'Certainty' independent Scotland's deficit lower than GERS suggests

Professor John Doyle of Dublin City University last year ­concluded the ­fiscal gap on day one of an ­independent Wales would be a ­“fraction” of what has previously been assumed based on data from the Office for National Statistics (ONS), after being commissioned to do ­research by Plaid Cymru.

The National reported earlier this month how Scottish economist Robin Thompson applied Doyle’s methodology to Government Expenditure and Revenue Scotland (GERS) figures – an estimate of the difference between what Scotland raises via taxation and what is spent on its public services – and drew a similar conclusion for an independent Scotland.

READ MORE: 'Urban myth' GERS figures debunked by Scottish economist's research

Thompson suggested that based on GERS figures for 2018/19 – which said Scotland had a deficit of £12.6 billion – an independent Scotland could actually walk into a surplus of £2.7bn, assuming it did not inherit costs such as liability for pensions or a share of UK debt.

Even in what Thompson regarded as the “worst-case scenario” – where Scotland had to pay 100% of ­pension costs – he concluded the deficit would still only be £6.3bn or 3.4% of GDP. Crucially, GERS figures only represent what Scotland’s economic situation is as part of the UK and give no indication of what an independent Scotland would absorb.

Yet, it often forms the basis of the Unionist argument that Scotland would not be able to cope financially outside of the UK because there is no other figure out there to draw upon.

READ MORE: Deficit in independent Wales would be ‘fraction’ of UK estimates, Dublin City University study finds

But Doyle has now confirmed his methodology “by and large” could be applied to GERS figures and he is ­certain this would prove the deficit on day one of an independent ­Scotland would be considerably less than what it is as part of the Union.

Doyle, who has previously worked on the fiscal outlook for Northern ­Ireland if Ireland were to reunify, said: “It is an absolute certainty the deficit would be much smaller – the only open question is by how much.

“In terms of what I’ve done in Northern Ireland and Wales, ­drawing on the ONS data, overwhelmingly that’s equivalent to what GERS is ­doing and the big issues of principle are identical. Neither the ONS nor the economists asked to produce GERS data were asked to estimate the fiscal position of an independent Scotland or Wales.

“But yet, there is no other ­figure, so journalists looking for a one ­sentence line as to what it would cost in year one of a united Ireland or an ­independent Wales [or Scotland], they just use it.

“By and large, the methodology is broadly applicable because it’s asking the same questions – would you on day one of an independent Scotland be paying the pensions of those who had paid in to pension contributions, with that money in essence treated by the Treasury as taxation over the years? Would you be liable for a share of UK debt? Would you have a ­nuclear deterrence in proportion to the UK nuclear deterrence, and other things around how tax and ­expenditure is calculated.

“The issues are identical in ­Scotland as it would be in the case of Ireland or Wales.”

Yessers have long campaigned for alternative GERS figures to be ­produced to better indicate what ­fiscal situation an independent ­Scotland could expect to walk into, but these have never materialised despite pledges from former finance secretary Derek Mackay and his ­successor Kate Forbes (below).

Doyle did, however, stress ­working out what an independent ­Scotland would inherit through his ­methodology would be complicated by political moves made around the 2014 independence referendum.

Due to the fact the Scottish ­Government pledged to pay the UK Government money every year to cover the cost of debt and pensions in the event Scotland became independent, Doyle suggested this may be why no one has been commissioned to do work similar to his.

He said: “I think because there was a referendum in Scotland, unlike in Wales or Ireland, and because the Scottish Government took a ­political point of view that they would, in ­effect, continue to pay to the rest of the UK a sum every year to cover the cost of pensions and debt, that makes it a little more awkward.

“I’m not surprised there isn’t a ­political pressure to do so [produce alternative GERS figures] because I think in some ways politically it would be seen as unpicking ­something that was said in 2014.

“I can see how even if people had second thoughts about making that offer in 2014, to retract it now is ­politically complicated.

“In Ireland, the biggest criticism of my paper particularly from commentators with a Unionist background was ‘well this is nonsense because Scotland agreed to pay’.”

But putting aside the 2014 context, there is no question that Scotland would have no legal responsibility to pay a share of the UK’s debt, which was recognised by the ­Treasury in 2014.

READ MORE: GERS figures can’t be cancelled, but they can be changed. Here's how

With regards to pension ­liability, Doyle said that while the courts would never force the UK ­Government to pay Scots their pensions if Scotland left the Union, he said there is a strong case to be made that it would for political reasons.

“Politically it would be difficult not to [pay],” he said.

“You could imagine the ­newspaper headlines of veterans being refused their pension or nurses. I could ­imagine the TUC [Trades Union ­Congress] would have a strong point of view not because of their ­perspective on Welsh or Scottish ­independence, but if a government can create a ­political precedent that we’re not going to pay employment-related state pensions for a whole category of people, even though they’ve paid into the UK Treasury because they now happen to live in Scotland, they’re not getting their pension, I think that would lead to a large scale pressure from English trade unions.

“I think those two big ticket items of debt and pension, the ­technical ­debate about whether they are ­absolute liabilities, is the same in Wales and Scotland even though I ­accept the Scottish Government took a view that they would offer to pay a contribution.”

Doyle added he did not believe an independent Scotland’s defence ­expenditure would come close to what is allocated to it today from ­being part of the UK, and so this would presumably reduce the fiscal deficit it inherited.

Thompson argued producing ­alternative GERS figures would be the key to convincing undecided voters to believe in Scottish independence and Doyle agreed that, even from across the Irish Sea, it was clear the economy was what spooked many Scots in 2014.

He added: “I think almost ­everyone agrees that it wasn’t any ­ideological ­objection to Scottish unity, it was about the practicalities around ­Scottish independence – the ­economy, pensions and currency – they were the difference between winning a referendum by a couple of percentage points and losing I think.”

In the wake of Doyle’s research concluding an independent Wales would only inherit a deficit of £2.6bn compared to the £13.5bn quoted from the ONS, Plaid Cymru leader Adam Price said the work “debunked” the argument that Wales is too poor to be independent.

Doyle said he hopes his work can now inspire someone in Scottish ­academia to draw up alternative GERS figures.

He said: “Hopefully it [keeps getting] a bit more traction and inspires someone from the Scottish academy to step up and have a go at it.”