In 1900 to 1921 Scotland was subsidising the UK?

This article has been superseded by the fantastic work of Rab Boyce who was able to remove all of my approximations and go far deeper into the data. The conclusion is the same but the level of detail and investment of time by Rab has been nothing short of breathtaking.  I leave the original post below for reference only but I would recommend reading the following post for a more comprehensive view.

http://scotfact.com/article_scotland20thCentury.html

One of the most bizarre claims made during the independence referendum was that someone has unearthed information on the state of Scottish and UK finances at the turn of the century.

This sourced data was conveniently held behind a paywall, so it was impossible to verify. However there is no reason to doubt the author. The table floated through social media with the tags that it “proved”, as far back as 100 years ago, Scotland had a surplus with the UK.

But did it? Did it even show that?

What it shows is revenue from Scotland and the explicit expenditure within the country. However, we know full well that Scotland benefits from UK wide services, such as paying the national debt and defence (more of that later).

So, let’s remind ourselves of the world in 1900. Better still, let’s just look at the notes accompanying the table above - that’s right, there were notes, details and much more, but few nats ever saw past the table.  

 

In 1900, there was precious little state as we know it. What government expenditure there was in 1900 was very limited, and so it’s of no surprise that there was little explicitly actually spent in Scotland. Notice the sharp upstep in Scottish domestic expenditure in 1911, when pensions started, which shows, as the state expanded into social protection, the position of Scotland’s relative expenditure began to change. However, and more importantly, the greatest proportion of government expenditure during this period was on defence.

In their glee at finding this chart, most nats overlook the rather obvious fact that the period started with the Boer War, and saw the build up to and experience of the Great War. So, for example, in 1900 48% of all central government expenditure was on defence, and only 12% on social services (almost all of it education).

On that basis the figures look rather generous. But it get’s worse, much worse for the nats. That’s because the table does not provide the full picture. We know, for example, that Scotland received a guaranteed minimum allocation of public spending through the Goschen formula (the forerunner to Barnett). So, from here we can work out the Scottish deficit in relation to the UK deficit or surplus at the time.

The figures speak for themselves. Indeed, it does look like Scotland has a consistently poorer position in respect of public finances than the UK, very similar to the picture right now without oil. 

None of this should come as a big surprise. In 1900, Scotland, like today, had a relatively sparse population compared to the rest of the UK. But more of that later.