The senior economist and a £4.5bn 'hole' in SNP's sums

A CENTRAL plank of the SNP's case for independence - that Scotland has a healthy budget surplus - is "fundamentally flawed", the country's leading public finance expert says today.

Professor Arthur Midwinter says that the nationalists' claims, made in their "Scotland in Surplus" document, are based on 4.5 billion of "dubious assumptions and unexplained assertions".

Writing in The Scotsman today, he warns that "in the real world, the SNP will have to cut spending, increase taxes or borrow to tackle the deficit and meet its financial commitments post-independence".

Prof Midwinter's intervention is a significant setback for the SNP which has used its paper to dispute the claims made in the Government Expenditure and Revenue in Scotland (GERS) document that the country has an 11 billion "black hole" in its finances.

He has analysed two versions of the SNP paper - one published last summer and one just before Christmas - and he challenges many of the key assumptions made by the party to conclude that Scotland has a fiscal surplus.

Prof Midwinter says that in their document, the nationalists have reduced what they say is the spending north of the Border. They have cut Scotland's share of defence expenditure by more than 700 million, made an adjustment of 500 million for money said to be spent on UK public bodies but which is used only in England, and removed 750 million of European funds from the figures altogether.

The SNP has increased the share of income tax said to be raised north of the Border by nearly 1.5 billion, the estimated Scottish share of National Insurance contributions by more than 30 million, the VAT raised in Scotland by 330 and the share of fuel duties by 700 million.

Prof Midwinter produces evidence to challenge all of these claims - which amount to a total of more than 4.5 billion.

He concludes that the SNP's assessment of Scotland's fiscal position is "fundamentally flawed" and says it "rests on more than 4 billion of accounting adjustments based on unrealistic assumptions or unexplained assertions".

Prof Midwinter, visiting professor at the Institute of Public Sector Accounting Research at Edinburgh University Management School, goes on: "Whilst the SNP has been heavily critical of the GERS exercises, its own report is much less rigorous and transparent.

"The problem is that GERS - which is widely accepted as a realistic assessment by most specialists - shows an average annual deficit of 4 billions, inc-luding oil revenues, and this is ideologically unacceptable to the SNP, whose proposals for tax reductions and an oil fund rest on the spurious assumption that Scotland is in fiscal surplus."

Last night, the SNP fiercely defended its calculations. Stewart Hosie, the MP for Dundee East who helped write the "Scotland in Surplus" document

described Prof Midwinter's criticisms of those SNP figures which part company from GERS as "well wide of the mark".

He said: "I'm sure we can both agree it would be better to replace all estimates with hard data on actual receipts. Nonetheless, it ill behoves Prof Midwinter to cite as 'dubious' the 95 per cent estimates for the Scottish share of North Sea revenues in view of the cited research undertaken by Aberdeen University.

"It is interesting that in criticising SNP methodology, Midwinter has nothing to say on the revised GERS methodology for estimating Corporation Tax receipts, which reduced estimated revenues this year by some 350 million. Such changes are usually intended to improve quality, yet GERS still invites us to treat both their 'before' and 'after' estimates with 'extra caution'."

Margaret Curran, Labour's minister for parliamentary business, said: "Families know they should be worried about the cost of independence. Now leading academics, doing independent analysis, are telling them just how worried they should be. The SNP's sums do not add up."

• Prof Midwinter's analysis can be read in full at swts.oldsite.jpimedia.uk, Between now and the Holyrood election, he will be analysing the financial plans of all the main Scottish political parties for The Scotsman.

SCOTLAND'S BALANCE SHEET

Revenues

• VAT: 330m

The basis for the SNP's claim that Scotland would get 8.5 per cent of UK VAT income is not transparent. GERS puts the figure at 8.1 per cent, based on survey data from households. The SNP assumes that Scotland's spending on tobacco and alcohol is higher than the UK average, producing more VAT revenue.

• Nat Ins: 33m

Between the first and second version of their Scotland in Surplus document, the SNP increased its estimate for Scotland's share of National Insurance contributions income from 8.2 per cent to 8.45 per cent. This adjustment is not explained in the nationalists' document.

• Income tax: 1,470m

The SNP says that Scotland would benefit from 8 per cent of the UK income tax take. But its calculations take no account of the fact that there are proportionately fewer people in Scotland earning higher incomes than the UK average, so Scotland's tax yield would be lower than claimed.

• Fuel Duties: 700m

The SNP claims that Scotland brings in 8.5 per cent of UK fuel duties, but GERS puts this at 5.6 percent. GERS uses adirect measure of fuel duties, the SNP a measure based on traffic estimates.

With a higher proportion of Scots having no car, and fewer with access to two cars, the assumption of the higher level is implausible.

Expenditiure

• Public cash: 500m

The Public Expenditure Statistical Analysis, published every year by the Treasury, lists "identified" and "non-identified" spending for UK nations and regions. Some spending categorised as UK-wide, for example on prisons, was actually spent only in England and should not have been included for Scotland.

• EU: 750m

The SNP has completely removed the figure which reflected Scotland's share of the flow of money between the European Union and the UK from its calculations. By putting that figure - made up largely EU fisheries and agriculture spending - "below the line" it reduces expenditure in Scotland.

• Defence: 746m

The SNP has reduced the defence spending figure from the one that appears in the Government Expenditure and Revenue in Scotland publication (GERS). It bases its figures on where spending occurs geographically, but does not do so in other parts of the document.

Experts shine a light into the darkest corners

IF TRUTH is the first casualty of war, facts are the first casualty of political battles. Between now and May, Scottish voters will be bombarded by claim and counter-claim; spin and contra-spin; assertions, rebuttal and even prebuttal.

Politicians rarely lie - and are foolish if they do - but they choose facts to suit their case and often ignore what Al Gore, the US politician turned environmental crusader, now calls the inconvenient truth.

So who can voters turn to? The experts. Those who will, without fear or favour, tell the inconvenient truths.

Arthur Midwinter is one such. A political scientist by profession, he has become one of Scotland's foremost experts in public finances. Since retiring from Strathclyde University, he has taken up a position as visiting professor at the Institute for Public Sector Accounting Research at Edinburgh University.

And since 2002, he has also been the budget adviser to Holyrood's influential finance committee. It is here that Prof Midwinter, 61, has demonstrated that he has no axe to grind, giving trenchant advice on everything from the Executive's efficient government initiative to local government funding.

Although he served on a number of government committees - including the Arbuthnott commission which studied the distribution of health funding in Scotland - Prof Midwinter has never pulled his punches.

His advice to the finance committee that the Executive's efficiency savings were questionable and that local government was underfunded did not endear him to ministers. In a number of parliamentary debates at Holyrood, Prof Midwinter's analysis has been used by John Swinney, the SNP's finance spokesman, to challenge the Executive.

And it is this that makes his analysis of the SNP's surplus document telling. He cannot be accused by the nationalists of being in the pocket of the Executive.

Prof Midwinter, dapper and tanned from regular foreign holidays, is comfortable in the corridors of power at Holyrood or St Andrew's House.

The former Dean of the Faculty of Arts at Strathclyde is an insider in that respect, but he works on behalf of the political outsider - the voters who will be faced by a blizzard of party political spin in the lead-up to May's crucial Holyrood poll.

In that mission he is both respected and feared by ministers and by opposition politicians alike.

But along with other academics, such as Professor John Curtice of Strathclyde University, who analyses polling for The Scotsman, and Professor David Bell of Stirling University, he is one of those experts on whom we must rely to shine a light into the darkened corners of political parties' policies.

Read Professor Midwinter's analysis in full