"the No campaign desperately want you to believe that Scotland would be poorer as an independent country, and that it would therefore have to raise taxes and/or cut public spending to protect services. But that simply isn’t true. In fact, it’s not even close ..."

*****

In essence, the analysis amounts to dumping all the GERS summary tables into a Microsoft Excel graph, adding the Office of Budget Responsibility (OBR) forecast for oil revenue, and pointing to a resulting £9.1bn gap between Scotland’s public spending and its total revenue.

This, he asserts, is in addition to Scotland’s share of the hefty deficit the UK currently runs.

Scotland's deficit = (12,434) Scotland's oil tax revenue then was 3,996 So Scotland's "onshore deficit" (i.e. excluding oil) was (16,430)

Notice that figure is not £9.1bn - the last time our deficit was a low as that was in 2011-12 when oil contributed nearly £10bn. You'd think he'd know that. To understand the deficit gap you need to compare this figure on a per capita basis with the rest of the UK

Scotland's onshore deficit per capita = 16,430/5.342 = £3,076 The onshore defict per capita for the rest of the UK (using same methodology) = £1,451 The onshore deficit gap in 2013-14 was therefore £1,625 for every man woman and child in Scotland So gross that up by 5.342 million population = £8.7bn deficit gap in 2013-14 My analysis shows in real terms that figure has averaged £9.1bn over the last 15 years and has unsurprisingly been fairly consistent (the gap between the red and green lines)





His conclusion, shouted loudly and often by every angry Unionist on Twitter, is that the government of an independent Scotland – which tellingly they always assume to be an SNP one – would either have to drastically cut public services or raise taxes to fill this “black hole”.

It’s an interesting piece of analysis. Or it would be, if it wasn’t total nonsense.





But it’s GERS that’s the real problem It’s basically the only data source we’ve got in terms of the Scottish Government’s income and expenditure, and that’s why everybody references it.

Which gives Scotland slightly (about 10%) more for provisioning public services than a straight population share would.

This really is fundamental. GERS relates only to the current devolution settlement. It says absolutely nothing about the economy of an independent Scotland, or indeed anything about what it might look like if and when the Scotland Bill 2015 is eventually enacted

If we didn’t spend the sums currently allocated to us, what would we actually spend? Would that be more or less and - critically - if less, what difference would that make to people's lives?

If we didn’t have the same tax regime what would we change and what impact would that need to have? If we're going to cut taxes, how will we make up the shortfall? If we're going to tax the wealthy more, who will we tax, how much will we tax them and what will we realistically raise as a result?

If we're going to grow our tax take through economic growth, how will this be delivered? Might we risk losing economic growth as a result of currency uncertainty and separation from our largest market? Even if we're optimistic, realistically how long would it take us to grow our tax base enough to offset the deficit gap and how would we deal with the funding gap in the meantime?

I did econ at Cambridge and I say @kevverage knows what he is talking about too... https://t.co/J5d8VwDvFF October 27, 2015

Nevertheless, almost all countries run a deficit, and even with all the flaws in GERS it seems beyond much doubt that Scotland would too.

But the entire point of independence is for Scotland to make its choices for itself, for us to determine our own priorities (and make our own mistakes) rather than having the consequences of somebody else’s foisted upon us.

To deem that goal an economic fantasy based solely on the flawed and fundamentally irrelevant content of GERS is, therefore, to miss that point in the most spectacularly short-sighted and wrong-headed way possible.

*** Addendem ****

This gets no further than the usual Government Expenditure and Revenues Scotland, (GERS) analysis of the balance of government revenues and expenditures attributed to Scotland. It is now clear, as even the Unionists have to concede, that Scotland’s basic fiscal position, including Scotland’s share of North Sea revenues, is considerably better than the corresponding balance for the whole of the UK. As a percentage of GDP, Scotland has had a healthier balance than the UK as a whole on its current budget for each of the past six years. In fact, for three of these six years, Scotland was in surplus on its current budget, while the UK was in deficit throughout.

