The Common Weal's paper which was set to breakdown GERS and offer a real plan for an independent Scotland was given a heck of a build up. Finally after years of asking - what would you change - we would get a well thought out answer.
I have to admit, my hopes weren't high when I read that the author was going to be Craig Dalzell - who made a complete pigs ear of currency options for Scotland - unfortunately my low expectations weren't even remotely met by the paper.
Rather than a considered attempt to show how the deficit can be met. We ended up with a paper littered with the greatest hits of the cybernat movement, many of which I've debunked in detail on this blog (more of that later). That's a real shame as the Common Weal at least makes no pretentions about its left wing stance on most issues, a stance that we know would be unpopular in a Scotland that just voted for tax cuts and austerity.
This then could have been a paper which showed us how a progressive and left wing government could have resolved to lead Scotland to independence by sharing the pain of change as equitably as possible.
Instead we got something that ducks the main issue and pretends there are simple solutions to the loss of the fiscal transfer.
The savings
The main savings in the paper come from Defence, Debt and Pensions. There are (wisely) no savings for overseas spending and I'm dismissing out of hand the savings on "Other" expenditure largely because it references out spend for Crossrail (not in GERS) or HS2 (only 2% allocation to GERS) all covered off by Kevin Hague here.
Defence
As I've already posted if I were a nationalist looking to deal with GERS I would start in defence. Firstly the paper effectively junks any notion of the UK being in NATO, which is perfectly fair for a left wing agenda but demonstrably not one that Scotland seems to want. It therefore uses the base comparison of neutral Ireland for defence spending.
Alternatively the paper notes that Scottish NATO spending to could fall to the less than 2% of GDP target value for NATO. This is fair enough given few members outside the US and UK actually meet that target, but it does rather ignore the fact of the recent election in the US and the President-elect's statements on NATO members paying their way.
In either case this would be a significant change with profound consequences for defence and local spending in Scotland. Just think of all the other military bases that would close in Scotland and the effect that would have on the local economies.
Strangely the paper seems to ignore the effect this would have in Scotland and attempts to look at the cuts as a stimulus to the local Scottish economy. This may be the case if the money saved was being spent in Scotland but the author forgets that the saving is to compensate for the loss of a fiscal transfer. Any saving therefore will only have a negative multiplier effect on the economy.
Still, fair play on this point. If the case for independence rests on leaving NATO and slashing military spending in what is an increasingly uncertain world then so be it. I just dont see it as remotely palatable to the majority of Scots.
Debt
Here's where things veer far away from the rational. Dalzell attempts to find billions of pounds in savings through Debt. He casually notes that:
"This figure will almost
certainly be reduced upon independence due to the nature of
the division of assets and debts between separating states."
Which isnt remotely true. The figure will likely increase.
Firstly the division of assets and liabilities is largely known to us. Both states receive their geographic fixed assets and a population share of the financial debts and liabilities on independence.
The geographic fixed assets issue is beyond dispute on both sides, largely because Scotland has no intention of taking anything other than her geographic share of north sea oil. I would fully expect the UK to make a play for north sea oil in the event of independence negotiations (citing the investment they have put into the development of the fields) but I would expect this to fall away during negotiations.
That then leaves the financial assets of which Dazell has form on not remotely understanding. On a net basis these would be around £2.5bn to Scotland (£11bn gross). These arent likely to be used to offset debt as they would be needed by the new Scottish state for its own reserves.
However Dazell's premise that debt can somehow be significantly reduced by Scotland is just laughable. I've shown here how debt is not something that is optional for Scotland and we would be taking a population share of debt in a separate debt section of the Act that makes us independent.
Furthermore as our credit rating would be worse than that of the UK then we would expect that debt agreement to charge a higher rate of interest than the UK is currently charged. This would have a significant upward pressure on our debt costs.
Debt does not provide an opportunity for savings for an independent Scotland. Indeed unless, like Ireland, we are prepared to trade land for debt and then default on our remaining obligations then it will remain a significant burden on a new Scottish state and probably cost us more than GERS allocates.
Pensions
It's difficult to emphasise the extent to which my eyes roll as soon as I hear the words pensions in the independence debate. Pensions are horribly complex and take years of study to really understand the legalities, the mechanics and the dynamics of them.
