaining how their various estimates are calculated and what the limits and ranges of those estimates are (though I’m sure the three mentioned above will be the first to say that improvements could still be made). Not that this stops the political heads picking their favourite number and running with it as if it’s the only thing that matters.

Once more though, the strength of GERS lies in what it says directly about the financial picture of Scotland as a devolved region within the UK, where the majority of powers to influence that financial picture lie outwith Scotland. They indirectly give us a window into the extreme regional inequality of the UK – where the majority of the “fiscal surplus” is notionally generated in London and the south east, and partially distributed like pocket money to the other regions. It tells a story of a British state failing to deliver for all parts of its territory but blaming everyone but itself for that failure.

I’ll break from tradition somewhat and not do a deep dive into too many of the numbers around the deficit and energy, as many others will have already looked at those by the time you read this. But it is worth considering where the UK’s regional inequalities show up in things like Scotland’s tax revenue.

Let’s consider a hypothetical financial report for “North Britain”, a region of the UK that isn’t considered an identifiable country at all – not even for the purposes of accounting. However, when we do the tax accounts for the whole of the UK, we assign numbers to North Britain perfectly in proportion to its population. With 8.18% of the population of the UK living there, we assume that 8.18% of all revenue from all taxes is generated there.

Compared to North Britain, Scotland brings in around £1.8 billion less in income tax. This is because, in our world and despite the relatively more progressive nature of Scottish income taxes, salaries are relatively lower than the UK average. Scotland also generated around £1.3bn less in onshore corporation tax than North Britain did. GERS is fairly smart about the way it calculates corporation tax.

It’s not simply a case of counting where the HQ of each corporation is and assigning 100% of its tax to that building. Instead, they also look at things like company headcount. If 10% of a company’s staff are based in Scotland, then 10% of their corporation tax is assigned to Scotland. This measure is, as I know the GERS team would admit, not perfect but it is better than nothing. It works well for companies like supermarkets (a Tesco in Glasgow has much the same kind of staff as a Tesco in Birmingham) but it may work less well for a company where, for example, the minimum wage production staff are based in Scotland but the highly paid marketing staff and executives are all in London.

Scotland’s lower house prices brings in substantially less in property taxes – council tax and stamp duty/LBTT and lower property prices have the knock on effect of lower insurance prices thus lower insurance taxes. Between the three, that’s another £1bn less than North Britain. Take off another £700 million in capital gains and inheritance tax because our patterns of wealth are very different.

There are areas though where Scotland brings in more than North Britain does. Chiefly VAT, which is perhaps odd considering the lower incomes. However, if you earn 10 times as much as I do, you probably don’t buy 10 times as much stuff. In other words, 10 people earning £20k a year collectively pay more VAT than one person earning £200k. Unfortunately, the extreme wealth concentration of Britain means that Scotland’s deprived areas – in common with many other similar areas of the UK – do result in more revenue from alcohol and tobacco (chronic deprivation of the kind induced in Scotland since the Thatcher area is one of the known and principal causes of addiction).

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On a brighter note, we also bring in more in non-domestic rates – partially a result of devolved tax control, partially because of more of a focus on small businesses in Scotland. This latter point is particularly important when we consider the robustness and resilience of the Scottish economy. It is the small businesses that make and break our economy, not the multi-national conglomerates.

All in, Scotland’s onshore economy performs well compared to North Britain and brings in around £35m more than our “notional population share” of the UK’s onshore economy. This is a vast improvement on recent years where the revenue gap reached as large as £3.5bn in the red in 2019 (the Covid years immediately after were worse but for obvious and non-systemic reasons).

This closing of that revenue gap and the strengthening of Scotland’s real economy is the story buried beneath the headlines of deficits and oil money in this year’s GERS. This is a Scotland operating despite the UK’s attempts to turn it into North Britain to better draw resources from it and concentrate them in the South East. It is also the very different shape of our economy compared to the “North Britain” that the UK Government sees that means that Scotland needs a different approach to governance than someone just considering headline figures and some “UK averages”. In other words it is this economy that will be best placed to become even more resilient with the opportunities of independence and policies made not just for Scotland but in and by Scotland.