You can never have too much money …… allegedly

A tale of loose morals and how the rich got richer and the rest of us didn’t.

After the end of World War II, 1945 ushered in a reforming Labour government which effectively set the scene in the UK for the next 25 years.  They introduced the NHS, free at the point of use, and expanded Social Security provisions with the objective of providing a safety net for all families “from the cradle to the grave”.   I know it will be hard for younger readers (ie. anyone under 50) to believe that Labour were once a reforming party, but I can assure you it was once true.  Labour used to be led by people who weren’t as right wing as Tony Blair, who weren’t as foolish as Gordon Brown and who weren’t as plain stupid as Tricky Dicky Leonard.  Really, they were.  Honest, it is actually true.  Would I lie?  Even when the Conservatives replaced Labour, the provisions introduced by Labour were largely retained because there was a general consensus in the country that they were the ‘right thing to do’.

However, step on a few decades and things started to change.  Since Thatcher’s government of the nineteen eighties, the UK has become a different country.  Instead of the production of goods, the emphasis in the UK economy has been changed to concentrate on the creation of money.  Those not concerned in the production of money were often discarded; manufacturing jobs were cut, supposedly to reduce the power of the manufacturing unions, and unemployment rose, funded largely by the newly discovered North Sea oil.  It is interesting to contemplate what Thatcher would have done without North Sea oil.  How could she have funded the changes?  Her need for North Sea oil provides a clear explanation of the reason behind the lies told to Scotland about its value.  If they had been told how much it was worth, the Scots might have wanted some of it for themselves and that would never have done.  Oil was not for the bare-arsed, kilt-wearing lower classes.

The banks were given practically free rein to do what they liked, as long as it generated money; as long as it increased profits.  Banks, whose local branches used to look after Granny’s savings and would lend money to small companies to help them grow, now became addicted to gambling in a big way and it seemed they were good at it as it certainly made their profits, and the bonuses of the gambling employees, grow.  In the United States, the gamble of choice was the subprime mortgage.  These were loans to folks who wanted to buy a house, but who couldn’t really afford one.  So they weren’t such a good credit risk, but the banks quickly found that the more risk you were prepared to take, the more mortgages you could sell, the more money you made and the bigger bonuses you could pay yourself.  In many cases, it was fake money because even more money was produced by moving batches of mortgages around while adding a bit on to the price each time it moved, generating profits for the bank and bonuses for the bankers without really increasing the value of the mortgages.  Of course, though nobody realised at the time or, if they did, they didn’t care, this couldn’t go on for ever.  The goods went round and round the merry-go-round, like a game of pass the parcel, sellers making profits and buyers happy to buy knowing they could sell to someone else at a profit, until the music stopped and the company left holding the parcel had to unwrap it to find out what was in it.  And often they found out that, by the time it reached them, there was nothing left, or at least, nothing to justify what had been paid.  But the fake ‘profits’ made at each stage had been used to justify the huge salaries and bonuses that the money men were able to pay themselves.  To make matters better, for them, but worse, for the rest of us, they would have enough money to afford accountants who would make sure they didn’t have to pay any tax.

The crash was bound to come and when it finally came in 2008, banks all over the world were in trouble, some going bust and many others close to.  What was to be done?  Should the ones who caused the problem and had benefitted from the racket be made to pay or should those with no involvement and no power be made to foot the bill?  As this isn’t a Grimms’ fairy story, I’m sure you can guess the answer.  In one of the biggest transfers of wealth of all time from the poor (the taxpayers) to the rich (the bank executives and shareholders), the government bailed out the banks with our money.  With the exception of one or two sent to the gallows so the government could pretend that it was taking action, those who caused the problem were able to retain their immoral earnings, while those who didn’t, lost out.  The government said at the time that the money used to fund the bailouts would be returned, with interest, when the banks returned to profitability, but we all really knew it was a lie and, indeed, that was the way it turned out.

