Leaders: Haste to publish can mean firms slow to invest

For some years the Scottish Government’s economics unit has come under criticism for publishing its numbers on quarterly Gross Domestic Product performance considerably later than the UK’s Office for National Statistics (ONS).

The delay between the end of the quarter and the subsequent publication of figures of some five months has been a source of frustration for policymakers and commentators. The rationale was – and remains – that early “flash estimates” can be misleading and vulnerable to subsequent significant revision. The Scottish numbers, while long in gestation, were likely to be more reliable.

Today the statistics department and the administration’s former chief economist, Dr Andrew Goudie, are entitled to a feeling of some vindication. The latest “flash estimate” figures for UK GDP, released by the ONS yesterday, less than four weeks after the end of the first quarter, showing that the UK economy has fallen back into recession has immediately sparked controversy as to their credibility. On the initial reading, the economy contracted by 0.2 per cent in the first three months of the year. As the previous three months also recorded a fall, this fulfils the technical definition of recession – two successive quarters of falling output.

This preliminary estimate is vulnerable on two counts. First, it is based on data covering just 40 per cent of economic activity. And second this limited data is subject to not one but two subsequent revisions. Given these qualifications, a reading just 0.2 per cent either side of zero could fairly be said to fall within the margin of statistical error.

The latest figure has occasioned particularly sharp questioning over the estimate for the construction sector component, which is estimated on this preliminary reading to have fallen by three per cent. This is not the first time that the ONS measure of construction activity has been questioned. Nor do the doubts stop here. The overall reading is at considerable variance with recent business surveys, and the Scottish Chambers of Commerce issued a statement yesterday pointing out that the ONS estimate of economic performance does not accord either with their own recent assessment or with those of others on business conditions here.

Such instant estimates, subject to later significant revision can badly hit confidence, and particularly at this time when recovery is heavily reliant on an upturn in business investment and expansion. Many large companies are sitting on substantial amounts of cash, the commitment of which relies in some part on a perceived improvement in economic conditions.

There can be no denying that the UK economy is struggling to achieve a sustained lift. That is arguably all the more reason for judgment as to whether we are or are not in formal recession to await the scheduled revisions. It should also propel a wider examination within parliament on ONS analysis and methodology.

Clean-up costs no laughing matter

Scottish Government estimates of clean-up costs for North Sea oil production were recently stated at between £16 billion and £20bn. Other estimates range up to £30bn, though that cost would be shared between the oil industry and the government. That such estimates vary so widely is argument enough for precision on the obligations that would befall a future Scottish government in the event of independence.

Last week, Fergus Ewing, Scotland’s energy minister, indicated to a Commons committee that the UK would have to foot the decommissioning bill, claiming that it would be a “moral obligation” bearing in mind the revenues enjoyed at UK level in the past. But yesterday First Minister Alex Salmond appeared to contradict this position. He told a meeting of business leaders in London that an independent Scotland would pay for the clean-up out of the revenues it would receive from its geographical share of the division of North Sea oil revenues.

Advisers subsequently defended the remarks, arguing that the First Minister was responding in a humorous manner. This is no subject for flippancy. There needs to be greater substance and clarity – on this and on many other matters – to enable Scottish voters to arrive at a reasonable assessment of the financial consequences of independence. This is not the first issue on which the First Minister has been seen to flip-flop. Making ad hoc commitments on the strength of a share of revenues still to be agreed – and those revenues themselves subject to considerable fluctuation – is not a responsible way to proceed. The SNP administration needs to set out with far greater detail than so far provided on exactly what we will, and will not, be liable for.