The annual GERS report has been released and interested parties continue to analyse, pick apart and spin the numbers as required.
You can read the report and download all of the data tables here.
The headline figures show not too much in the way of surprises. The trends that have been developing for some years now are becoming established.
Scotland's Gross Domestic Product continues to increase though as noted in a recent well received TED talk, Nicola Sturgeon stated a desire to begin deemphasising GDP as a metric of economic success. I would like to see a whole-hearted attempt to quantify our economy by wellbeing metrics but until that is the case then I think the next step would be for future GERS reports to start to include not just GDP but also Gross National Income as well. The first refers to the value of stuff created in Scotland by any company whereas the latter refers to the value of stuff created by Scottish companies wherever they may be in the world. If GDP is higher than GNI then it indicates that value is flowing from Scotland to companies based outside of Scotland. A report in CommonSpace indicated that this scenario is indeed the case and that in 2017 £9.2 billion left Scotland in this manner. I would like to know how that figure has changed since then.
Scottish oil revenue is basically unchanged at £1.4 billion but total revenue has increased by almost £2 billion. Scotland economy is strengthening with income tax, national insurance and VAT revenue making up the bulk of the increase. 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 more volatile commodity blips.
Scotland's net fiscal deficit has reduced from £13.7 billion in 2017-18 to £12.6 billion in 2018-19 whilst the UK's fiscal deficit has reduced from £41.8 billion to £23.5 billion.
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.
he reason for this can be seen in the trends tracked by the ONS's annual Country and Region Fiscal Balance tables. We'll have to wait till next summer for this year's detailed figures including "GERS-like" fiscal balances for Wales, Northern Ireland and the regions of England but we have seen over previous years that the "Pooling and Sharing" of the UK's economy into London and the South East has resulted in increasing notional budget surpluses for those regions at the expense of virtually everywhere else (including the rest of England).
The Financial Crisis a decade ago was a pivotal moment in the UK and has evidently resulted in a fundamental reshaping of the UK economy to cause this pooling in the South East. The lack of investment outside of London as well as outright wealth extraction towards the capital has been identified as a major driver of this regional unbalancing. It is not just Scotland that feels hard done by in this environment. I suspect that a great deal of the unrest in England which is manifesting itself in Brexit is being driven by similar feelings of alienation and abandonment by Westminster.
Scotland's onshore economy may be strengthening but the wealth and income inequalities of the UK are still very apparent in the GERS figures.
If the UK's economy, income and wealth was perfectly evenly spread around the country and Scotland's revenue for each tax was equal to a population share of the UK's then we'd bring in around £2.9 billion extra in income tax, £710 million in corporation tax, £356 million in capital gains and an extra £156 million in inheritance tax. Curiously, we'd bring in around £300 million LESS in VAT which probably goes to show that just because someone has one hundred times the wage that I get doesn't necessarily mean that they buy one hundred times as much stuff as I do. The total "revenue gap" for Scotland by this measure is £2.5 billion - down from last year's £2.9 billion but still within the bounds of a downwards trend set in the past few years.
Expenditure is more complex with around £9 billion being spent in Scotland more than our "population share" of UK expenditure. Some items like defence, debt interest and foreign consular services are already assigned as population share in GERS and would be the items most likely to change upon independence (see my paper Beyond GERS for the reasons why). Austerity's claws appear here too with expenditure steadily decreasing when expressed as a percentage of GDP in both Scotland and the UK although in the latter case the falls are much more pronounced. The current EU average for public spending is about 44% of GDP. The UK is falling behind and a fragile economy and vulnerable population is the price being paid for that.
Speaking of population, the impact of Brexit is becoming apparent even before we have left the EU. Scotland and the UK's population continue to increase but that rate of increase has fallen sharply in the past few years. Since the EU referendum, population grown in Scotland has dropped by three fifths from 0.5% in 2015-16 to 0.18% in 2018-19.
The vast majority of this drop will be due to changes in immigration and emigration. Earlier this year, I noted that ONS migration statistics implied that the EU referendum coincided with an abrupt increase in the number of EU citizens leaving the UK and an abrupt drop in the number of EU citizens entering the UK. Extrapolating from pre-referendum trends I estimate that more than one million people have either left the UK or have chosen not to enter the UK since the EU referendum. Organisations like EU Citizens for an Independent Scotland have told numerous stories of people leaving (even to the point of their own organisational structure being disrupted by these departures) and Brexit is by far the most cited reason.
Scotland will be deeply affected by this for generations to come. Our aging population and dropping birth rates will require inward migration to maintain our workforce - assuming we don't want to follow UK Tory proposals of working till we're 75 or dead - and to maintain the current ratio of workers to pensioners even without changing migration rates we're going to have to a maintain population growth rate of around 1.5% per year for the next 25 years. This simply cannot be done within the UK where the goal is to reduce immigration to the "tens of thousands". Scotland will need at least 100,000 new workers every year on top of present migration and birth rates. We could soak that entire quota ourselves and still need more.
One final line in GERS unlikely to get much attention is one that I've mentioned in previous years' analysis. The bill for PFI and NPD payments in Scotland broke the £1 billion per year mark last year and has increased again to almost £1.3 billion in the latest year. It is expected that this sum will continue to rise throughout the next decade before gradually tapering off. I'm still not convinced that Scotland has done everything it can to minimise these payments and it certainly hasn't done enough to replace them with a better system (NPD is only marginally better than PFI and carries many of the same risks). The Scottish Government is now examining plans to launch a Scottish National Infrastructure Company to compliment the Scottish National Investment Bank and to find a much more sustainable way to develop public infrastructure but I hope that it will launch these bodies as quickly as it can.
I detect a note this year that GERS isn't perhaps the touchstone that 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 may 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 that discussion starts to appear ever more irrelevant to the real problems facing the Scottish economy, budget and people. Oh well. Till next year!