Handing all this money to the banks left the government a bit short, so they had to come up with ways to increase their income or reduce their outgoings. The option of increasing general taxation to raise extra money was quickly dismissed, bad politics with an election coming up. A windfall tax on bankers’ bonuses was considered, but not implemented before the 2010 election, and there was no way a Conservative government would do such a thing. So again they turned to a soft target, the Social Security system. Changes were introduced to ‘tighten up’ the system, and with the Conservative media ramping up stories about benefit fraud, the Labour government were free to introduce one of the biggest changes, Work Capability Assessments, run from the start by ATOS, a French based private company who set targets for the number of claimants they could screw. Why do Westminster governments always target the weakest and poorest and let the strongest and richest off scot-free? Why did no one in government care about the impact the changes were having on those least able to defend themselves? Why did no one in government care about the number of deaths the changes caused? Though the changes were introduced by Labour, the Tories, who followed in 2010, with the willing assistance of their little yellow LibDem helpers, made things even worse for claimants at the same time as they were dishing out tax cuts to the rich.

The ATOS contract followed the usual government plan of handing taxpayers’ money over to rich companies.  As more and more private companies are brought in to carry out parts of what used to be public sector  functions, more and more of our money is being handed over to multi-national companies owned by rich money men.  Yet more transfers from the poor to the rich.

Unfortunately (for the money men), governments were forced to introduce rules to prevent the bank scam which caused the 2008 crash happening again, so that was the end of that money making scheme.  Something had to be found to replace it, because the money men needed to keep the money rolling in.  They may already have enormous wealth, but it was important to add to that wealth, because you can never have too much.  As things stand, the world’s richest 1% have as much wealth as the rest of the world’s population combined (see Fairtrade Foundation).  Even though they already have more money than they could possibly spend in several lifetimes, they still want more.

But there’s no shortage of inventiveness among rich people in search of further riches, so it wasn’t long before a new scheme was hatched, and this was even better, because nobody would lose, or at least nobody who counted.  It had long been known that betting huge sums on the movement of currencies caused by the outcome of significant political events could produce enormous profits, at least if you were right.  But if you were wrong, you could make an enormous loss, which obviously wasn’t such a good idea.  You certainly didn’t want to get it wrong.  But what if you knew someone who was in a position to influence what was happening, and what if you could strike a deal for them to take an action which would be very likely to produce a beneficial result.  An action that would be likely to minimise or even remove the possibility of making a loss.  Betting on a sure thing?

Who do you think would be in a position to influence what was happening in the political arena?  Could that be a politician?  Could that be the politician in the position of the greatest power, the one being punted by the media?

Before looking at the current situation, let’s think of an event that happened three years ago, the EU referendum.  As the referendum approached, large numbers of hedge funds took short positions, ie. they bet on the outcome being leave.  At the time, the expectation was that remain would win and, as the vote approached, polling data appeared to confirm this view.  Immediately after the polls closed, Nigel Farage, the effective leader of the leave side, appeared to concede defeat for leave and this view was confirmed by YouGov saying that the latest trends were towards remain.  As a result, sterling soared.  However, as we all know, the result was somewhat different.  Sterling tanked and the hedge funds which had bet on sterling falling made huge profits.  Several hedge fund managers have described 24 June, 2016, the day after the referendum, as the most profitable day in their history.

There have been many investigations into what happened that night, but it seems fairly well accepted that the profits made by the hedge funds were the byproduct of the comments made by Farage and other politicians and with the information provided by several polling companies.  Vast profits were made because of an alleged arrangement between the money men and those who had the ability to influence events.

So now let’s think about today and the outcome of the Brexit negotiations.  What immediately strikes you is the similarity between what’s happening now and what happened in the run-up to the referendum.  This time, the main man seems to be Boris Johnson, who is leading the negotiations between the UK and the EU, though his interest in securing a deal seems at least to be in some doubt.  We know (thanks to Carole Cadwalladr) that the hedge funds who were funding Johnson and the Leave campaign have already taken in excess of £8bn of short positions on a no deal Brexit (ie. betting that it’s going to happen).  Interestingly, a large part of the money was placed after the result of the Tory leadership election was announced, the result of which was influenced by these same companies bankrolling Johnson’s leadership bid to the extent of nearly half a million pounds.  Obviously, hedge fund managers must really like Boris Johnson.  They seemed very keen for him to win.  I wonder why.