You can guarantee when a politician gets involved in them they are going to get several things wrong. But in this case when a laser engineer tries to understand pensions he gets it all wrong. All of it.
Dazell attempts the usual pension dodge as espoused by Stu Campbell in the biggest lie in his Wee Blue Book. The concept that the UK is legally bound to pay for all existing Scottish Pensioners on independence, therefore the costs of servicing these pensioners will not fall to Scotland.
Firstly this is not the legal position. State Pensions can be changed at the stroke of an Act of Parliament at any time. One need only look at the WASPI campaign to see a stark example of that in practice. The legal position is that pensions are paid at the discretion of a state. Why then would the continuing UK use their reduced population's tax base to fund the pensions of the citizens of what would be a foreign state? The answer is simple they wouldn't, and what's more both the Scottish Government and the UK Government agree on this point.
I've set all this out here.
To try to claim £8bn in savings from this is entirely mythical.
Revenue
I've no intention of going into the revenue section of the paper, because it simply talks of raising taxes. Of course that's no surprise and what one would expect from a left wing author and organisation.
However I will point out that the paper seems to imply that it would be possible to raise taxes (especially on the rich) and see no behavioral effects, the sort of behavioral effects that made the SNP refuse to raise the higher rate to 50p. Indeed it looks to me like there is nothing new here and it's at best a case not proven, especially in the light of the Scottish electorate just voting for tax cuts skewed to the wealthiest in society.
Conclusion
This was a great opportunity for the Common Weal to take the issue of GERS by the horns and show that there was a viable way to for a left wing Scottish administration to equitably transition the economy towards the sort of society they wanted in an independent Scotland.
Instead it deliberately ducks the big problems and literally makes up facts and figures to try and pretend it's actually quite easy. It's not, it's not remotely easy. The trouble is I'm genuinely trying to work out is this ignorance or deception?
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I'd guess mainly deception,but built on a foundation of ignorance. but repeating stuff you know to be false or at best misleading is the way to go in this 'post-truth' world so expect no change to the approach.
ReplyDeleteI think you misunderstand his point on defence. He says currently only ~60% of allocated spending is actually spent in Scotland. Hence why even a reduced spend fully focused in Scotland could accrue positive multiplier effects.
ReplyDeleteMany of the claims are clearly fanciful but it's a positive discussion to be having.
Posted by CMac11 to The Red White and Blue Blog at 18 November 2016 at 17:45
SOrry CMac11 I managed to press the delete rather than publish comment but I've recreated it here.
N
I think that's a fair point. My reasoning is that there wouldn't be a multiplier effect in the context of the loss of a fiscal transfer, this just dampens the effect of the negative multiplier. Clearly a 100% Scottish focus is not to be sniffed at but I think it's unlikely to be achieved and in the context of the cuts proposed this would still mean "Scottish focussed" cuts. But fair point.
DeleteNeil ... I hope if you refer to Fraser Whyte's blog you will find both my inherent bias and I hope you will also find my fairness/objectivity in a recent post.
ReplyDeleteI emphasise that because I want to question your comments on pension payments due by the UK to those who now live abroad. You are of course correct in saying the UK can legislate as it so chooses - let's both agree on that.
However, are the remainder of your thoughts as accurate as they need to be?
Let me simplify why I ask. If you refer to the DWP Form IPC-BR1 - issued by the International Pension Centre of the DWP, you will find that they fully expect that form to be used by those entitled to a UK state pension based on their NI records) but who are now resident abroad/in a foreign country and will handle the forex requirements involved in making payments.
Bar legislative change - why would that not apply?
Hi Mike F, and thanks for taking the time to point your comment.
DeleteThere are two distinct points being make here that often get confused to come to the wrong conclusion.
Firstly yes you need an NI record to qualify for a UK pension to be paid to you if you live abroad. If you dont have an NI record then you dont get a pension (those voters have other arrangements put in place for them).