As small drops of rainwater eventually erode the toughest granite, so the persistent drip drip drip of economic rationality eventually penetrates the defences of even the most committed reality avoiders. The truth of this observation was illustrated by a remarkable blog post that appeared on Scottish Nationalist fan-site Wings Over Scotland yesterday.In a conversion of Damascene proportions, Wings now concedes that - even allowing for the inherent weaknesses in the GERS figures - if a case is to be made for an independent Scotland we'll need to find more tax revenues and/or bigger public spending savings than were ever discussed during the independence referendum. It's a tacit admission that his Wee Blue Book was simply wrong when it claimedFor those who may not know, Wings Over Scotland is run by (fake Reverend) Stuart Campbell who, with scant regard for economic accuracy, bangs the drum for the cause of Scottish Independence. The style is that of a shock-jock aiming a blunderbuss loaded with random snippets from Google at a web page and letting rip. It serves a purpose for the Nationalist cause, feeding those so hungry for grievance that they won't question a source that tells them what they want to hear.Stu doesn't like me very much. I'm very careful with data and persistent when it comes to pointing out some of the more glaring errors he makes (and refuses to correct) - for example I recently posted these 10 factual inaccuracies he's continually promoted through his Wee Blue Book. I probably wouldn't bother correcting him if it wasn't for the fact that he's crowd-funded and makes claims to factual accuracy that don't withstand even the most cursory inspection. I happen to think it's poor form to take money from people and use it to publish material that fails to meet basic standards of accuracy.I had decided I'd written enough on the subject of Wings - if people are still willing to be taken in by his schtick then so be it. But then he put up a post (authored by someone else) which addresses me and my blog directly. Of course it doesn't even attempt to address the errors that I've highlighted and indulges in the most blatant "playing the man not the ball" ad hominem attack you're likely to see. So far so normal for Wings - nothing worth responding to. But as I scanned through the ranting and grievance seeking rhetoric I realised something quite remarkable was happening; the underlying narrative was changing. Of course there's enough spluttering abuse in there for his slower-witted readers to have their thirst for "unionist bashing" sated - but actually if you filter out the noise. It's a tacit admission that the economic case presented by Yes (and punted by Stu himself) was - to be polite - fatally flawed.Let's look at the post in question. It's authored by a Lindsay Bruce but is written in the voice of Wings (the author is "we") and reeks of Stu's ad hominem style, so I'll refer to the author as Wings and "he" for simplicity.Wings doesn't name me directly or link to this blog, and (hilariously) even blurs out my twitter handle and picture. It's almost as if he's scared that if his readers were to be exposed to a rational argument they might start to see through him. Anyway; I'm not so petty so here's his blog post - feel free to read it and return > The Limitations of GERS Let me dash though the detail of that post and see if we can decode it.He refers to me as "My blogging is certainly unpaid - I don't rely on crowd-funding to allow myself to do this full-time as Stu does, so I guess he gets the drop on me there: Stu is a "professional Nationalist blogger", I'm the one writing this at 6:30 on a Saturday moring. The flip side of that is course that I'm a professional businessman but we'll let that pass. I'm not a fan of the label "unionist" because, for me, being pro-union is more a result of being economically rational than because I hold a dogmatic view. That said, I've always been clear that I'm intuitively in favour of pooling and sharing between neighbours, so I'll take what he clearly intends as a term of abuse on the chin: I'm an amateur unionist blogger.He parenthetically refers to my "analysis":Oh he's so close to understanding the figures it almost hurts. Let's take this really slowly: the gap between Scotland's public spending and it's total revenue is what is called our. In the most recent GERS figures (2013-14 when oil revenues were still as high as £4bn) thatwas £12.4bn. What I show is that the amount by which our deficit (excluding oil)that of the rest of the UK is £9.1bn. The obvious point I'm making is that if you strip out oil (as the market is unfortunately doing for us) that underlying gap is in fact very consistent over the last 15 years. Its the deficit gap which becomes exposed as oil revenues decline.I lay it out in very careful detail in Full Fiscal Autonomy for Dummies and it is summarised rather neatly (if you read what the axes show) in the graph below. It shows that the deficitis explained more by our higher spend per capita (the red line) than our lower onshore tax revenue generated per capita (the green line). I'm genuinely gob-smacked that he still appears unable to follow this really simple analysis.Now all it took to create this analysis was indeed the simple spreadsheet manipulation of GERS figures and some graphing as he describes. He's right, it really is as simple as that ... which makes it all the more depressing that he still seems unable to follow it.But in "essence" yes, that was all it took to expose some of the more fantastic Yes camp claims and to highlight the ridiculousness of the economic assertions Stu himself published. Of course if Stu was capable of carrying