GERS 2016

So some early thoughts on GERS 2016. Kevin Hague will have the more patient and considered analysis later today but in the meantime here are a few initial thoughts. 

Firstly there were no real surprises. The Scottish Onshore economy like the UK economy shows some signs of recovery in terms of Debt to GDP. 

The UK fell from 5% to 4% of GDP (which is becoming decidedly manageable) whilst Scotland (including oil) went from 9.1% to 9.5%. 

From a population point of view (my preferred measure), the UK deficit moved from £1400 per person to £1,100 per person, whilst the Scottish deficit moved from £2,700 per person to £2,800 per person. 

That works out at the fiscal transfer from rUK to Scotland moving from £1300 per person to £1700 per person. 

In other words about £9bn of the total £15bn total deficit is covered by the UK fiscal transfer. 

The figures followed a revision by the Scottish Government's data which a few people (such as Wings) failed to spot and thus ended up  getting things completely wrong in thinking the deficit hasn't changed. It has, on every possible measure its got worse.  

The onshore economy

However it does bring up an important point. Wings et al like to argue that Unionists don't believe that the Scottish economy is strong, as usual that's his strawman. In fact anyone looking at the figures can see the underlying strength of the Scottish economy. 

For a start, despite the trauma of the oil price bubble busting, the onshore deficit (so comparing the UK deficit with the Scottish deficit excluding oil) has remained static year on year. Infact it's possible to argue that it is falling. 

This difference effectively represents the fiscal transfer to Scotland if you exclude oil. Including oil the fiscal transfer is obviously smaller but it still represents a net flow of money from rUK to Scotland. The only reason for excluding oil in the chart above is to show that Scotland (without oil) is at least keeping in step with the UK. 

Tax and Spend

It's when you look at the tax and spend data that the fundamental reasons for the fiscal transfer arise. 

Any nationalist or unionist will be able to tell you the standard goto line for the SNP when confronted with the Scottish deficit by an ill-informed UK journalist or politician, Scotland pays more tax per head than the rest of the UK. And until GERS 2015 was published this year that was true. 

Over the past 12 months the position has got worse, with Scotland paying in £400 less than the UK average. That still leaves Scotland was one of the strongest areas of the UK when it comes to tax revenue as the UK figures are heavily skewed by the London effect. 

So with tax comfortably in the UK ballpark (if not ahead of it on a median basis) what's the problem?

The issue is spending. Whilst Scotland has in the past brought in more in tax it has spent far more than the rest of the UK. The net effect of these two figures gives us the higher Scottish deficit and the fiscal transfer from rUK to Scotland. 

However that is nothing to apologise for and I for one wouldn't doff my cap to the UK for a rightful transfer of money back to Scotland (and many other areas of the UK) from London. Without the UK and the free and open market that goes along with it London would not be the powerhouse of tax revenue that it is right now, therefore by benefitting from the single UK market it's only right that London redistributes some of its wealth throughout the UK. That rightfully includes Scotland.

Given our sparse population higher spending in Scotland is perfectly natural and something that no one should be surprised about or apologise for. We should take greater pride in the fact that as part of the UK we are able to afford to provide high quality public services to rural Scotland. 

Over to you Nicola...

GERS gives us a glimpse into the decisions a independent Scotland would need to take. It cannot describe what an independent Scotland will do as with the loss of a £9bn fiscal transfer the current spending, tax and borrow pattern is not open to a new Scottish Government. 

Therefore under independence we would need to know what changes a Scottish Government would make. Under pressure this morning Nicola Sturgeon effectively said they would borrow the fiscal transfer to alleviate it. That's not really possible as I show here, and as I'll show later when it comes to the currency options for a Scottish Government it isn't possible at all. 

Taxes will have to rise, spending will have to be cut (perhaps withdrawing those rural services for instance) were we to leave the UK. So what's it going to be Nicola?