However having an NI record in itself doesn't then mean you qualify for a state pension if the UK government decide otherwise. This has already been established by the Courts in the ECHR judgement on the matter in 2010. I quote from the judgement below:
"The Court did not consider that it sufficed for the applicants to have paid National Insurance contributions in the United Kingdom to place them in a relevantly similar position to all other pensioners, regardless of their country of residence. Claiming the contrary would be based on a misconception of the relationship between National Insurance contributions and the State pension. Unlike private pension schemes, National Insurance contributions had no exclusive link to retirement pensions. Instead, they formed a part of the revenue which paid for a whole range of social security benefits, including incapacity benefits, maternity allowances, widow’s benefits, bereavement benefits and the National Health Service. The complex and interlocking system of the benefits and taxation systems made it impossible to isolate the payment of National Insurance contributions as a sufficient ground for equating the position of pensioners who received up- rating and those, like the applicants, who did not. "
NI itself then does not entitle you to a pension, it gets you through a set of conditions that may entitle you to state pension. If you listen to the Steve Webb full video you'll note he states "my lawyers keep telling me not to call them rights" when he refers to the NI record. That's with good reason as legally an NI record does not provide rights. This flies in the face of the likes of Stu Campbell's claims that an NI record provides legally enforceable rights.
So the question of residents of Scotland having an entitlement to an rUK pension post independence does not sound in terms of legal rights. The Act of Independence (which is the only legal route to independence) would cover off pension liabilities, and given that both sides agree that an independent Scotland would be responsible for and paying for Scottish pensions there isn't any doubt here.
You appear to be referring to entitlement. I am not, I kept my criteria narrow to avoid what has happened, as we do indeed have "two distinct points being made here that often get confused to come to the wrong conclusion." Entitlement -v- Payment.
ReplyDeleteIf we discuss entitlement on its own, I suspect you know many past UK residents now in Australia are not in the least happy, that whilst they receive their state pension, their entitlement having been established, they have been told they are not entitled to any uprating, as in for example the triple lock, whereas other past residents of the UK, dependent on their current place of residence, are so entitled.
However, I am questioning payment, not entitlement.
There are two main distinctions: 1) when entitlement has already been established and/or 2) when no dispute arises over entitlement.
1) I am a pensioner, I receive the state pension (as my entitlement has been established), I live in the UK, currently resident in Scotland.
I have family in Singapore, say I chose to take up residence there, would you accept - or - would you deny that if I completed DWP Form IPC-BR1, that I would continue to receive my state pension?
2) As one reaches the age at which one approaches entitlement to a state pension, one can apply for a statement of what that entitlement will yield, the DWP will issue the relevant statement. Yes, I agree, there will be those who then discover that they lack entitlement, but I remind you I am raising the issue of payment for those who are agreed to be entitled. The statement will be further qualified, not as to the entitlement, but as to the quantum, things can and do change. Would you accept - or - deny that once such entitlement has been agreed by the DWP and acknowledged by virtue of that statememt, that payment will then follow, no matter its destination?
Your comments were referenced by link on Common Space, and I chose to comment as follows " I am waiting Neil Lovatt's approval of my post on his blog, the post and detail follows the above comment. I am hoping he will act as I did recently - we need accurate data in some areas, and we need unbiased facts in other areas, and we are all the poorer when they fail to materialise."
I am totally confident you and I could discuss further and in detail, but I do genuinely seek no more than your response to whether you agree - or - not with what I have stated. I would like to avoid, if at all possible, the "Ah, but ...".
The "ah, but ..." leads us both into a wide ranging third area 3) Will any of this remain intact if/when Scotland became independent? I hope I do not lack at least some of the knowledge to debate that question, but I wholly lack the wisdom and foresight to answer it, and I am not here (and may I add - thank you for allowing that) to speculate, at least not today.
Thanks Mike F
DeleteFirstly I have to say that it’s not reasonable to say to someone in a debate you must answer these two narrow points and wont accept any further discussion on the points being made - the “ahh but” clause in your comment.
But let me address the points directly:
Under the current UK rules and practices you would receive your pension in Singapore (although it would be frozen at its current level and you wouldn't receive any further increases).
Under current UK arrangements the payment for your entitlement will follow you unless you move to an area of the world where you are no longer entitled to pension payment increases in which case your entitlement will be frozen.
There are two areas to tease out of these statements.
