Enough with Racket Science

Yesterday, my normally chatty barista went all quiet when one of my coffee buddies brought the chat around to independence by speculating on the White Paper due out this coming week. When prodded, she looked awkward, but blurted out “What with all these deadbeats on benefits and students not paying fees, we couldn’t afford it.”

But it set me to thinking: with all this barrage of misinformation across the media, why wouldn’t it look like a bad deal? Back in March, the Daily Record was wringing its hands at a “huge drop” in North Sea oil tax, quoting Michael Moore in furrowed-brow mode:

“There is a gulf between those independent OBR figures and the hugely optimistic numbers published by the Scottish Government last week.”

Last week, the Institute of Fiscal Studies published their Briefing Note 135 “Scottish Independence: the Fiscal Context” As with so many such papers, Better Together fell over themselves using it as evidence that more taxes or less services would be inevitable while Blair Jenkins declined to meet it head-on, saying only:

“Only a yes vote can put in place the economic levers to produce policies best suited to the needs and aspirations of our people.”

Enough with this racket science where one side tries to drown out the other. It’s the reason one in three Scots remain undecided on this vital matter. Most are clamouring for some information they can trust to help them decide under which choice they or their family will prosper better and life will be the rosier.

Let’s de-fang some of the numbers and maybe opposing arguments will make more sense. The Office of Budget Responsibility (OBR) is the UK’s attempt to provide independent commentary on government finance, especially its projections. The 40-year-old IFS is “Britain’s leading independent microeconomic research institute, and as authoritative commentators on the public finances, tax and welfare policy“. As both are London-based, expecting 100% objectivity may be asking a great deal. Nonetheless their analysis is by professionals and pivotal questions thrown up deserve reasoned answers and not just more boo-sucks racket.

OBR projections in March for tax revenues collected within Scotland to drop were described as “disastrous”. But examining the numbers and taking (as OBR does) UK Treasury projections as reliable, this means (for example) UK income tax take will dip below £144bn this year but then rise rapidly to £188bn in 2017-18. Income tax take in Scotland is proportionally far lower—around £4.46bn this year, rising to £5.54bn by 2017-18. This is lagging UK growth in tax take by over 5% and was seen as an example of how staying in the UK would benefit Scotland.

However, what was not said was the comparison with Scotland’s settlement, already projected over a similar period to drop from £30.6bn to £27.2bn—a 10.9% reduction. Put another way, Scotland staying in the Union means that the UK Government will get around £0.28bn less in income tax from Scotland than it might expect from a similar-sized chunk of England—but it will save £3.2bn in the basic devolution grant to the Scots. Sweet.

This newer IFS analysis is full of statistics, most of which seem correct. They (rightly) detail that money spent is £11,801 per head in Scotland but some £1,200 lower in England at £10,630 (2010-11 figures) and point to the following as main differences:

  • enterprise and economic development (£157 per person vs £80 per person);
  • agriculture, fisheries and forestry (£184 vs £84);
  • transport (£521 vs £345);
  • housing and community amenities (£340 vs £206);
  • recreation, culture and religion (£301 vs £209).

The second and third points are easily explained in that each Scot has 30 times as much geography (and most of it rugged) as compared to England. That takes care of 1/4 of the difference right there. But it is when we examine the contribution made that the balance is seen to be fully compensated for. Like the UK government, IFS are coy when it comes to allocating oil tax revenues—arguing they might be allocated on several bases, such per-head—and lump them into a third ‘region’ neither Scotland nor England but ‘offshore’.

But the only legally tenable solution (and that used globally for the allocation of maritime resources) is geographic, with Scotland owning 80.4% of the oil and gas resources in UK waters. On this basis, even the IFS accept that Scotland pays more than its share:

Revenue Income to UK Government

Income to UK Government from Scotland

So, even the IFS (when pushed) accepts that Scotland contributes more than it costs. But, while it may provide accurate figures and manipulate them accurately, the IFS paper makes several major assumptions that seem like suspicious attempts to undermine independence and echo unionist arguments of the fiscal dangers of not being in the UK.

  1. Oil Price. We are forever hearing how volatile the price of oil is. But not one oil economy is poorer than Scotland.  Norway has even managed to amass a £300bn oil fund in the past, so it could not have been all bad. Moreover, examine oil prices and we see spikes in the seventies and in 2007/8 but the other 90% of the time has seen a steady rise from $15 to $110 per barrel, which means what is still to be pumped will be worth a lot more than what has already been extracted. Recent private announcements of £4bn investments in exploration confirm a solid future for decades.
  2. Policy Inertia. Nothing in the IFS paper allows for any change of policy from that laid out by Cameron and Osborne for the UK. Leave aside whether they still call the shots post-2015. Their UK-based vision sidesteps much of the fiscal advantage independence offers. On defence alone, Scotland could save £1.5bn annually—£300 per head. Even policies already devolved offer relatively easy savings (free concessions, eye tests, prescriptions could re-inject £1bn into the coffers if repealed)
  3. Public Debt. From modest levels when Prudence was alive and well, Tories and Labour alike have saddled us with massive public debt—currently £1.2tn and growing at £8bn each month. The Scottish share of that will have grown to £120bn before we can achieve independence. It would take £2.5bn to service that and start paying it back. The good news is that’s achievable by oil revenues and defence savings alone (see above). The UK will not find it so easy repaying £30bn annual interest, especially if they don’t keep the Scots within sterling zone and the UK£ is no longer an oil currency.

So, neither the OBR nor the IFS should be seen as enemies just because they’re used by desperate unionists in their racket science. Once understood, their papers fuel the arguments that independence could provide an enlightened Scotland with fiscal wriggle room to re-think modern tax policies—drop Corporation Tax, get heavy with rich exiles, re-think land ownership and support growing industries for the future like renewables, food and drink (esp whisky), specialist engineering (esp marine and computer games), tourism and even bulk water export.

If a fraction of all that were to succeed, 10,000 jobs with a future are neither pipe-dreams nor insignificant in our much smaller workforce. Quite apart from a positive effect on tax take, this would have significant knock-on in service industries, retail turnover, property values and balance of payments. And if this seems to be fueled by optimism, it needs far less optimism than Osborne’s shaky recovery that seems too dependent on consumer debt and London property values than any significant boom in real industry or export.

Or are we so fixated on the UK’s own admittedly scary numbers that we’ve forgotten how gallus we could be in going out and creating ones that suit us and our ambitions better?

IFS: Scottish independence: the fiscal context (P. Johnson & D. Phillips) Nov 2012 BN135—ISBN: 978-1-903274-96-5
OBR: Economic and fiscal outlook—Scottish tax forecasts March 2013—ISBN 978-1-909096-74-5

About davidsberry

Local councillor, tour guide and database designer. Keen on wildlife, history, boats and music. Stood for the Scottish Parliament 2011; lost by 151 votes.
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