The affordability of independence

 Posted by Euan Bennet on 19/09/2013

This appears to be one of the central concerns people have about the prospect of independence. Can we afford it? Even though it seems self-evident to those of us who have already chosen to engage in politics and find out about the figures, there are still many people who are unaware of the true wealth of Scotland. It is important for those of us campaigning for a Yes vote next year that we provide truthful and accurate figures to the people who have still to make their minds up. Here we will tackle the two figures that are most commonly used by the media: Public spending and GDP.

Revenue and Expenditure

The figure that will be most familiar to people, because Unionist politicians and the media mention it quite a lot, is that public spending per head per year is £1200 per head higher than the UK average. See for example Tuesday evening’s Newsnight debate; skip to 2min30s for the beginning of the debate, or go to 4min25s to see Margaret Curran deploying this very argument as an apparent great benefit of the Union.

Understandably, people might hear the £1200 per head per year figure and get a bit concerned about the sustainability of such spending. It is a factually accurate statement to make however, although it is extremely disingenuous to present out of context. The context being that there are two sides to every balance sheet.

Tax revenue identified as coming from Scotland (and we will return to the theme of identifiability in the future I am sure) is £1700 per head per year higher than the UK average. As neatly demonstrated by Wings over Scotland, these figures from 2010-2011 coincide nicely with a recent opinion poll which claimed that a majority of people would vote Yes if they thought it would make them £500 better off each year.

In fact, the most recent figures show Scotland in an even stronger relative position than that. The Government Expenditure Review Scotland figures (GERS) are accepted by both campaigns, and for 2011-12 showed that Scotland contributed 9.9% of UK revenues with only 8.3% of UK population, and in return 9.3% of UK spending was identified as being spent in Scotland, or on our behalf. We shall probably return to what “spending on our behalf” means at a later date.

If Scotland had received 9.9% of UK spending, in proportion to our contribution to revenues, then in absolute terms around £4.4 billion more would have been spent in Scotland in that year. Or to put it another way, Scotland subsidises the UK to the tune of £4.4 billion every year. Just imagine what we could do with that money. We could spend it on something, save it, or elect to borrow less, or a combination of all three. To put it into context, the entire health service in Scotland cost £11billion. So more than a third of the cost of the health service goes to the UK treasury every year and is never seen again. And in exchange we get debt accrued in our name, and then more interest charged to that debt than our fair share.

GDP

Revenue and expenditure is only one part of the story when it comes to general finances – another figure that is commonly bandied around is Gross Domestic Product (GDP). Rightly or wrongly, this is normally used as a measure for comparing the relative wealth of nations, both to each other and to themselves over time.

What does GERS have to say about GDP?

  • Scottish GDP with oil (2011-12) = £151bn.
    • For a population of 5.3m = £28,500 per head.
  • UK GDP (with oil) (2011-12) = £1526bn
    • For a population of 62.65m = £24,350 per head

With oil Scottish GDP per head is 18% higher than UK GDP/head.

  • WITHOUT oil Scottish GDP = £125bn = £23,550 per head.
  • Without oil UK GDP = £1495bn = £23,900 per head

Without oil Scottish GDP per head is 99% of the UK level.

Hat-tip to Ivan McKee of the excellent Business for Scotland for compiling that list.

The GDP figures make it clear that discounting oil, Scotland would not be very different to the UK. The oil and gas should therefore be viewed as a bonus, rather than the basis for our entire economy. As page 59 of this report shows, revenues from oil and gas consistently make up less than 20% of all tax revenue collected in Scotland, and our economy is far more diverse than people realise. That diversity is a great strength, and is another topic that deserves an entire post dedicated to it.

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9 thoughts on “The affordability of independence

  1. Teuchter

    Thanks for further confirmation of these figures. These need to be plastered on oversized billboards at least to make ourselves feel a little bit more confident about ourselves and to encourage further productivity and success.

    When the figures are used, it’s quite clear Scotland pays it’s way and in theory would be better off financially by Independence. However, my big concern is the general bickering nature of the Scottish establishment, and dare i say it, among Scottish people. There is a lot of negativity and passive aggression in this country that i would be concerned about if we were to left to our own devices.

    If you look back to era of the Scottish clan system, the general picture i get is not one of romance, but of a bickering and backstabbing culture culminating in events like the Glencoe Massacre. You could take your pick from more modern examples of Scottish projects that have gone belly up due to dysfunctional politicians, councillors or other authorities. The Edinburgh Trams being a great one and of course the Scottish Parliament itself (both the building and the standard of the debates). Recent developments in Scottish football have also been another torturous experience. The refusal of those involved to accept any sort of responsibility opting instead to blame others, doesn’t fill me me with optimism on whether we can learn lessons and work constructively with one another in the future.