So if things work out as planned, we will see a few very rich people getting even richer. But what will they do with the money? Maybe they’ll spend some of the money to buy a few more houses? Or a few more cars? Or maybe they’ll give their staff a rise to share out the good fortune? Or will they simply put the money into a bank vault to join the rest of their millions, taking it out of circulation where it won’t do the rest of us any good?  It is estimated, based on information contained in the Panama papers, that, worldwide, the equivalent of about $8 trillion is held in offshore accounts, mainly for tax avoidance purposes.  Of course, the whole Brexit fiasco came about because of the EU plan to crack down on such tax avoidance schemes, which the money men were very keen to avoid, for obvious reasons.

Should we be trying to do something to stop this latest money making scheme from succeeding?  Is there anything that realistically can be done? What do you think?  Suggestions welcomed.

Change is coming – but when?

I remember the days when August was the month of grouse shooting (I am old), when what we thought of at the time as newspapers were full of stories about landed gentry from the south of England coming up to Scotland to see how many they could “bag”, when there was a race to see which restaurant in London would be the first to serve Scottish grouse to their diners.  Oh, the good old days!

Now August is the month of GERS, Government Expenditure and Revenue in Scotland, for those who may still think it has something to do with football (oh,no, not that old joke again).  This is now the month that the BritNat media and politicians look forward to being able to show exactly how wee and how poor Scotland is and how stupid the Scots are for thinking that there is any chance they could survive as an independent nation.

Before we go on, let’s get an old chestnut out of the way.  For those who delight in telling us that GERS are the Scottish Government’s own figures, sure the report is produced by the Scottish Government, but the majority of the data on which the report is based comes from Westminster/Whitehall, so no way is this a Scottish Government report.

Each year, virtually the same figures are produced which show that Scotland only exists thanks to the largesse of the English taxpayer.  Thanks, guys.  Of course this may not be the whole story, or even any part of the story.  We know the report is full of errors, with many figures produced by guesswork, often not very intelligent guesses at that.  For those interested in the figures, have a look at my blog from 2017.  The numbers might be a bit old, but, unfortunately, the basic arguments haven’t aged as much.  For those really interested in the figures, have a look at Richard Murphy’s blog, which gives much more factual information than I ever could.

However, looking at the history of the Scottish deficit, in 2013, the approach of the Scottish independence referendum gave Westminster a bit of a problem.  On one hand, they want to continue to portray Scotland as a basket case which, they believed, would suppress the popularity of independence in Scotland.  On the other hand, Westminster didn’t want to tell the English taxpayer that they were handing vast sums to Scotland, which would certainly encourage the BritNats to demand that they get rid of the burden that they believed Scotland represented.

So what to do?  Obviously believing that Scottish independence was the more pressing problem, Westminster went for Plan A.  But to show that Scotland had a continuing high deficit when the overall UK deficit was starting to reduce has had a surprising side effect.  As you can see from the graph, it has cause the Scottish deficit, as a proportion of the whole UK deficit, to

GERS graph - Scot share of debt
Thanks to Richard Murphy and Wings over Scotland for the graph

increase to the point that it represent close to 60% of the total. In fact, adding the Scottish, Welsh and Northern Irish deficits together, they represent way over 100% of the UK total, meaning that, at least according to these figures, England is in surplus and are subsidising all the rest of the UK.  Thanks, guys.

The total deficit for the UK, excluding England, is £35.5bn (Scotland £12.6bn, Wales £13.7bn, N.Ireland £9.2bn), while the corresponding figure for the UK as a whole is £23.5bn, which implies an England surplus of £12bn. (By the way, no GERE report is produced to show comparative England figures.  I wonder why?).  Of course, when I say an England surplus, I really mean a London and the South East surplus, as the regional figures show that nearly all the other regions in England run deficits as well.  The latest figures, from 2018, show London with a surplus of £34.4bn, the South East £20.4bn, with all other regions in deficit, with the exception of the East, which has a small surplus.  (These are based on the ONS figures, but will be close enough to show the trend).

The report has made people think of a number of questions, apart from the obvious one:

Why does the Scottish Government believe that this load of shite represents anything close to the current financial position in Scotland, even as a part of the UK, never mind as an independent country?

Only the Scottish Government can say.  I only wish they would.

Others have asked:

How can a country with only 8.3% of the population generate 55% off the deficit?
though that question could perhaps be better expressed as
How come so much of the UK’s revenue comes from London and the South East?
That’s a harder question to answer, but it’s probably based on the desire of successive Westminster governments to concentrate activity there.  Westminster governments like to have all the activity around them and to hang with the rest of the country.