As you note there are differences in the application of pension benefits from the UK which depend on where you live. This is because the UK has full discretion as to how it pays pension benefits to pensioners who do not have enforceable rights over these matters (as the ECHR noted). Therefore the payment of these pension benefits are at the discretion of the UK government. It would therefore be entirely within the legal framework already established for the UK to say those entitled to a UK pension can receive their full pension if they remain in the UK but can fall to zero where someone is resident in say an independent Scotland (that’s not a suggestion of how it would be implemented I’m simply using it as an illustration of the discretion of the UK government in this regard).
The framework for pensions (including those in payment) can also change at the whim of the state. One can argue that this is unfair of course but there would be nothing to stop the UK government say stopping all state pension payments to those earning over £50K in retirement. Similarly the can change the eligibility rules at the stroke of an Act of Parliament or Standing Order, as we know from the WASPI campaign.
My point is that the current practice of the UK government does not confer an enforceable entitlement or right on voters vis-a-vis the UK government. It simply tells us what currently happens in a pre independence world. There is no logical pathway to say if I move to Singapore I get my UK pension therefore I will certainly get my UK pension in Glasgow post independence.
PART 2
DeleteLet me explain by way of a different route. Lets say I live and work in Hull and have now retired in England. Scotland became independent in 2014 and I’m no contemplating moving to Scotland. When I check with the DWP I will very likely be told that if I move to Scotland then I will continue to receive my pension as if I lived in England (and I would assume with increases in payment).
Now let’s look at it another way I live and work in Glasgow and retired in 2012. Scotland became independent and my UK State Pension would have stopped and been replaced by an identical pension provided by the Scottish Government (as the Scottish Government proposed and the UK agreed). If I moved to Hull to retire I would expect my pension to follow me and to continue to be paid to me by the Scottish Government.
Finally let’s assume I live and worked all my life in Glasgow and then moved to Singapore. Currently the UK government pays my pension. Post independence the liability for my payment of my pension would come from the Scottish Government.
In all cases pensions are portable and will follow the individual throughout their lives but will be paid by the providing state. The providing state is the state in which you were resident in at the point of independence. Your entitlement thereafter will then be decided by the providing state and that can of course increase or decrease as the politics of each state decides.
This confusion between an individual moving between states and their pension benefits following them and its application on independence doesn’t have a logical follow through. Thats because the non enforceable right to a pension has been built up by all parts of the UK, Scotland and rUK. On independence the liability for those non enforceable rights would be split between both Scotland and rUK as component parts of the state that created those non enforceable rights.
This would be done (as the Scottish Government proposed) on a residential basis which the Scottish Government taking on the obligations of those resident in Scotland at the time of independence (including those pensions in Payment in Scotland and those pensions payable abroad).
As I keep saying both sides agree on this point. In practice they have to as the proposal is the only logical outcome of the pension arrangements. The domestic governments from Scotland and rUK would be responsible to their own voters and their own pensioners for the supply of their own pensions. That applies to non enforceable entitlement as well as the method of payment.
One final point to clarify here is that the administration of some payments (especially those overseas) my be subject to some joint administration between Scotland and rUK, or it may continue to be paid by the existing mechanisms but rented in some way by the Scottish Government. At no point would that change the position of the root funding of these pensions, they lie with the providing state, and at no point does this create an opportunity for an independent Scottish Government to make any savings on pension bills for Scottish pensioners.
Neil ... From above … “Pensions are horribly complex and take years of study to really understand the legalities, the mechanics and the dynamics of them.”
DeleteThis House of Commons Library Research paper from May this year may help those who are brave enough (foolish enough) to take on the subject. In it, as one example you will find Lord Hoffman on the Carson case, you would, I think, find it supportive.
researchbriefings.files.parliament.uk/documents/SN01457/SN01457.pdf
However, my request over “Ah, buts” was not, and could not be, censorious, it is your blog, I was trying to simplify, genuinely.
I follow all the points you have made, however, when it comes to what Governments of whatever nature, political or geographical, have said as against what they then do, my experience tells me to be wary, very much so. The most recent election we have all witnessed is a major example, this coming Wednesday certainly more minor, may prove to be another.
However, to your comments, might I just respond with an extract from the above Research Paper, we may be very considerably closer to an answer to the issues you raise, and it arises from the potential negotiated outcome of Brexit. This extract:
1.3 EU referendum
As explained above, the UK State Pension is only uprated annually if the individual is resident in an EEA country or one with which the UK has a relevant reciprocal social security agreement.
