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Column For August 31

Now the dust has settled on the annual publication of Government Expenditure and Revenue in Scotland (GERS), I thought it might be useful to take a closer look at what the report tells us and, importantly, what it does not.

The report itself is designed to estimate how much taxation is collected within Scotland and to provide a breakdown of what is spent on providing public services *for* rather than *within* Scotland. Given a lack of hard data in these areas, much relies on the estimates of statisticians.

The report itself originates from the 1990’s debates over whether Scotland should have a devolved parliament or not. Then Conservative Prime Minister John Major wasn’t keen on the idea of either a Scottish Parliament or a publishing report on Scotland’s finances. However, Scottish Secretary Ian Lang managed to persuade him that as a political exercise GERS “could score over all our opponents”, and from such inglorious motives the report came into being.

Inevitably, the only figure which attracts any attention is Scotland’s implied ‘deficit’. Leaving aside the argument that the UK ‘Status Quo’ delivering what some people consider to be a poor set of financial outcomes might

not be the positive advert for no change that they think it is, there are two key points here worth noting.

Firstly, tax revenues collected within Scotland more than cover the cost of providing devolved services as well as all current pensions and social security payments. Secondly, since it has no borrowing powers, Scotland’s devolved government cannot by definition operate a deficit.

That’s not to say that Scotland as a whole hasn’t contributed towards the UK’s overall deficit. The UK has in fact been in deficit for 63 of the last 75 years. Nonetheless, governments are not the same as households or businesses, so a government deficit is not of itself either a good or a bad thing.

There are a number of problems in attempting to use GERS as a proxy for Scottish Independence as we are always invited to do. For one thing, it attributes an awful lot of government spending to Scotland – particularly over defence – which simply doesn’t take place here. It further omits the tax revenues that would accrue to Scotland if this ‘phantom’ expenditure were actually to take place in Scotland. It also – crucially - assumes that an independent Scotland would change absolutely nothing from current UK Government policy and continue to spend on the same things at the same rate.

The bottom line is that Scotland has a fundamentally strong economy, underpinned by healthy and diverse sectors. Yet as the pandemic demonstrated, Scotland’s Government is still often left dependent on problems firstly being felt and choices then being made in Whitehall in order to release the resources that it would wish to have in order to act in all the ways that people require. 

As we seek to recover from the economic downturn caused by the pandemic, it’s more essential than ever that Scotland’s Government has the powers to respond directly to our economic needs and to build a more prosperous and fairer society.

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