THE annual GERS report has been released and interested parties continue to pick apart and spin the numbers as required.
Scotland’s net fiscal deficit has reduced from £13.7 billion in 2017/18 to £12.6bn in 2018/19 while the UK’s fiscal deficit is down from £41.8bn to £23.5bn.
But the deficit means that Scotland – with 8.19% of the UK’s population – has been assigned 53.7% of the UK’s total deficit. Some folk seeing this will obviously be shocked and will wonder how this can possibly be.
The financial crisis a decade ago was a pivotal moment in the UK and has resulted in a fundamental reshaping of the UK economy, causing post-crash economic investment to essentially be “pooled and shared” in London and the south-east.
They have been running growing budget surpluses. These surpluses are offsetting the overall deficit of England and skewing the slices of the pie assigned elsewhere.
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Scotland’s economy is showing signs of some strengthening. Scottish oil revenue is basically unchanged at £1.4bn but total revenue has increased by almost £2bn with income tax, national insurance and VAT revenue making up the bulk of the rise. This is a good sign as it points to the wages and spending power of ordinary folk increasing rather than the revenue gains being based on volatile commodity price blips.
But if the UK’s economy was perfectly evenly spread around the country and Scotland’s revenue for each tax was equal to a population share of the UK’s revenue then we’d bring in around £2.9bn extra in income tax, £710 million in corporation tax, £356m in capital gains and an extra £156m in inheritance tax. Curiously, we’d bring in around £300m LESS in VAT which probably goes to show that just because someone has 100 times the wage I get, it doesn’t necessarily mean they buy 100 times as much stuff as I do.
The total “revenue gap” for Scotland by this measure is £2.5bn – down from last year’s £2.9bn but still within the bounds of a worsening trend set in the past few years in line with the growing regional disparities.
Speaking of population, the impact of Brexit is becoming apparent even before we have left the EU. Scotland and the UK’s populations continue to increase but that rate of increase has fallen sharply in the past few years. Since the EU referendum, population growth in Scotland has dropped from 0.5% in 2015/16 to 0.18% in 2018/19.
Earlier this year, I noted that UK migration statistics showed a substantial increase in the number of EU citizens leaving the UK since the Brexit vote and an abrupt drop in the number of EU citizens choosing to come to the UK.
Extrapolating pre-referendum trends suggested that around one million people have either left or have not come to the UK.
We know Scotland needs migrants but I think just about everyone has vastly underestimated just how much we do. Assuming we don’t want to follow Iain Duncan Smith’s plan to work until we’re dead and have paid off the mortgage (in that order) we’re going to need to look to migration to rebalance our ageing population.
Even if we stick to UK pension policy (as unjust as it is towards the WASPI women) then to maintain the ratio of workers to pensioners that we currently have in Scotland, we’re going to need a population growth rate of around 1.5% per year.
That’s at least 75,000 new migrant workers in Scotland every year and a total of around one million additional people in Scotland by 2040. This simply cannot be done within the UK framework of reducing migration to the “tens of thousands”. Scotland could take that entire quota alone.
I detect a note this year that GERS isn’t perhaps the touchstone it once was in Scottish politics (though I and the other usual suspects will likely remain as obsessed as we have long been). This may change if another independence referendum campaign manifests over the course of the next year (and the next issue of GERS could be out just weeks before another independence referendum) but it may also continue to change if we start talking more about the weakness and shortfalls of the UK economy.
A reasonable case for Scotland’s regional accounts GERS may be, and a “starting point” for discussions around independence it will remain, but as the UK continues to tear itself apart at the economic seams we – on both sides of the debate – need to start presenting a case for the future.
If the best case for the Union is “this, but more of it” then those advocating for it may want to consider just what kind of a system they are actively endorsing.
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