Why GERS is right

GERS, as readers will know, is the "Government Expenditure and Revenue for Scotland", and is published yearly. The report for 2016-2017 came out recently, and economist Richard Murphy questioned its accuracy, voicing his early suspicions that these books had been cooked. His claim elicited a vigorous rebuttal from Scottish entrepreneur Kevin Hague, blogging as chokka blog.

In my view, Hague's rebuttal, which you can read here, should have used more moderate and factual language, which would surely have made it more persuasive. Instead, he wrote a sarcastic and emotional attack on Richard Murphy's competence, and also included a welter of raw data. This made the thread of Hague's argument difficult to follow, and in the end (in my view) weakened his case.

I've therefore re-presented his argument below, leaving out the emotive language and the overly detailed data, in order to make his argument clearer. This is what I think he should have written:

Professor Murphy and Deckchairs

Professor Richard Murphy claims that GERS tells us nothing. This is not the case. GERS tells us that Scotland's finances are weaker than the UK's because we spend far more per person on public services than the rest of the UK. And this would still be the case if Scotland became independent.

Over the last thirteen years or so, Scotland's public spending, per person per year, has exceeded that of the rest of the UK by about £1500. But over the same period, Scotland has generated in taxes about £350 *less* per person per year than has the rest of the UK. (This excludes taxes from North Sea oil, which latterly have fallen to virtually nil.) So Scotland's deficit - the excess of public spending over the tax take - is about £1850 larger, per person per year, than the deficit of the rest of the UK. Prof Murphy says that he's bemused by this £1850 difference, but it isn't in fact baffling. A small part of the reason for it is that we generate less revenue, but a larger part of the reason is that we spend more.

So we need to understand why we do this - why Scotland spends more per capita on public services.

Prof Murphy offers two possible reasons for why the Scottish deficit is proportionally larger than the UK's: that 'non-identifiable expenditure' is allocated disproportionately to Scotland, and that the figures are unreliable because they come from estimates or surveys. He also says that the difference is surprising. However, none of these three claims is true:

a. 'Non-identifiable expenditure' - that is, expenditure that benefits the whole of the UK equally, rather than one part of it - is allocated to Scotland strictly in proportion to population.

b. The figures for Scottish expenditure do not come from estimates or surveys; they are based on data and are not disputed. (Some of the figures for Scottish revenue are estimates, however.)

c. Scotland needs to spend more because of its population is more spread out, and slightly more subject to long-term ill health, than the rest of the UK. So it's no surprise that it spends more on health, education and economic development. These last three items account for about one-third of the additional spend.

It follows that Prof Murphy should not be doubting the GERS figures, which are easy to understand. They tell us that the reason Scotland's deficit is larger than that of the rest of the UK is that we spend more per person. Murphy should be asking why it is that that we spend more and whether it's justified by need, and he should also acknowledge that savings are almost impossible to find. He should not be saying - as he does - that the GERS figures overstate the Scottish deficit. GERS figures for a given year are revised later year by year, and over the last few years each revision has shown that the true figure for the Scottish deficit is worse than that shown in the earlier versions. This demonstrates that there is no hidden intention to overstate the deficit.

The conclusion must be that GERS is accurate, it shows us that the reason for the deficit is that we spend more than we raise in taxes, and this higher spend is necessary given the problems that are endemic to our country. The mystery is not why we have a deficit, but why Prof Murphy does not understand it. His picking at the details of allocation is like moving the deckchairs on the Titanic to see if it was that that made it sink.

Does this make it clearer? What do you think?