But I have another question to add.  Over the last five years, the UK deficit has significantly reduced, from about £90bn in 2014-15 to £23.5bn in 2018-19.  During that time, the Scottish deficit has reduced by only about £1.4bn, while the other countries have had even smaller reductions, so that means   Now, about 40% of Scottish spending is actually spent by Westminster on Scotland’s behalf, almost all of it in and around London.  That being the case, my question is:
What has caused this sharp increase in the London and South East surplus over the last few years and why, at a time when the cost of public services in London and the South East is reducing, is this reduction not reflected more fully in the results for Scotland?
I’ll leave you to mull over that, but it may be caused by a huge increase in the revenue in these regions, at the expense of the other parts of the UK, or it may be caused by a significant improvement in the cost of delivering services, including those which are charged to Scotland, or it may be something else altogether.

So what does this all mean for Scotland?  Do we (and by we I mean the Scottish Government) really believe the GERS figures?  Do we really think a country with such large resources cannot stand on it own two feet?  Do we really think that Westminster have been making the best decisions for Scotland?  Do we really think PM Johnson won’t take every chance to prevent the loss of UK income that Scottish independence would mean?  Do we really think he’ll wait for several years before taking action?

Don’t we have to make our move now?

All for Brexit’s Wedding

A Modern Political Fable.

Brexit. Is it the most stupid action ever by any UK government, perhaps the most stupid action ever by any government in the world? Heaven knows what was going through Cameron’s tiny mind when he embarked on this utterly ridiculous exercise. To solve the problem of the idiot right wing Tories defecting to UKIP and damaging the Tory’s electoral chances (step forward and take a bow Messrs. Cash, Redwood and Rees-Mogg, you know you want to), he decided to shut them up permanently by proving once and for all that most Brits were European at heart. He was so confident that he would win, that he did very little proper campaigning and, worst of all, he didn’t bother to think through what he would do if he lost. Well, when I say what he would do, I meant what the country would do, because we all know what he personally would do, because he did it. He pissed off to make loads of money, helped out by the mates he helped out when he was PM, and left the rest of us in a great pile of steaming ordure. In any case, what made him think that the loony Tory’s BritNat wing would shut up just because they lost a vote. Was never going to happen.

With Cameron off to make money elsewhere, The Tories needed a new leader with a plan to stop them sinking into the aforementioned ordure. All seemed lost until Treeza started spinning and, in a puff of smoke, revealed herself to be WonderMay. We must embrace Brexit, she said. Brexit is Brexit, she said. We’ll have the biggest, hardest Brexit that anyone has ever had, she said. We’ll show them all that we’re the bestest Brexiteers in the history of Brexitting, she said, especially those f’ing Europeans. Cue Tory cheering. We’ve found our saviour, they said.

Little did they know then that their idol had feet of clay, or do I mean head of clay, and, unfortunately, events over the following year only showed that the clay was of the thickest, most impenetrable kind as May stumbled from one self-made crisis to another, her only solution being to throw money at them. She threw money at the DUP. She threw money at the EU. She even threw money at Scotland, although that turned out to be more like Monopoly money, the kind you can’t spend, except when you’re playing games.

But even the peasants were starting to get restless. Some of them were openly expressing the opinion that SuperMay wasn’t really all that super, that she wasn’t in control of Brexit, that Brexit was really in control of her, that she was just as stupid as she appeared. Some were even questioning the whole Brexit idea and saying that another referendum was needed. This had to stop. Money was at stake. Super-rich money.

