Competing claims about an independence dividend are as convincing as a circus tent fortune teller, writes Bill Jamieson
Who can we believe? The UK government said yesterday each Scot would receive a “UK dividend of £1,400 for the next 20 years”. Barely an hour later Alex Salmond, leading the campaign for Scotland’s independence, said Scotland will be £5 billion better off by 2029-30: each household will receive an annual “independence bonus” of £2,000, or each individual £1,000 within the next 15 years.
I suspect the reaction of most Scots to these claims is an ironic “Aye, right”. That’s not quite how the philosopher David Hume would have put it. But at heart we are a nation of sceptics. Our first inclination, on being approached by politicians bearing gifts, is less to believe than to question.
There is one simple way to put these claims to the test. The other week I was staying with friends who had received through their letterbox, in impressive newspaper tabloid format, a household flyer from one of the independence parties. The front page splash boldly proclaimed that every Scot would be £600 better off on independence.
The subsequent discussion over dinner centred on how we might receive this sum. Would it be in the form of a cash or cheque delivery through the post? Or would it be by electronic transfer into our bank accounts? Might it be a tax credit, an amount to be deducted from our next assessment from HMRC?
Or was it to be a “social payment”, that is, funds put towards schools, hospitals and general public welfare? We would not know, of course, whether we were £600 better off exactly. But government spending would certainly be higher, which is not always the same thing as being “better off”.
There is nothing wrong with scepticism. Indeed, there is everything to be said for treating the claims of both camps yesterday with caution. Sometimes this caution is aided by the very people who are keenest to break it down. For example, amid yesterday’s competing fusillade of figures on the costs and benefits of independence, Professor Patrick Dunleavy, of the London School of Economics, described figures used by the UK government on the start-up costs of independence – in particular the claim that Scotland would need 180 government departments – as “bizarrely inaccurate”. The UK Treasury, he said, has over-estimated the number of government departments and public bodies Scotland would need and overlooked the fact that many already exist. The Treasury then sought to change its cost estimate from £2.7bn to £1.5bn – based on an estimate by a Professor Robert Young of Western Ontario University, who has now apparently disowned the analysis.
The Yes campaign says the forecast of being £5bn a year better off by 2029-30 was “a realistic assessment of the benefits of independence”.
Unfortunately, previous experience of economic and financial forecasting teaches us to be highly cautious about projections made for next year, never mind 15 years hence. You might as well hire a circus tent fortune teller to hand out fortune cookies or read out the football scores for 2025.
Decade after decade, the wisest minds of the Treasury have sought to forecast the long-term path of government spending, revenues and debt – with consistently appalling results.
So how does the independence campaign arrive at such a £5bn sum? It makes three assumptions – a “0.3 percentage point increase in our long-run productivity growth rate which … could see tax revenues increase by £2.4bn a year by 2029-30”; a 3.3 percentage point increase in the employment rate, and an increase in the population. Has it solved the riddle of how productivity is measured, and how it can be moved up consistently in the manner suggested? And will the employment improvement really outpace the number of retirees over this period?
Now take the latest Scottish Government projections on North Sea oil revenues. These surely, being government figures, have to be reliable and robust. Indeed, has not the whole case for independence rested on the prospect of oil revenues flowing into Scotland’s coffers?
But its latest forecasts show a reduction in revenues from the figures given in the definitive independence white paper barely six months ago – the document hailed as the definitive last word on the Yes vote case. If such critical figures can move in an adverse direction in just six months, how confident can we be about projections over 15 years?
When it comes to estimating the costs of government, you don’t need to be an economist or statistician to heed the case for scepticism. It is all too easy, as we now know, to put out a set of juiced-up scary figures suggesting billions of pounds in extra administration and staffing. And there is every likelihood that on independence savings and economies can be found.
But there are bear traps, too, for the unwary. When it comes to estimating the cost of things, are our memories so short that we have forgotten the example of the Scottish Parliament building – a figure that leapt from an initial £20m to more than £400m? Or more recently, the Edinburgh trams?
Mind your eye when it comes to claims of efficient, nimble government on the cheap.
And then there are items all too easily overlooked and which can be substantial. Take, for example, Scotland’s share of the £27 billion debt of Network Rail. This debt, currently buried away as an unfunded, off-balance sheet liability of the UK government, is due to become part of the Public Sector Net Debt total in September, with Network Rail being re-designated as a public sector company.
This debt item will be out in the open – and impossible to ignore. And, as Network Rail will now officially have to borrow from the government and be seen to do so, it would seem to follow that a Scottish government on independence will also have to account for its share of Scottish rail debt (and interest costs) on its balance sheet.
Were Scotland’s share of Network Rail’s debts apportioned on the basis of population share, this would give a debt share last year of around £2.7bn, set to rise this year to £3.6bn and to hit £4.9bn in 2019.
No such figure – or figures – appear anywhere in the independence white paper. But provision there must be if the trains are to run after Independence Day.
So, if you find yourself in doubt about all those figures about gains and losses of independence, rejoice in this scepticism. It will spare us a crushing disappointment as reality smashes into these beguiling projections.