The publication today of Government Expenditure and Revenue Scotland 2014 (GERS) provides information on Scotland's fiscal position in 2012-13 with revisions for earlier years. The document is obviously important since it is the last one in the series before the independence referendum on 18 September.
What is the prospective voter in the referendum to make of the figures contained in it?
Danny Alexander, Chief Secretary to the UK Treasury states:
The Scottish government's argument for independence has been undermined by their own figures. It shows that in 2012-13, the Scottish deficit per person was almost £500 worse than that of the UK.
While Alex Salmond, First Minister of Scotland argues:
Today's Gers report confirms what independent commentators and analysts have been making clear - Scotland is one of the wealthiest countries in the world. The figures show that tax revenues generated in 2012-13 were £800 higher per head in Scotland compared with the UK, meaning that now for every one of the last 33 years, tax receipts have been higher in Scotland than the UK
So who is correct?
Well, in a sense, they both are!
The problem is that these statements do not really give much of a guide about the fiscal position in an independent Scotland compared to the position within the UK union. This is of course a complete unknown because economic conditions and policies will be likely to be different in both a future UK union and a future independent Scotland.
However, what might be of help is to conduct a form of thought experiment. In this experiment we can ask has Scotland over the past five years enjoyed a fiscal dividend in the UK union or has it suffered a fiscal cost compared to independence?
Clearly, such an analysis cannot change policies or economic conditions but I still think it is an illuminating exercise none the less.
We know from GERS what Total Managed Expenditure (TME) has been in Scotland over the last five years. We also know the GERS estimate of total tax revenue. We can proxy tax revenues under independence by adding in a geographical share of North Sea oil revenues. We can proxy public spending under independence by taking a Scottish population share of UK TME, so that the Scottish people are no worse off in terms of public services than their rUK counterparts.
That done, we can then compare with the estimated spending and revenues in GERS published today, which is what the table below shows:
|Total Managed Expenditure for Scotland||59,440||62,087||64,095||64,869||65,205|
|Scots per capita share of UK TME||53,393||55,219||56,271||56,934||57,538|
|With Geographical share of oil revenues||55,349||47,733||51,773||56,315||53,147|
|Scots tax revs plus Per capita share of oil revenues||44,820||42,557||45,023||47,264||48,118|
Excess spending shows the gain to the Scottish people in the UK union - loss under independence - of the spend on public services compared to the rest of the UK, which is the assumed counterfactual minimum that would be expected under independence.
Excess revenues shows the gain in tax revenue under independence - loss under the UK union.
The figure below charts the two and the figure after that the difference between the two:
So there is a fiscal dividend from independence in two of the five years and a fiscal dividend from the UK union in three of the five years. Taking the five years together there is a net dividend in favour of independence of £193 million. This amounts to 0.3% of average TME in Scotland over the five years, or £39 per person or roughly £8 per year.
The following points can be made:
- The fiscal dividend to independence can therefore be considered to be very small and appears likely to be negative in the near future.
- There is no estimate of the economic and fiscal transition costs of Scotland becoming an independent state, which if included would additionally make the dividend negative.
- In the fiscal year 2008-09 oil prices and oil revenues were high. In the future, oil revenues are likely to decline as the volume of production falls considerably from the position in 2008-09.
- During the last five years the Scottish people have had returned to them in higher public spending almost all of the oil tax revenues that went to the UK Treasury.
- We cannot determine the fiscal position of an independent Scotland in the long-term because different economic conditions and policies in both rUK and Scotland will determine whether there is a fiscal dividend, or a fiscal cost to independence.