Make no mistake, money is what Brexit is all about. The ability of the super-rich to keep all the money they’ve got and make much, much more. Brexit has nothing to do with improving the lives of most of the UK population. Taking back control is nothing more than a slogan invented by the Brexiteers and parroted by the media to sway enough the masses. It is years of anti-EU propaganda finally paying off. There was never any intention to take back control. If the intention had been to take back control, why the efforts to prevent the UK Parliament having any involvement in Brexit, why the secrecy about putting documents before parliamentary committees and why have the government not bothered to work out the impact of Brexit on the economy. The intention has always been to remove the EU from any involvement in UK lawmaking and transfer total control to the super-rich, fronted by a bunch of compliant politicians, well paid for their efforts. The EU was proving too big for the super rich to control and the last straw was an EU proposal to introduce rules to prevent multi-national companies from transferring their profits out of higher taxed EU countries to lower (or zero) taxed off-shore tax havens. A proposal likely to take effect in the Spring of 2019. Does that date ring a bell? The proposal would particularly impact the City of London, which has been described as the world’s biggest tax haven through its use of a multitude of British Overseas Territories and Dependencies where serious amounts of super-rich money is hidden away. The UK and its territories represent a haven for over 25% of the world’s offshore funds.

But it was all going wrong. NoLongerSuperMay had proved incapable of driving the changes necessary while keeping enough of the population onside. A popular movement against Brexit could derail the whole project. But what to do? Replacing NoLongerSuperMay would almost certainly strengthen the feeling against Brexit among much of the population, so that was not really an option. The choice of actions was extremely limited.

There was only one last hope. They had to deploy their ultimate weapon. They called in the “Family”. Yes, it was time for the thermonuclear royal device. Never previously known to fail, the thermonuclear royal device could take two forms, either the baby royal strategy (BARS) or the wedding royal strategy (WARS). The only decision to be made was which to go for. It was a hard choice, but there had to be something to take everyone’s attention away from Brexit and the disaster it had become.

In conjunction with the Family, the Tory government did what they always do in such circumstances, they set up a committee. And here the Tories made what might turn out to be a fatal mistake. Given the seriousness of the problem, they set up two committees, one to examine the BARS option and one to examine the WARS option. But each committee was determined to be the winner in the race to prove that their strategy was the bestest, that their strategy was the one to give the best possible result in the shortest possible time, so neither team wanted to share information and, as a result, communication between the BARS team and the WARS team was almost non-existent.

With the agreement of the Family, the BARS team had set out a development plan with a scheduled completion date of April, 2018, so, because of the strict timetabling in place for projects of this type, a start had to be made in July. Everything was put in place. The Royal Prince Willie was prepared to do his duty and the Royal Princess was said to be receptive, though, as with any plan (except Brexit, Ed.), a number of backup strategies were readied, in case the first attempt flopped. However, we won’t go into details of the backups just now.

The WARS team had more flexibility in making their arrangements and initially had aimed for the merger to take place much earlier, but their plans were delayed by indecision on the part of certain senior members of the Family and uncertainty that the Princely participant had completely run out of wild oats. Finally, agreement was reached and a date in May 2018 was set.

Imagine the shock when it was realised that the two events almost coincided. Images of babies being breast-fed during the wedding ceremony or even crying while the Royal vows were being exchanged flashed through people’s minds. How would that go down with the TV audience? After all, the solemnity of the occasion was what kept the audience glued to the screen. Turning it into a comedy show could have the opposite effect. Was this bad timing just an unfortunate coincidence or was it proof that, under the stress of the situation, even the Family were losing their touch? Another Royal baby and another Royal wedding in the same year? Surely one of them should have been delayed for twelve months to take our minds off Brexit. Isn’t that what the Royals are for?

To be slightly more serious for a moment, does the whole ongoing fiasco that is Brexit, combined with the disaster it represents for most of us should it actually happen, not mean we need to be doing all we can to get away from it? Do we really want to be ruled by a bunch of BritNat idiots who can’t tell truth from lies. Do we really want to live in a world created by David Davis, Liam Fox, Michael Gove, Boris Johnson and Theresa May. David Davis, who doesn’t seem to know if he has any documents or not. Liam Fox, who tells us he can magic trade agreements out of thin air. Michael Gove, Rupert Murdoch’s little placeman in the UK Government. Boris Johnson, surely the UK’s worst ever Foreign Secretary, who’s desperate to do whatever it takes to be in charge. And Theresa May, whose only interest is in creating laws which allow her husband to further enrich himself and his super-rich clients. And that’s before we get to the likes of Jeremy Hunt, whose job it is to give away the NHS as quickly as possible, mainly to Richard Branson.

Is that the future for Scotland we are happy to see? Or is there another way? Surely now is the time for us to create our own future. Surely now is the time for another indyref.

