Professor Jim Gallagher: It's GERS time again

It's GERS time again. Every year, once a year, the Scottish Government's own economists and statisticians tell us just how vast the hole is in their ministers’ prize policy of independence. This year GERS will tell us about what was supposed to be the first year of independence, 2016-17.

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GERS tells the story of Scotland's public finances. The big picture is how much we raise in tax, and how much we spend on public services. And crucially, how big is the gap between them.

It's a very big gap indeed, and it won't get much smaller when the new numbers are released. Last year it was over 10 per cent of Scotland's GDP, more than twice the deficit for the UK as a whole. Time was, that hole might have been filled by North Sea taxes. Not any more. Oil revenues have been near enough zero for some years now, and aren't coming back. This year the UK deficit will have gone down slightly, but Scotland’s will still be bigger.

It's important to understand why there is such a big gap. It's not mainly because Scottish tax revenues are very low. They’re over 90 per cent of the UK average – much better than Wales, Northern Ireland or the North of England, and a pretty creditable performance when you remember how much tax is generated in London and the south-east. That only accounts for a bit less than quarter of Scotland's extra borrowing.

Instead it's mostly about public spending. Scotland is quite a rich country, but it has the public spending levels of a much richer one. Spending is about £1200 more each year per person in Scotland. That's about £6 billion a year, and simply couldn't be afforded from Scottish resources alone. Maybe we could make up some of it by increasing taxes, it's about half as much as we raise in income tax, and tax rises as big as that simply aren't going to happen.

So GERS gives a clear answer to one question: anyone who says independence is the route to ending austerity by increasing public spending is either deluded or lying. Back in the day, the SNP's independence White Paper skirted round this question by only looking at one year and making some heroic assumptions about how well things would go then. The year in question was 2016-17, and we will see shortly exactly how overoptimistic they were.

What do we spend this extra money on, and what do we get for it?

The first one’s surprisingly easy to answer. It's not on things like defence, where the bill is simply allocated equally across the whole country. Nor is it largely on extra pensions and benefits for the less well-off. These are all paid by the UK government, at levels they decide. The Scottish government hasn't made use of any of its powers to spend more to make up for benefit cuts, nor has it increased payments to poorer people. So we get UK benefits and a bit more than average spending because of population needs.

Most of the extra spending is in the budget of the Scottish Parliament. It's surprising just how much more per head we spend than England on these services. Over 25 per cent. That's right, a quarter more for every Scot than for the someone in England. You won’t have seen that number before. It's been true for a long time, but it's one Scottish governments tend to play down. We’ll probably be told in GERS, for example, that spending Scotland is 11 per cent higher than the UK average. Quite right, but that includes things like defence and pensions where spend is average, and compares us with the UK. Compare Holyrood spending with England’s and the number’s much starker.

So where does this extra quarter go? Most people might immediately think hospitals and schools. Well, not quite. Health spending is only about seven per cent ahead of England. That's a bit of a surprise. 10 years ago, when the SNP came into power, it was 16 per cent.  Education spending is 12 per cent higher. That’s grown relatively in recent years but little of that growth is on schools or colleges.  Scotland spends nearly twice as much on university education, rather than charge fees like England.  Instead the extra spending is spread around other public services. Some inevitably have to be higher, like transport, in others policy choices have been made by ministers – like making things free.

What does Scotland get out of all this extra investment? Surely our public services should be markedly better than England’s? After all, if we spend a quarter more, surely we should get a quarter more for it?

Again, not quite. We get some things free that people in England have to pay for – personal care for the elderly and student fees, but they don't account for most of the gap.

Are we healthier than England from spending seven per cent more on the NHS? No sign of that, but maybe underlying health problems or behaviour differences matter more, and suggest health should be a higher priority. Are our children better educated? Maybe once upon a time, but our schools now seem to be falling behind rather than accelerating ahead. And it’s not as if our students are graduating with less debt because they pay no fees. The poorest of them are even more indebted than those in England.

As for the rest, the truth that for the most part we don't know how well we are doing because it’s taboo in St Andrew's house to compare our performance with England's.

So when the GERS data are published tomorrow, they will tell us something everyone already knows – by being part of the UK, Scotland gets a very good deal indeed in public spending terms. But they should make us ask this question of the Scottish government and Parliament – where you putting this extra money, why, and what are you getting for it?  Perhaps if they focused on that we'd all feel 25 per cent better served.

By Professor Jim Gallagher

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