аЯрЁБс>ўџ 57ўџџџ4џџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџџьЅСY ППbjbjѓWѓW .&‘=‘=™%џџџџџџ],,,,,,,@@@@8x „@‹ЖЄК"ммммммPRRRRRR$Aє5^v,мммммvМ,,ммЄМММмp,м,мP@@,,,,мPМ”МP,,Pм˜ PЫАDHцШ@@LpPOpening up the books on the true state of Scottish finances. Margaret Cuthbert Jim Cuthbert June 2008 The annual report on government expenditure and revenues in Scotland, or GERS as it is affectionately known, was published by the Scottish Government on Friday. GERS is the major piece of analysis which tells us what government spends for the benefit of Scotland, compared with what is raised from Scotland in taxes. Each year the publication of GERS is the occasion of a heated political debate about what the report implies for the prospects of an independent Scotland. This year, however, the debate will take place against a background which is very different from anything which has gone before. This GERS follows a major review, which has been carried out by officials after consulting widely with users of GERS, (including economists and statisticians like ourselves). It is also the first GERS that has been produced with an SNP government in power at Holyrood, though it should be stressed that GERS is produced independently by officials with no input from Ministers. So what has changed in the way GERS has been produced this year? A great deal: affecting quality, presentation, and content. For example, the Treasury data, which is the basic source for the expenditure figures in GERS, (and which until recently was a black box to all outside the Treasury), has been vetted thoroughly by statisticians in Scotland, and they have shown themselves willing to override the Treasury’s figures where these are clearly wrong. Specific mistakes have been corrected, including the treatment of Scottish Water, nuclear decommissioning, and the depreciation of public assets, such as roads. Scotland’s important oil sector is now treated in a way which reflects much better its importance to Scotland: in the past in GERS, oil was treated as an add-on to the accounts, and this was justified by a spurious appeal to the accounting standards set by Europe. In presentational terms, the report is now supported by very much more detail: this not only gives it increased credibility, but also makes it a very much more useful document. In the past, all attention was focussed on one figure – referred to as Scotland’s borrowing requirement: this was the difference between total government expenditure and total government revenues. In fact, the UK used a different indicator, known as the current deficit. The new GERS follows the UK practice. So what do the figures actually show? In 2006-07, Scotland without oil would have had a current budget deficit of Ѓ6.7 billion. North Sea oil revenues added Ѓ9.075 billion to UK government revenues: allocating Scotland a geographical share of North Sea oil revenues, (which we note would be the normal approach under the Geneva Convention), GERS shows Scotland in 2006-07 with a current budget surplus of Ѓ0.8 billion. In comparison, the UK had a current budget deficit of Ѓ4.3 billion, (including receipt of 100 per cent of all North Sea revenues). In total, over Ѓ1,000 per head more is spent on public services in Scotland than the UK average. GERS shows us where this occurs: principally in social protection, health, education and transport. A good point for debate is whether an independent Scotland would wish to have organised its society and economy in such a way that such a large part of its budget surplus had to be spent on social security. The revenue side figures in GERS are also revealing: for example, that our 8.4% of the UK population nevertheless generates 12% of the tobacco revenue, and 9.7% of the alcohol duty in the UK, (remembering that this duty is assessed on consumption, not on production). It will be interesting to see whether Scottish Government initiatives on drinking and smoking do bring these figures back to more respectable and healthy levels. It is important not to misinterpret the GERS figures. In particular, they do not tell us what the finances of an independent Scotland would look like – even though some parties to the annual GERS debate treat them in this way. But having said that, it is quite clear that the latest GERS will substantially transform the debate. So is the new GERS perfect? No. First of all, there are some particular things which need to be done: the Treasury still has a lot of work to do in improving its public expenditure data base: and on the revenue side improvements need to be made in ways of allocating tax revenues, particularly corporation tax, across the UK. GERS shares with the UK national accounts a very flawed approach to the way in which the Private Finance Initiative is handled: in particular, grossly inadequate account is taken of the extent to which we are committing ourselves to future high levels of expenditure as a result of current PFI deals. But more generally, GERS concentrates only on government expenditures and revenues. We need to move the debate on. We need to have a much better understanding of the full picture of the key financial flows into and out of the Scottish economy. This would involve setting up an integrated set of accounts showing trade flows, (both non-oil, and oil related): and flows of private capital. This broader picture would give a much clearer indication of the scope for manoeuvre which would be open to a Scottish government as it moved towards Scottish independence, and would really transform the current rather sterile level of debate on whether Scotland could go it on its own. It is to be hoped that the Scottish government builds on the current good progress that has been made in developing GERS by moving forward towards the production of a proper set of National Accounts. Website is  HYPERLINK "http://www.cuthbert1.pwp.blueyonder.co.uk" www.cuthbert1.pwp.blueyonder.co.uk     PAGE  PAGE 1 g:;rst–—™šœŸ ЂЃЅІЌ­ЎАБЗИЙКЛП§ј№јэјјјјјцуцуцуцоцу0JmH0J j0JU0JjU jU5=>P]ghЅІ<=` a – — ПTLMСТ-./˜™›ќќљљљііііііііііііііііііієєєє$$$=>P]ghЅІ<=` a – — ПTLMСТ-./˜™›œžŸЁЂЄЅАЛМНОПўўўўўўўўўћћўў )›œžŸЁЂЄЅЎЏАЛМНОП§§§§§§§є№§є№§§§„h&`#$„јџ„,1hА‚. 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