Peter Jones: Freedom – to pay billions more tax

Campaigners against austerity outside of Scotland would welcome full fiscal autonomy. Picture: Getty

In one respect, Nicola Sturgeon is right – if Scotland was to get control of all tax revenues and use them to pay for its public services, it would ease austerity or the need for it. But it would do so for the people of England, Wales and Northern Ireland and achieve quite the reverse for the people of Scotland.

In fact, full fiscal autonomy would be a big gift to the rest of Britain. So generous indeed, that any UK party struggling to achieve a majority coalition government after May’s election might well clasp the SNP warmly to its bosom and grant them total control of taxes in return for abandoning the Barnett Formula and an end to UK taxpayers’ money being shovelled north of the Border.

Nonsense, I hear some spluttering. Read on – it is straightforward arithmetic. I’ll set it out in detail and anyone can check it using last week’s Scottish Government publication on expenditure and revenues in Scotland (Gers) for 2013-14.

Nationalists argue that not only have successive uncaring governments in London failed or prevented the development of Scotland’s and its people’s true potential, they have looted the windfall of North Sea oil, depriving Scotland of its rightful riches.

This is garbage but many people believe it. Various online comments on previous articles have claimed that all North Sea revenues have gone straight to the UK Treasury and never come back. Claptrap – and Gers 2013-14 proves it.

Total taxes raised in Scotland that year, including a due share of oil revenues, added up to £54 billion. Total UK and Scottish government spending in and on behalf of Scotland was £66.4bn. So Scotland got £12.4bn more public spending than it raised in taxes.

That money didn’t come out of thin air, it came from the UK Treasury and, what’s more, it is three times more than the estimated £4bn in Scottish oil revenues.

This £12.4bn shortfall is the government deficit. Some online comments suggested it was smaller than the UK’s deficit in the same year of £97.3bn, therefore Scotland could be better off independent or with full fiscal autonomy.

No, Scotland would not. The only valid comparison is to relate the size of the deficit to the size of the economy. Standard international practice is to express it as a percentage of a country’s annual wealth creation, measured by GDP. Scotland’s deficit is -8.1 per cent of GDP (£152.8bn) whereas the UK deficit is -5.6 per cent of GDP (£1,732.9bn).

So Gers proves that Scotland’s public finances are in a worse state than the UK’s. It also shows, thanks to a helpful chart setting out these relative numbers back to 1998-99, that Scotland public finances have been worse than the UK’s in 11 out of the past 16 years.

So the idea that the UK Treasury has been looting Scotland’s bounty does not stack up. The figures neatly illustrate what the Union is all about – for a third of the last decade and a half, Scotland has been able to help out the rest of the UK; for the other two-thirds, the rest of the UK has helped out Scotland.

But the SNP think it is time for this risk-sharing and resource-pooling to come to an end. Time, Ms Sturgeon reckons, that Scotland stood on its own fiscal feet.

In many ways, this is an admirable proposition. Being self-sufficient is an intuitively attractive idea.

It should, however, be honestly set out with all the pros and cons, the downsides as well as the upsides, visible for all to see. Ms Sturgeon is not doing that.

She is setting out only the pros and upsides, and refuses to admit to any cons or downsides. This is dishonest.

The Gers numbers tell you there are rather a lot of cons and downsides. Scotland has 8.3 per cent of the UK population and, within the Union, pays 8.6 per cent of UK tax revenues. The SNP usually say that this shows Scotland more than pays its way, but omit to say that Scotland gets 9.2 per cent of public spending.

This share of spending received which is higher than the share of taxes contribution not only shows that Scotland is not paying its way, nor does it also show that Scotland has a worse deficit than the UK, it also leads on to show that full fiscal autonomy is a much better deal for the rest of the UK than for Scotland.

Using the Gers figures for 2013-14, under full fiscal autonomy, Scotland would pay no taxes to the UK Treasury, so £54bn can be subtracted from total UK tax revenues of £628.2bn.

Scotland would also get no public spending money from the Treasury, so £66.4bn can come off UK spending of £726.5bn.

Since neither Scottish taxes or spending would be part of the UK deficit, it is appropriate to take Scottish GDP of £152.7bn off UK GDP of £1,732.9bn. And when you rework the deficits as percentages of GDP, Scotland’s deficit is still 8.1 per cent of GDP, but the UK deficit shrinks from 5.6 per cent to 5.4 per cent of GDP.

That is because the spending being lost is bigger than the foregone tax revenues. Now, 0.2 per cent of GDP may not sound like much, but it equates to £3.4bn, or 4 per cent of what would be the rest of the UK deficit of £85.8bn.

Well, to a UK chancellor of whatever party having been through a bruising election campaign, a chance to give Scotland what it allegedly wants and cut the deficit at the same time might be too good to pass up.

Scotland, of course, would be stuck with its deficit, and have to make between £4bn and £6bn of spending cuts or tax increases but, hey, isn’t that what Scotland wants?

It seems extremely dubious to me that Scotland really would want to buy its fiscal freedom, and have to pay the bill for years to come, in this way. But if we are to do this, could Ms Sturgeon at least be honest about it? And can we have a referendum on it?