out such a simple analysis himself maybe he wouldn't have made such a hash of the numbers in his Wee Blue Book - but we'll let that lie.He then saysI do assert that, because it’s true. This is typical of Wings' rhetorical style - he doesn't deny the point I make (he can't, it's true) but by saying "he asserts" his skim-readers will think he's somehow shown I'm wrong. I'm not.Anyway: he continuesI'll ignore the emotive language and the incorrect assertion that "they" always assume the government will be an SNP one - the essence of this is true: yes I'm saying that an independent Scotland would either have to drastically cut public services or raise taxes to fill this black hole.But here's the killer lineIt's unfortunate that he's already demonstrated that, despite apparently recognising how simple the analysis is, he's shown he still doesn't understand it. But no matter - let's give him the benefit of the doubt - he may not have followed it but he might still be able to now go on and show why it's total nonsense.In fact - after some predictable diversionary manoeuvres - we'll see he actually goes on to agree with this conclusion. By the end of this post he's scrambling around for tax increases and cost savings to close the gap - I guess he's hoping his readers will have such short attention spans that they'll have forgotten that he said the need for such actions was "total nonsense".We have to get past the diversionary manoeuvres first though - I'll try to be brief.First he suggests the OBR’s oil forecasts are nonsense. As I've pointed out many times the OBR's oil predictions havebeen optimistic, but I've also been very clear that if you believe oil will once again deliver £9bn+ pa tax revenue to Scotland then that would indeed change everything. Of course not even Stu is claiming that any more (it would be just mean of me to quote Stu's section on Oil in the Wee Blue Book - suffice to say he was extremely confident that another oil boom was coming). The point here is simple: if you can't make a case for another oil boom then simply saying "OBR bad" doesn't make the obvious issue go away. It's telling that Stu no longer even attempts to argue for a significant upturn in oil revenues.He then moves on to try and undermine the credibility of GERS:Remember he's meant to be showing that my analysis is "total nonsense". He starts by accepting GERS is the only data source we've got and that everybody (including the White Paper, the Scottish Government, the SNP and indeed Stu himself) relies on it. I'm struggling to see why the fact that I have used this data source might somehow make my analysis "total nonsense" - if his problem is with GERS then his problem is withanalysis around Scotland's economy and he must think we are operating in a knowledge vacuum. Of course he doesn't believe that, he's just aimlessly letting rip with his blunderbuss again.He starts with a simple enough statement about GERSThat's correct - I make it 10.7% in the most recent year. "Slightly" might be pushing it though. The figure works out at £1,326 per person in the most recent year and in real terms on average £1,450 over the last 15 years. Gross that up across our 5.3 million population and you get £7.7bn a year. Scotland's total education budget is £7.6bn - we can probably agree that £7.7bn is a lot more than "slightly more".Then he indulges in a little distraction about Barnett consequentials. Of course what GERS observes is the Scottish Government's assessment of what’s spent on usthe impact of Barnett. Arguing about Barnett in the context of GERS "being the real problem" is an irrelevant distraction. You can have issues with Barnett if you like, but nobody disputes that GERS shows the result of applying Barnett as it stands. Of course were Barnett to be scrapped or fundamentally changed then that would change what is spent on us and that would be reflected in GERS. So at the risk of labouring the point - the effect of Barnett as currently applied (including treatment of Olympics, Commonwealth Games, Hs2, Heathrow etc.) is already reflected in GERS - it results in us getting that 10% higher spending per capita.The next distraction is a doozy. We're all dealing with the most up-to-date GERS figures (which restate historical years on a like-for-like basis) but his post now extensively quotes the "renowned economists Jim and Margaret Cuthbert" (no, me neither) from 2005 and 2007! All of those quotes are completely irrelevant as the methodology has been continually changed and improved and historical figures restated since thenIn 2008 the Cuthberts themselves said So why include the lengthy quotes dating back to 2005 and 2007? He carries on by quoting the Cuthberts from 2011 (4 years ago is a recent as he gets) – but nothing changes the fact that these are without doubt the best figures available and (after 8 years of SNP ministerial oversight) are if anything likely to favour Scotland's case.So he's set out to undermine GERS, but in the process he's done nothing more than confirm its the best source we've got, that any historical gripes have been long since addressed and shown us that his favourite "respected economists" are happy that statisticians in Scotland have been willing to override Treasury figures. I'm delighted that he chooses not to repeat the assertionson his website ) that head-office location somehow determine where VAT is allocated in GERS and I'm relieved that he doesn't suggest (as he's done in the past) that there's any missing Whisky Duty. This is progress and I applaud it.So now he move on to the crux of the matter: how do we interpret the GERS data?First of all, it's clearly ridiculous to state that it says "absolutely