Growling at GERS – calculators at dawn!

If I got a pound for every time a Unionist tried to wear me down with a statistical debate about how Scotland couldn’t cut it on it’s own, I’d save up the cash and pay off the deficit myself.

We all know that Scotland has a third of the land area and only 8.5% of the population. We all know that by simple economies of scale cramming millions into London will create a cheaper, if not a happier or better, way of providing public services. God knows what Thames water would do if it had the scale of Scottish landscape to plug leaks in.

But these are just the starting points. As others have pointed out the Barnet formula is getting squeezed which is certainly a failure of Unionism from a Scottish point of view. But what I want to do is have a quick run around GERS. This is the report that calculates the deficit. Read it. It’s informative.

http://www.scotland.gov.uk/Publications/2006/12/11084016/0 

What I got out of it was how craply the data was actually allocated between Scotland and the rest of the UK. It’s simplistic stuff. But is it sensible? or adequate? For instance defence expenditure is allocated on the basis of population. Is that not a bit daft? Well, if Scotland was independent, would you really need £2.8 billion every year to stay safe? If you could settle for £1.8 billion, that would be a billion off the independence deficit straight away – an opportunity saving. So we can all agree that GERS is about allocating existing costs and not working out whether an Independent Scotland would be viable.

But still, allocating defence expenditure on the basis of population is insane. It mean that Scots with their relatively lower income pay the same as their richer South of England Brits. Allocating on the basis of population is inherently regressive and should not be tolerated.

Small changes in methodology make big changes in the numbers. Let’s assume that income tax is a more progressive basis than population and that this is good. As the largest single source of Scottish tax revenue, should income tax in some way be matched with UK wide expenditure that can’t be allocated regionally? It would make a lot more sense that using population.

If so, then you might want to use the going ratio of 7.3% which is the Scottish share of UK income tax according to GERS. Now take all of the non identifiable expenditure which is currently allocated in GERS on a pro-rata population (8.5%) basis and recalculate it on the basis of income tax receipts to adjust for incomes. Save £921 million from the so called Scottish deficit.

The GERS report itself recognises methodological errors (appendix A) worth £440 million. And in an arcane note allocates 12.7% of a UK wide £22.8 billion adjustment to Scotland. Now, this includes timing adjustments and depreciation, which I understand, but how Scotland could take a 12.7% hit for historic and non-monetary adjustments escapes me – especially when the new National Asset Register doesn’t include the Scottish Parliament (see previous post on “Who sold the Scottish parliament”!!). Certainly no Venture Capitalist would give a toss about such historic non-monetary items when considering the viability of Scotland as a going concern.

And I’m not having it either. Someone with more time could usefully deconstruct the numbers. In the meantime I’ll split the £22.8 billion on a population basis (with which I still don’t agree) to shave another £964 million off the so called Scottish deficit, and I think there’s probably more to be saved here.

So far that’s £2,325 in adjustments to the GERS deficit – without cutting a penny from defence and other central expenditure.

Now come with me for a look at the income calculations. Methodolically, when a report says (in the context of corporation tax allocations) “significant conceptual and practical difficulties exist…” you may want to take that as a great big warning sign. It transpires that 38% of UK tax receipts (that’s £170 billion) depend for the allocation of the Scottish element to a thing called the Expenditure and Food Survey (EFS) http://www.statistics.gov.uk/ssd/surveys/expenditure_food_survey.asp

Hold on tight, cause this is scary. The total actual survey sample achieved is around 7,850 households. Which means that if the sample reflected Scottish households on a pro rata basis, only 667 households would have been surveyed. Is a sample of 667 households in Scotland adequate for the allocation of 38% of the UKs tax revenues? I say no way. 

It gets worse. The actual sample selection is based on random post codes with no reference to geography. It follows that there’s no basis for confidence that even 667 households in Scotland get included in the surveys.

If I read about (for example) the latest ICM poll in the Scotsman on the May 3rd election, and it had a sample size of only 667 I’d be pretty pissed off and think them sloppy. If they’d taken the sample without regard as to whether the interviewees lived in Scotland and had a vote in the eleciton, I’d think they were taking the piss.

This pathetic sample size and methodology undermines any credibility GERS may hold out. 

And let us not forget the so called Scottish deficit is overbown because GERS doesn’t include the oil revenue in the calculation – £5 billion just left floating. Ok I know the SNP have turned the oil into a mantra with a totemistic quality that alienates as much as attracts, but it is absolutely unnacceptable for the Executive to prepare the GERS report on a basis which excludes oil revenues from the general calculation. Given all the other dodgy methodology floating around the report that’s just barking.

I’m not trying to put Scotland in surplus. If you’ve got a disproportionately small population density, the financial equation will always be tough. But with over £7 1/2 billion brought into question in this post alone along with some seriously dodgy methodology, make sure that any time a politician/journalist/idiot quote GERS without caveat or caution – you must stick up your hand and call them a fool.

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2 Responses to Growling at GERS – calculators at dawn!

  1. BillDunc says:

    The economic argument is not the main issue I think. having said that I cant say I am desparate to be further imnpoversished by a bunch of scottish politicians looking to spend even more of our money in an independant Scotland. The SNP’s own (previously ) favourite economist has as you know said himself that Scotland would be significantly in defecit if independant. personally it seems to me that if you look round the world the UK is a great example of previously fractious countries who achieved Union and have succesfully renogotiated devolution of powers. Wether further devolution makes sense is a debate I think is sensible. Taking a leap into independance with all the potential costs of that is for me letting the heart rule the heid.

  2. I love this article a lot. I will certainly be back. Hope that I can study far more helpful posts then. Is going to be sharing your wisdom with all of my friends!

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