    I’m not saying the rest of the UK doesn’t have these problems, but i suspect tensions may be diluted because of the Union. Of course, i also see the argument that our association with England may also be the catalyst for many of our internal disagreements, where politicians are concerned anyway.

    So my concern is not that Scotland has the financial means to be independent, as it appears to be a myth that we are a drain on UK resources. My concern is centred more around how functional we can be as a smaller group in control of absolutely everything.

    My first choice for re-organisation of the British Isles, would be a direct partnership between Scotland and England. I enjoy most things about our union with England and don’t see any reason at the moment to change things. I’m much less enthusiastic about our partnership with Wales and Northern Ireland, due to financial reasons, the politics and a lack of any real connection i feel for these countries. This has nothing to do with individuals or people in these countries. In terms of a re-organisation for the UK, Scotland plus England, is just my preference as a productive and enjoyable partnership between countries.

    Since this doesn’t seem to be on the agenda, my next preference would be to use the financial figures available to Scotland and the other members of the UK, to re-negotiate the terms of the Union. This would involve a fairer distribution of spending depending on the productivity of each country. Basically the more each country contributes to UK tax revenues, the more it would receive back in government spending and investment. This would be a gradual process, giving each country time to adjust and prepare. This would allow Scotland to reap the same benefits it is proposing through Independence. But the main idea would be to build a more harmonious and productive United Kingdom which incentivised people to work better with one another in there own country. I see this as the fairer option for the UK as a whole.

    My third choice, i haven’t decided upon yet, as this would appear to involve making the choice for Independence or staying in the Union on the terms as they are at the moment.

    Reply
    1. juanbonnets Post author

      Hi Teuchter, thanks for taking the time to comment.

      I think on looking at the accumulated evidence of the past 14 years, the achievements of the restored Scottish Parliament show what progressive gains can be made with even limited powers (as has been well documented elsewhere and I hope to write about it in future) – I don’t quite make the connection that with the full powers of the Parliament completed we’d make a mess of it. You said yourself that we should be more confident about ourselves!

      There are areas in which the Scottish Parliament already has full control where we have made good decisions and the results are noticeable compared with the decisions the UK Parliament has made. For example the Scottish NHS is safe in public hands while the NHS in England is being privatised piece by piece. Or students living in Scotland can attend university without paying fees, while students from England have to pay £9,000 a year.

      Whichever Parliament is in charge of things, they are human institutions run by humans, meaning they will never be perfect and mistakes will be made. However, if we were to compare the biggest mistakes (in terms of cost in money or any other measure) of Holyrood and Westminster there would be a clear winner – and not just because of a difference in powers! The recent highlights of Westminster would take up quite a few pages.

      Much of the behaviour of politicians in Scotland in recent years, in terms of in the Parliamentary chamber as well as projects like the Trams, was and is motivated by political posturing. Without getting into it too much, the Trams project was forced through Parliament by the Unionist parties as an act of political sabotage in an attempt to bring down the minority SNP government in its earliest days – a cynical political game the likes of which thankfully they didn’t attempt again, I would argue lessons were learned there (see below). There is a long list of infrastructure projects that have been delivered on time and on or under budget since the trams debacle – the M74 completion and M80 upgrade to name just two from my neck of the woods.

      I won’t even start about Scottish football right now, but I believe that that particular area of our culture has everything to gain and nothing to lose from Scotland becoming independent. I don’t have time to back that up right now, but I might write more about it in future.

      I’m also not sure I follow the logic that being a smaller group in charge of everything will lead to more going wrong. There are plenty of nations of population 5million or fewer that are managing just fine, even thriving – 8 of the top ten European countries by Human Development Index have population less than 10 million, and the UK doesn’t make the list. And you can take your pick from examples of corruption and infighting endemic in the larger UK institutions – MPs expenses for example.

      Regarding politicians being able to work constructively, the evidence I would point you towards would be the entire Parliamentary session from 2007-2011 – the first minority government. The Government implemented more than 90% of their headline manifesto commitments, and the only way they achieved that was by working with the other parties to ensure all legislation was acceptable to as many as possible. With the proportional voting system the governments we elect will accurately reflect the wishes of the electorate while simultaneously meaning it’s easier to kick bad governments out if they mess up. If only we had that luxury for the Westminster Parliament!

      As for your preferred constitutional settlement – I’m afraid it’s down to your third choice next year. The Scottish Government made it very clear that they were happy to have a third option on the ballot paper in the referendum, but that option was closed off by a) the other parties in the Scottish Parliament failing to provide an alternative, and b) Westminster refusing to agree to a second question in the terms of the Edinburgh Agreement. So the question is: will independence or the status quo be closer to what you want to see?