nothing" about the economy of an independent Scotland. It obviously gives us a starting point from where we can hypothesise what an independent Scotland's economy might look like. I'm sure he doesn't really think we knowfrom the GERS figures - it is after all the GERS figures that are used to justify statements like "Scotland would be the 14th richest country in the world" or "We've paid more tax per head of population every year for the past 34 years" or "Scotland's GDP per head is higher than the UK as a whole". It's the GERS figures that the White Paper was based on for goodness sake.Remember: he's trying to show that my conclusions are "total nonsense". Let me quote from my own blog on this subject:So I agree with Stu on on the most important point here: this tells us where we start fromOf course we wouldn’t want to do that and indeed (given the size of deficit we’d have as a result) we wouldn’t be able to maintain this profile of tax and spend for long even if we wanted to. This analysis merely gives us the base from which we have to explain what we’d change if we were independent, it allows us to ask the right questions and forces on us the discipline of making the rhetoric tie in with actual scaled figuresThese are all questions that the White Paper (and the Yes campaign more widely, including Wings) famously never answered. Other than suggesting £0.5bn of mainly defence based cost savings and denying any additional costs of independence there was nothing forthcoming on how our independent costs would differ from our allocated GERS costs. Remember: just because some of these costs are under Westminster control, there is no dispute that they are being spent on Scots and (in the case of welfare and pensions) ending up in Scottish pockets. The only other tax ideas in the White Paper werecorporation tax and Air Passenger Duty. Put simply: the White Paper simply ignored the £9bn onshore deficit gap, in part by making hopelessly optimistic oil revenue forecasts.But here's where the narrative changes: give Wings his due, he does now start to front up to the reality of what would be required.But first he has to attack me personally (again). I'm not getting dragged into his game on this, but suffice to say the Twitter exchanges are completely inaccurately portrayed. For the record here's the economics editor of the Sunday Times ..... and here's the founder of MoneyWeekUnfortunately Merryn receives a bit of the Wings ad hom treatment for being kind enough to support me publicly. Wings is a bully, that's what he does. Funnily enough I have DM's and emails from prominent economists backing my work but apologising that they don't want to say so publicly because they've seen how Wings attacks people. He's a bully because it works. That depresses me. Still - I have more credible people willing to publicly back me than Wings does, I think that's beyond dispute. If I've missed a credible economist saying they rate Stu's analysis I'm sure I'll be shown it.Anyway, after taking a few swipes at my shins he then returns to the GERS analysisHold on a minute:? I thoughtIf my analysis is "total nonsense" then so must this "beyond doubt" conclusion be.But let's focus on the positive: we can agree that it's beyond doubt that an independent Scotland would start off running a deficit. We can I think also agree that he's demonstrated (again) that he hasn't grasped the concept of the deficit- what we'd have to close for our economy not to be worse off than we have now by pooling & sharing within the UK. According to GERS the scale of the, the amount worse than the rest of the UK that Scotland's deficit would be, is £9bn. Stu has helped us see (via the Cuthberts' work) that GERS is as likely to be generous to Scotland as not (particularly given the corporation tax assumption). He hasn't suggested any better figures and he's tacitly accepted that the GERS figures are now fair. If I was asked to put an error bound on the figures I would suggest +/-£0.5bn would be more than adequate - I don't think even in his wildest fantasy Wings is going to suggest that the figures are out by £9bn. So we have a big deficit gap to address - that too is surely "beyond much doubt".Then something really important happens. Wings is no longer saying we subsidise the UK and that the simple act of separation would make us better off. He's finally allowed the drip drip drip of persistently, accurately presented data to win him round. He starts to talk about the exceptional tax rises and cost cuts that an independent Scotland might be able to undertake. Remember; when he referred to my conclusion saying this was required he said it was "total nonsense" - now he's starting to list ways it might be achieved. Why bother if it's not necessary?So what does he suggest? I'll warn you now this is not a very exciting list, but what it does show is a tacit acceptance that some way has to be found to fill the deficit gap that we'd be exposed toHe starts with "close tax loopholes" – every political party manifesto ever written include this idea, because politically it's free money. Quite why an independent Scotland should be able to achieve this when successive Westminster governments have failed is never explained. If this is what you want I'm pretty sure it was writ large in the Labour manifesto - it has nothing to do with independence.He then talks about "expanding the tax base" - this is what’s otherwise called growing the economy. I’ve covered that in some detail ( We Need to Talk About Growth ), but at it's simplest we’d require 12% growththe rest of the UK to close the gap through growth alone. The White paper provided an illustration suggesting cumulatively 