Money, money, money, it’s a rich man’s world

Last week we had a budget statement from the chancellor.  Note I said “a budget statement” and not “the budget statement”.  I’m certainly old enough to remember when there was only one budget a year and most folk looked forward with apprehension to how much the chancellor was going to slap on drinks and smokes.  The media were full of suggestions for days in advance about what should be announced and, afterwards, the analysis of winners and losers went on for more days.    Now we seem to have a budget announcement about every month and anything interesting is leaked to the media by the Treasury in advance of the statement so everyone has a decent excuse for sleeping through Phil’s speech.

For Scotland, the best news appeared to be an extra £2bn on the Scottish block grant and the decision to remove the VAT liability from Scottish emergency services.  However, a more careful look at the announcement shows a slightly less optimistic view.

Firstly, looking at block grant, the £2bn (actually £1.97bn) is the total effect on Barnet consequentials of the UK spending changes announced in the Budget for the four year period from 2017 to 2021.  It includes over £1.1bn of financial transactions, money which has to be repaid to the UK Treasury.  Let’s call it a loan.  Perhaps Scotland only gets given the money so that Westminster can have the fun of taking it back, now that we don’t have a Labour First Minister to return money they can’t think of anything to spend it on (© Jack McConnell et al, 2000-2007)  Of the remaining approximately £850m, £500m are increases in capital spending, leaving only £350m for additional day-to-day spending.  Of course, that’s the raw cash terms amount, but that increase represents a reduction when inflation is taken into account.  So perhaps not just as good a settlement as the UK Government, and of course the Tories and the BritNat media, would try to make us believe.

Secondly, the VAT change.  In the period since its inception in 2013, Scottish Police and Fire have been the only UK forces not able to reclaim VAT, costing the Scottish emergency services well over £100m.  Over this whole period, the Scottish Government and the SNP MPs have constantly pointed out the unfairness of the situation, but have been more or less ignored by the UK Government, whose only response had been to say “Suck it up, Scotland.  We told you we would screw you, so you can’t complain now”.

So, what has changed?  The cynical amongst us (not me, of course) might point out that the only change is the election of a few more Tory MPs.   Hammond, somewhat pathetically, tried to justify his decision to remove the liability as a consequence (more consequentials?) of the new Scottish Tory MPs being able to explain the problem in such simple language, that even he could understand.  Well, I have heard that the new Scottish Tory MPs are quite good at being simple.  Given they have Fluffy Mundell, the master of simple, as their mentor, I suppose it’s no real surprise.  However, I’m not sure what bit of “It’s no fair” was proving difficult for Hammond to grasp.

Of course, there’s another interpretation that can be placed on the reluctance of the UK Government to do the right thing.  In 2011, Scots elected a majority of SNP MSPs to the Scottish Parliament, something that the voting system was expressly designed to prevent.  It wasn’t supposed to happen and it was baad.  To make matters worse, in 2015, Scots elected a majority of SNP MPs to the UK Parliament.  That was even more baad.  It was very baad.  The aforementioned cynics might even suggest that the Tory government’s decision to retain the VAT liability had more to do with punishing the Scots for having the temerity to elect a government that Westminster and the BritNats didn’t approve of, rather than any rule based logic.  In fact, the change requested by the Scottish Government was little different to the rule introduced by Westminster in 2011 to make schools which became academies exempt from VAT.  OK for English schools, but not for Scottish police and fire services.  In fact, the same cynics could argue that Westminster recognised they were wrong and took the first available politically expedient opportunity to get out of an increasingly embarrassing hole.  However, they were not sufficiently embarrassed to return the money they had stolen since 2013.  Perhaps that would have really given the game away.

All this comes at a time when Brexit could change everything, but the establishment have a cunning plan to stop folk thinking about bad Brexit stuff.  Can you guess what that is, readers?  Come back shortly for an update.

 

Lies, dammed lies and GERS

There has been much said in the press about the famous (or should that be infamous) GERS report over the last few days varying from the National’s “Deficit cut by 1.3Bn” to the Scottish Daily Express’s “Nationalists Fake-onomics exposed”, while the Herald and Scotsman both decided that bringing up (again) the figures from the referendum White Paper would portray the evil Nats in the worst possible light.  Surprisingly, both BBC and STV took a more factual approach, obviously thinking that the £13Bn deficit was enough on its own to scare the punters away from independence, without need to add the usual level of exaggeration and misinformation.