Some UK pensioners resident in Europe have been asking about their position in the event of the UK leaving Europe.
The UK could presumably seek to negotiate bilateral agreements with individual Member States, or an agreement with the EU/EEA as a whole.
In response to a PQ on 23 February, Pensions Minister Baroness Altmann said these questions would be part of negotiations:
The Government’s view is that the UK will be stronger, safer and better off in a reformed EU. Of course there is uncertainty about how a vote to leave the EU could impact on access to pensioner benefits for UK pensioners living in other parts of Europe. These questions would need to be answered as part of the process of negotiating the UK’s exit if there is a vote to leave. We could only consider the detail of access to pensions and benefits for people in receipt of UK state pensions who are resident in Europe as part of the process for leaving the EU.
It is entirely speculative, it is an “Ah, but ...”, but might it be that the essence of your thoughts will play out and find a definitive resolution for Ex-Pats in the EU before anyone else, and that what is done and agreed in the Brexit negotiations over state pensions for those resident in the EU will provide hard evidence that …
I very strongly suspect that I do not need to add the next “Ah, but ..” nor continue that sentence, you will know instinctively where I might take those thoughts …
I therefore deny myself such speculation, it seems only appropriate that I do so. I am sure we will both watch and learn.
Thanks for allowing me to post.
Thanks Mike and thanks for engaging!
DeleteTwo parts again.
PART 1
Thanks for the briefing, I’m familiar with the paper and you’ll see that I quoted earlier form the appeal to the ECHR which came to the same conclusions, in effect an NI payment is not a right to a pension but a gateway to receiving one as part of the directionally benefits that a state can provide its citizens.
Apologies over the “ah but” comment it was not meant in the way in which you took it (but reading it back I’m not surprised).
I fully take your point about what government’s say now and what they do later can be different, I don’t think anyone would ever doubt that. The case you cite about post-Brexit pensions is just yet another example of the fact that the government has discretion over the payment of pensions and can chop and change its criteria as it sees fit and as it signs Treaties with other states to support their pensioners abroad.
Therefore is it possible that the rUK government could just say, 'OK it’s fine we’ll pay Scottish pensions’, well yes it is possible but only in the sense that the rUK Government could also say to an independent Scotland ‘Here had an extra income of £10bn a year from us’. You can argue that might be the case but it won’t have any credibility.
Therefore to assess how probable it is in this case of independence and pensions (which is very different from Brexit and pensions) you need to look at the motivations of each side as well and the extent to which they agree.
In this case as I keep stating - both sides agree. The Scottish Government on independence becomes responsible for the payment and funding of pensions for those people habitually resident in Scotland at the point of independence.
More importantly look at the motivations for either side.
DeletePart 2
Let’s say an independent Scottish Government decides to demand the rUK pays pensions to all those Scottish citizens who have paid into the UK system after independence.
The rUK government naturally refuse as both sides agreed on this before the referendum and have no intention of having their electorate paying for the pensions of citizens of another state.
In these circumstances the Scottish Government is faced with a dilemma. Scottish pensioners will be thrown into poverty were this to come to pass. These pensioners wont be in a position to take out their wrath on the rUK government as they are no longer citizens of the rUK state. They can only vote in Scotland. So who will they take their wrath out on? The Scottish Government, who happen to be sitting on a huge windfall because they don’t think they need to pay pensions to Scots.
There is only one way this ends. The Scottish Government pays the pensions of Scottish citizens, including those in payment.
That’s why both sides agree, because when you game this through in a democracy there is only one logical outcome. It’s why the Scottish Government issued a paper saying that they would take full responsibility for all pensions, it’s why their budgets made full provision for paying all pensions, including those currently in payment. It wasn't prudence on the part of the Scottish Government. It was simply the reality of the world they were going to inherit.
The trouble is some people, such as Stu Campbell try to imply that the rUK government would have a legal obligation to pay exsting ‘Scottish' pensioners post independence. If that were the case then the reality of the debate would have changed significantly (however the UK would have just loaded the Scottish Government with more debt). However as we have established with the ECHR ruling, there is no such legal obligation and pensions are at the discretion of the providing state.
With that established we have a simple conclusion rUK would not pay for Scottish pensions.