3.8% superior growth over 30 years might be a realistic "independence dividend". There are plenty of arguments (currency, trade) that suggest we may not experience superior growth - but even at that optimistic rate it would take us over 100 years to close the gap. That's a long time during which we'd have to find other ways to fund our exceptional deficit.He then bungs in a few “tax the rich” ideas – he doesn't attempt to scale them (because the examples given are pretty marginal) but it’s a positive step, it's an admission that we’d have to tax the wealthy more (not an admission you'll have heard during the indyref and certainly not something you'd have found anywhere in the White Paper). In fact, when you look at the numbers closely, the reality is that to make any dent on the £9bn you'd need to tax the middle classes more - but Stu's not got there yet.So that's it on tax - now for the cost side (which we know is where the real issues lie).He starts with defence, without actually suggesting a saving figure. Our total allocated defence spend is £3bn and that puts us pretty much bang on the 2.0% of GDP that NATO members are meant to target. It's not clear how much Stu is suggesting we cut the budget by - there are of course jobs associated with defence, we have fishing waters to protect and if we want to remain in NATO there are commitments we'd have to make. The White Paper suggested £0.5bn was realistic (a figure many have challenged). But I applaud Stu for being bold enough to admit one way we'd be able to close the gap would be to get rid of defence expenditure (and defence jobs). Given our total allocated defence spend is £3bn, it is of course obvious that scrappingdefence expenditure would only close a third of the deficit gap (and I don'tthat's what he's suggesting).He make a quick nod to “fat subsidies” for nuclear - but neglects to specify the annual cost of these to Scotland (it's not big) or to note that over 30% of Scotland's current power generating capacity is nuclear (and I'm pretty sure we wouldn't be a net energy exporter without it).So he's not really found much. But I applaud the fact that he is tacitly accepting that those arguing the case for independence need to start finding tax increases or cost cuts (relative to our current GERS figures) if they are to explain how our economy would function without the benefits of UK-wide pooling and sharing.He moves to a close with a typical Nationalist flourishThis is back to the old debate of what is meant by “somebody else” – I see people in Birmingham, Liverpool or London as no more “somebody else” than people in Aberdeen, Glasgow or Shetland. Of course Stu (famously in Bath) clearly thinks differently. People like Stu appear wedded to the belief that Scots are innately superior decision makers and better, more worthy and dependable politicians. The very idea that "our own" priorities could be those of "us" the United Kingdom is anathema to Stu. No amount of economic logic - however compelling or persistently and patiently explained - will ever change that I fear.Then he finishes with a paragraph which is in fact completely at odds with the content of the peiceI presume he's suggesting that I have implied that goal is an "economic fantasy". I certainly haven't. All I've done is repeatedly pointed out that you would need to make changes compared to our current "in Union" GERS accounts that would add up to £9bn pa if the act of separation is not to make us worse off. I simply ask - and will keep asking - where will that £9bn come from?As for the "flawed and fundamentally irrelevant content of GERS" - well that's just a daft statement. He's shown that GERS is the best data we've got and that the specific complaints he lists are outdated. He himself uses GERS data to conclude we'd need to find more tax money or further cost savings (even if he still hasn't understood the difference between a deficit and the deficitbetween us and the rest of the UK).I see on Twitter that he's been saying that the Wee Blue Book is his "economic case" and that it only mentions GERS once. Firstly it's not an economic case - it doesn't even pretend to attempt to add up to an economic case. I don't think Stu knows what an economic case is. Secondly, it may only mention GERS directly once but almost every figure in the economics section is derived from GERS, even if he's not bothered to work out where the sources (he's normally quoting out of context) get their data from.Enough: it's a shame Stu hasn't bothered to correct any of the errors in his Wee Blue Book, it's a shame that his attempt to critique my work has been so lacking in understanding. But let's look on the bright side: he's actually not disputed my analysis (insofar as he's managed to understand it) but has instead gone for the "GERS bad" argument - which is just silly - and the "it will all change anyway" argument - which if he bothered to read what I write he'd know I agree with. I just keep asking the question: what will change versus the "in Union" status quo represented by GERS and where will the £9bn (that we'd need to not be worse off) come from?He's even shown the first signs of starting to think about what would need to change to close that deficit gap. He's a long way from comprehending the scale of the challenge - but he's making progress and for that I can only applaud him.My attention has been drawn to this quote from "the Cuthberts" in 2012. It seems there's a reason all Wings quotes from them predate that point - because in 2012 they nailed their colours firmly to the mast: economic data for Scotland was "now clear" by reference to GERS (when they could find favourable stats to cherry-pick):Funny that.