George Kerevan: A balance sheet Maggie would have been proud of

Published on 22/06/2011 21:57

Ignore the negative spin on the latest figures, Scotland is in as good shape under Salmond as it was in the Thatcher years

THERE are certain staples of the journalist's year. For instance, we will soon witness the annual rush of articles telling us the Edinburgh Fringe has grown too large to survive, or that it has too many stand-up comics. Another such hardy annual is the publication each June of GERS - pronounced like the football team.

Gers stands for Government Expenditure and Revenue Scotland. It is a compendium of statistics which shows how much the taxpayer in Scotland forks out each year, and what they get back in public spending from both Holyrood and Westminster. Harassed civil servants have been churning out Gers for the past 17 years, knowing their efforts will be seized on by unionists and Scottish nationalists as hand grenades to throw in the ongoing constitutional debate.

Wednesday saw the publication of Gers for the financial year 2009-10; that is, two years out of date. Sadly, having an economist for First Minister has not speeded up the publication of Scottish statistics. However, the advent of a majority SNP government, coupled with the near certainty of a referendum on independence, has catapulted Gers into the frontline of the political debate.

Here's why: Gers tells us whether the Scottish public sector is in surplus or deficit (in the latter case, meaning any Holyrood government would have to borrow). On this hangs the sustainability of an independent Scotland.

The nitpicker (and Nationalist) in me would like to point out that achieving statehood is a different thing from balancing the government's books. There are 192 members of the United Nations and there is nothing in Gers that says Scotland couldn't join them if it wanted. With a GDP per head in the global top 20, we would be one of the richest.

However, folk are accustomed to a certain standard of living, which is where Gers comes in. If the government of an independent Scotland could not maintain current spending levels - meaning the NHS, pension obligations, etc - then the SNP is never going to persuade uncommitted voters to say Yes in the referendum.

The headlines that followed the publication of Gers seemed to suggest that the game was up for the nationalist cause. "Study undermines economic case for Scottish independence, opponents claim," trumpeted the normally restrained Guardian. There were even more lurid headlines in the tabloids. On reading all this I began to doubt my sanity. I spent a lot of Wednesday reading the Gers report but obviously it was a different one from the document being read by my fellow hacks.

The Gers I read contained the information that public spending in Scotland in 2009-10 amounted to 47 per cent of Scottish GDP, including the bank bailout. And this during the year that marked the pit of the worst recession since the Thirties. Yet in 1982, when Margaret Thatcher was in charge during another recession, public spending in the UK was … er, 46 per cent. So if Scotland had been independent in 2009, and Alex Salmond ran the same budget, then Gers says he was spending roughly what Mrs Thatcher spent in similar circumstances.

I doubt if Alex will be happy to be reminded of this affinity with Maggie, but it hardly suggests Scotland is fiscally profligate.

Of course, the Scottish budget was in deficit in 2009. So were most nations. With a global economic meltdown, that was necessary. Here's my point: if the Scottish deficit in 2009 - the worst year possible - was sustainable, then it is difficult to argue Scotland couldn't make a go of independence. Let's look at the numbers in Gers (at least my copy). For the four years prior to 2009-10, Scotland ran a revenue surplus, including its share of North Sea taxes. In other words, the money spent in Scotland on revenue items (as opposed to capital investment paid by borrowing) was less than the taxes raised locally; that is, we had a structural surplus. This was not true of Westminster in the same period, which had a structural deficit. Had Scotland been independent, it would have entered the recession with a high positive credit rating in the money markets.

Gers shows that Scotland in 2009-10 had a budget deficit - revenue plus capital - of 14bn, or 10.6 per cent of GDP (with oil). We should not minimise the seriousness of a 10.6 per cent deficit.

However, the average deficit in the advanced G20 economies was 9.4 per cent, while the equivalent figure for the UK was 11.1 per cent. Verdict: Scotland's borrowing would not have been outside the range forced on other industrialised economies and would have been manageable provided there was a plan to reduce the deficit.

Enter the vexed question of oil revenues. These peaked in 2008-9 at 13bn, then dropped in 2009-10 to 6.5bn, with the recession. If oil prices had not collapsed, Scotland's deficit in 2009-10 would have been 5.5 per cent of GDP. Two years on, with oil prices and tax yields back up, the likely budget deficit in an independent Scotland would be half the 9.9 per cent forecast for the UK this year. Yes we went down, but now we're back up. Verdict: the fiscal boat rocked but no way did it capsize.

A small oil producer will always be subject to such volatility. The point is not to use oil tax income for revenue purposes but filter them through a sovereign wealth fund, using the profits for revenue.

John McLaren, of the CPPR think-tank, makes a worthy point when he argues that in transitioning to independence, a Scottish Government might find itself exposed to relying on oil taxes for revenue purposes. True, but with oil prices more likely than not to rise in the next decade, I think such a transition can be managed.The latest Gers report does not absolve the government of an independent Scotland from being fiscally prudent. But neither does it provide any concrete evidence to support the myth that Scotland is not a financial going-concern.