Transfer market
- Published
The annual Gers figures have given the impression that Scotland is unique within the UK allocation of taxation and spending. It's not.
Transfers around other nations and regions are becoming clearer, as three parts of England provide a taxation surplus for distribution elsewhere.
London sees high tax revenue, but is also gains from big spending. Among the big gainers from fiscal transfers are England's north-west.
Spending per head is highest in Northern Ireland and, with a low tax base, Wales would face a notional deficit more than twice as big as Scotland's if it were to become independent
It's 27 years since Gers was first published. In some years, government expenditure and revenue in Scotland has helped make the case for independence.
That was the case going into the 2014 referendum, when deficits were high for the UK and for Scotland, but Scotland was, temporarily, in a relatively good place.
More often, when oil revenue hasn't been so strong, the annual figures have told a different story.
That narrative is about an onshore economy which performs roughly as well as the UK average. Supporters of independence use that to emphasise that it is capable of standing apart from London rule.
Or the figures show the relative generosity of spending, compared with the rest of the UK, made possible by the sharing of resource, from borrowing and through transfers from other parts of the UK.
Alternatively viewed, it shows that the starting point for an independent Scotland would require a squeeze on spending. That is if it's to get borrowing down to levels that the money markets would fund, at least at low interest rates.
But there's another way of looking at the figures, which doesn't fit with either side of the debate about Scottish independence: it's possible to see Gers as only one window of many on the transfer of funds around the whole UK.
London weighting
That has been highlighted by recent research at Cardiff University, showing Wales' notional deficit in 2017-19 was nearly £14bn. The scale of it, as a share of the Principality's total economic output, was 19% - well over twice that of Scotland.
Spending per head is lower than in Scotland, but the tax base is lower still, leaving that very large gap.
The wider view has also been researched by Professor Jim Gallagher at Nuffield College, Oxford.
The Gers figures are not so strong when the oil industry is facing difficulties
A former Scottish Office civil servant, he's long been associated with the pro-union side of the independence debate. He will be again, with the setting up next month of a new, pro-union think tank.
Don't let your prejudices on either side of the debate colour your understanding of his analysis of a new set of figures, now being published by the Office for National Statistics., external It's worth a look.
This considers fiscal transfers within the UK. On spending, these have been relatively clear through the Barnett Formula as they affect Scotland, Wales and Northern Ireland, but much less so for the regions of England.
Using figures for 2017-18, London, the south-east and the east of England were found together to represent 47% of the UK's economic activity.
London's output per head was more than twice that of any other part of the UK, at £431bn. Of that, around £40bn is transferred out, through taxation, to the benefit of other parts of the country.
Transfer window
There is an implicit political consensus by pro-union parties at Westminster (not shared by those in favour of Scottish independence, of course) that welfare and pensions should be standardised throughout the UK.
While education and health provision are intended to benefit from equalisation across England, the Barnett Formula is there to make sure that its smaller neighbours are no worse off.
Following through on that implicit understanding, the populous north-west of England was, in 2017-18, the biggest recipient of support from the rest of the UK, gaining more than £16bn last year.
Wales was up by more than £12bn, with Scotland and the English East Midlands benefiting from around £10bn each, and Northern Ireland £8bn.
When an estimate of tax revenue is taken into account, Professor Gallagher suggests that north-west England had a notional deficit similar to Scotland's, while three other English regions had much higher ones.
Celtic cousins
Measuring this transfer per head gives an alternative picture of what was going on the year before last. The average Londoner contributed more than £4,500 to the UK's common pot.
The gain from this process per capita was led by Northern Ireland and Wales - respectively seeing internal fiscal transfers per head of £4,300 and £3,600.
North-east England gained by more than £3,000 per head, and the north-west by £2,200. Despite Gers and the independence debate giving the impression that Scotland is an outlier, it was lower down that table, with an internal fiscal transfer of £1,800.
By this calculation, viewed as the sharing between the four parts of the UK, the average English person was contributing £533 to her Celtic cousins' public services.
As English nationalism becomes more pronounced, it will probably take more of an interest in the transfer of 2% of the country's economic output to other parts of the UK.
Dynamo
This analysis underlines one of the emerging features of the UK economy - that London is both statistical outlier and increasingly its economic hub. With the demise of old industries, much of England is a hinterland for its capital.
England's regional tax base has been eroded by migration into the south-east of those best able to earn high pay.
Apart from doctors, academics and footballers, those in provincial England are more likely to be older, requiring higher levels of public spending, from state pensions to the health service and social care.
The Barnett Formula is there to make sure health and education in Scotland is no worse off
They benefit from the metropolis as a powerful economic dynamo, providing fiscal transfers and economic spin-offs. Every other part of the UK benefits from transfers of tax revenue out of London, south-east and eastern England.
The implicit contract is that London - along with Northern Ireland and Scotland - gets relatively high levels of spending, most obvious in its transport spending.
Opaque
Fiscal transfers like this are commonplace in other countries. In most, they are more explicit - Australia in particular, through the Federal Grants Commission.
Canada seeks to equalise across provinces, to ensure everyone has roughly equivalent access to healthcare. The USA has significant transfers between rich and poor states, brokered through federal taxes, but not necessarily to ensure equality of outcome.
In other countries, transfers are used to compensate for lower tax bases in some areas, where taxes are regionally or locally controlled.
But in the UK, with highly centralised taxation and spending controls, fiscal transfers are through much more opaque decision-making.
It's doubtful ministers even realise this is what they are doing with the allocation of funds, as England is funded through Whitehall departments rather than by region.
It has only become a prominent issue in Scotland because of the campaign for independence, and what these figures mean for the starting fiscal position that a sovereign Holyrood might face.
Sorry if this doesn't fit with your narrative or prejudice, but it seems Scotland is neither uniquely advantaged, nor disadvantaged.
- Published21 August 2019