To be clear, the GERS report has nothing to do with the latest football match played by a well known Scottish team (I know it’s an old joke, but still), but it’s the annual statement of Scotland’s economic performance, Government Expenditure and Revenue Scotland.

But what about the figures themselves.  For years, certainly since the run up to the referendum, GERS, and the UK economy in so far as it affects Scotland, has been the subject of considerable public debate.

Should Scots be paying a share of “UK” projects that appear to produce little or no benefit to Scotland.  London Olympics; HS2 from London to Birmingham and, if we’re lucky (is that the right word?) to Leeds and Manchester some time later; and the London sewer upgrade come to mind, but there are many more.  You may have spotted that, in all these projects, the region which appears to benefit consistently from the spending is London, but that may just be coincidence.  My “favourite” is the English Tourist agency, which Scots pay towards because it’s considered a national organisation as it covers more than one region of the UK (all in England, of course), while the English don’t make a contribution to the Scottish Tourist agency, because it’s considered to be a regional organisation, the whole of Scotland being just a single region of the UK.

GERS has also been the subject of much discussion, mainly because so many of the figures are estimates, particularly on the income side, and because so much of the expenditure is controlled by Westminster and spent without so much as a by-your-leave, mostly outside Scotland.

But now a further possible problem with the figures has been suggested, courtesy of Richard Murphy, an accountant and economist who has previously presented evidence on GERS to the Finance Committee at Holyrood.  It should be stated at this stage, as Richard Murphy himself had said, that these are just preliminary ideas, not yet fully formed, but it may give all of us some food for thought.

In GERS, there appears to be no relationship between income and the money spent to generate that income, the expenditure.  In normal accrual accounting, the spend to achieve a particular income and the income amount are both put through the books at the same time, so you can tell how profitable an activity is, because you know how much you earned and how much you had to spend to earn it.  However, in GERS, by design, this relationship doesn’t seem to exist.  Both income and expenditure are treated separately.

But what difference does that make to the figures in GERS?

The cost of Westminster providing a particular service to Scotland is generally calculated as a proportion of the total UK cost of the service and recorded in GERS as Scottish expenditure.  However, because the fact that Scotland paid for the service is not known or not taken into account when the income is allocated, the income generated by that activity is allocated to the location where the income occurred.  As a simple example, if civil servants in the MoD in London work on an activity which a deemed to benefit the whole of the UK, Scotland will be responsible for a part share, calculated on a population basis, so about 8.5% of the cost will be allocated to Scotland and recorded in GERS.  So, if the total cost of the service is £1M, then £85,000 would be entered into GERS.

But what about the income?

This is where we seem to have a problem.  Because the income data is processed without reference to who paid the cost of generating the income, it’s not possible to allocate the income in the same way as the expenditure.  If we think of our earlier example, the civil servants employed by the MoD in London are paid a salary from which tax is deducted.  This tax, or at least 8.5% of it, should be treated as income in GERS, Scottish income, because Scotland paid for it, but because this is not known when the income data is processed, the tax is allocated to the place where it was paid, in London.

So there we have the problem in a nutshell.  Expenditure is always allocated to the Scottish account, but the income generated by that spending generally isn’t, except in the few cases where the income is actually generated in Scotland.  By failing to include in GERS much of the income that should be attributed to Scotland, the deficit is massively overstated.

In fact, the situation is much worse than that because of something called the multiplier effect.  When your civil servant in London gets paid, he will then spend his income on goods and services, probably mainly locally.  And the recipient of that spending then spends the money received, and the recipient of that spending then spends the money received, and so on, so the money spent ripples down through the economy of the region where the spend happens. If, as is suspected, GERS is not being credited with the income generated by Government spending, Scotland will be losing out, not only on that income, but also on the further impact of that revenue to the Scottish economy.

As I said at the beginning, these may be just preliminary ideas, but they do have a ring of truth about them.

For those who want more information, look at Richard Murphy’s blog, which, apart from a much more detailed explanation, also has a number of very interesting comments.
http://www.taxresearch.org.uk/Blog/2017/08/25/gers-is-this-why-it-always-says-the-scottish-deficit-is-so-large/