      Reply
      1. Teuchter

        Thanks for the quick and informative reply.

        Admittedly, i’m not well informed on many of the projects you have mentioned. I must be more Scottish than i care to admit and be focusing on the negative publicised projects too much! If these projects have all been successful as you say then obviously this bodes well for Independence.

        Other topics you have mentioned such as NHS privatisation and tuition fees i’ve actually not considered yet as being areas that could win my vote. And personally, they will probably confuse me even more when i do consider them. For example i would be against NHS privatisation but pro tuition fees (paid back over time through employment).

        My point about the dangers of having a smaller population, is only when things go wrong. I take on board ‘human error’ and ‘political posturing’ which i alluded to myself where projects have gone wrong such as the Edinburgh Trams. I’ll admit i don’t delve as deeply into Scottish politics as i probably should and again thanks for highlighting other areas i research before making the vote.

        I’ll obviously have to a look at the financial side of things more closely (as well as the politics) before making any rash decisions! I’m just not sure how important the numbers are for me at the moment especially if we are talking about an extra £500 per year (on average).

        I suppose i just want to live in a fair and productive country without any ‘baggage’. So in answer to your question, i’m not sure the facts and figures will be able to indicate whether Independence will bring me closer what i want or further away. I’ll sleep on it!

  2. Teuchter

    I meant to add, that if we end up a more dysfunctional country fully in charge of our affairs, this may lead the country to a poorer financial position and negate the financial benefits of Independence. I wouldn’t anticipate us going down the route of Ireland for example and requiring a financial bailout. Big lessons have probably been learned by all governments in terms of property bubbles and the banking crisis. But surely we will feel the effects more acutely in a smaller population, if we begin making costly mistakes in the Healthcare system or in the Welfare system for example?

    Also, the more i think about it, the freedom to get out of Scotland without much bother (primarily to England) is such a great option for Scots that feel a bit suffocated with life here or wish to try new surroundings. For me, that option is worth the £500 we’d be better off per head each year by Independence.

    Reply
    1. juanbonnets Post author

      I don’t see any evidence whatsoever that we would end up a more dysfunctional country. Or are you suggesting that uniquely in all the world Scotland would have difficulties that other countries do not have? Bail-outs are not the sole preserve of small countries either – the UK required an IMF bailout in the 70s (before my time but it still serves as a counterexample) while the more prominent recent example would be Greece. Neither circumstance bears any resemblance to Scotland in 2013 either.

      The UK Government is currently repeating past mistakes by re-inflating a property bubble while letting banks away with absolute murder in terms of the lack of regulation that they have. I’d like to think we’d follow the trend set by every other country in Europe in limiting banks. The property bubble is an important part of the South-East England economy which is why it gets so much priority from Westminster. The Scottish economy is far more balanced.

      Where is the evidence that smaller population leads to feeling the effects of costly mistakes? Are you comfortable in the knowledge that the UK has over £1.2 trillion of debt simply because of the larger population? http://www.debtbombshell.com/

      The health service is already independent – and much better than it is in England. Welfare is already more affordable for Scotland than for the UK – figures cited in the original article – so why would it suddenly become unaffordable? Providing a decent healthcare and welfare system for 5 million people is a damn sight cheaper than providing the same for 60 million people.

      As EU citizens, anyone from any EU member state can freely move to any other EU member state. That option does not exist solely because of the Union.

      Reply
  3. Teuchter

    Yes i was suggesting, that due to our genetic makeup as well as our history (especially in our relationship with England) we are divided on a personal and political level. I see division being a major problem in Scotland and this manifesting itself in the workplace and in Parliament. It probably wouldn’t lead to a collapse of the country in a financial terms. I’m more concerned how suffocating an environment Scotland would be to live in if things didn’t move on as productively as we would have hoped.

    My assumption was that Scotland will have to take it’s share of the UK debt if it gets Independence. Also i was making simple observations that if you go £500 million over budget on a project, then the loss shared between 100 million people is felt less keenly than if it was shared between 5 million people.

    I was just using the Healthcare system and Welfare system as arbitrary examples just because they are expensive public sector costs. I am mindful of how bloated public sectors can destroy countries such as Greece, when you get things wrong. I don’t see any issue with the UK systems at the moment which i see Scotland as having inherited by default as being part of the UK.

    Anyway thanks for the exchange of views and you’ve given me a lot of good reading material i’ll be exploring in the future.

    Thanks for reminding me of the EU option for moving about freely. I prefer to live in English speaking places as i’m as lazy with learning languages as i am with reading up on Scottish politics.

    Reply
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