GERS has nothing to do with an independent Scotland

Strangely GERS used to be the gold standard for nationalists when it came to the case for independence. Indeed Salmond used them as a point of fact in the Independence debate, claiming "Alastair you know that because it's in the GERS figures". These days of course GERS are disowned by the very nationalist movement that oft quoted them or in the case of the SNP relied on them for the white paper.

Indeed nothing get's the hard core of the nationalist movement more riled up than quoting the GERS figures which illustrate the size of the Scottish deficit, but more importantly the size of the fiscal transfer from the UK to Scotland or vice verse.

The confusion usually starts with the idea that the fiscal transfer is the Scottish deficit. They're not the same thing. So when a nationalist says every country has a deficit, they are answering an entirely different question because very few countries have fiscal transfers between nations on the scale of the UK.

The deficit and the fiscal transfer

Right now, as part of the UK, Scotland has a deficit and it's the same as that of the UK on a per head basis.

That's known as (in this article) the Scotland in UK deficit. However the Scottish deficit is the deficit calculated by GERS which does not allocate tax and spend on a per head basis (if it did then the Scottish deficit would be the Scotland in UK deficit and we wouldn't need GERS) but instead apportions tax and spend based on that generated and spent in Scotland as per the detailed GERS methodology documents.

The difference then between the Scotland in UK deficit and the Scottish deficit is the fiscal transfer*.

The fiscal transfer is the amount of money that Scotland either pays to the UK or the UK pays to Scotland each year. Last year according to GERS the fiscal transfer was £7bn from the UK to Scotland and the next publication is widely expected to show a figure of more than £9bn.

The fiscal transfer then tells us how much Scotland benefits (or pays into the UK) each year. So can it tell us anything about an independent Scotland?

Does GERS matter?

GERS demonstrates an independent Scotland's starting point. That is were we to leave the UK our tax revenue and our public spending would not suddenly change overnight this means with our current level of spending and our current level of tax revenue we would be short by the Scottish deficit.

So remember the Scottish deficit is the Scotland in UK deficit plus the fiscal transfer. Whilst we can borrow to the same extent as the UK to plug the gap between spending and tax revenue the fiscal transfer is a straight loss to the equation. Put it another way an independent Scotland which spent, taxed and borrowed just like the UK would still have to find the fiscal transfer to make ends meet. Last year that was £7bn next year it is expected to be £9bn and is expected to continue to rise.  

It's usually at this stage that the nationalist would play what they believe is their trump card - Wings is particularly good at doing this - with something along the lines of:

"But you've said it yourself, we only have to find £7bn a year if an independent Scotland spent, taxed and borrowed the same as the UK. We wouldn't, we'd do things differently."

This is usually accompanied by them dropping the mic and walking off stage in victory. The trouble with the Wings trump card strategy is that it simply makes the point that nearly every Unionist is making.

Absolutely an independent Scotland would do things differently. Infact by definition an independent Scotland would have to do things differently as the fiscal transfer has to be found from somewhere. So this leads to the question then of what would an independent Scotland do differently to find the £10.6bn projected fiscal transfer for this current tax year.

GERS therefore tells us a huge amount about an independent Scotland, it shows us where it starts, it shows us how much a new Scottish Government has to find immediately in the form or spending cuts, borrowing or tax rises just to stand still.

What is missing from GERS?

What GERS doesn't tell us is the decisions a Scottish Government would make to find the value of the fiscal transfer, it doesn't tell us what schools and hospitals would have to close, what taxes would go up, what charges would have to be brought in for health care, what benefits would be cut, how much interest rates would go up to fund the extra borrowing (if that was even possible).

No GERS doesn't tell us this, it just begs the question from nationalists, if you want to make a coherent case for independence you need to be honest about it and tell us how you will fund the loss of the fiscal transfer.

So before you walk off stage, why not pick up that microphone back up and tell us all how you will do it. The floor is yours.