Lies, damned lies, and accounting tricks

moneydrain

Yesterday was GERS day, and as was entirely predictable it produced the usual cringefest of anti-independence campaigners gloating about how poor Scotland supposedly is. The “news” that Scotland is supposedly responsible for over half of the UK’s annual deficit was gleefully leapt upon by anti-independence politicians who were all over social media like a cringing rash. However it’s utter nonsense, and is nothing more than an artifact of the way that the GERS figures are constructed. They were deliberately constructed that way in order to paint Scotland in as poor a financial light as possible and to reinforce the claim that the wealth of the UK is produced by the financial sector in London. GERS wants us to believe that Scotland is a beggar at the table of a City of London bankers’ banquet.

There are several ways in which the GERS figures underestimate Scottish revenues and artificially increase Scottish expenditure. There is in particular one way which has a dramatic effect on the supposed contribution of Scotland to the UK’s annual deficit and produces the claim that Scotland, with 8.5% of the UK’s population, is all by itself responsible for over half the UK’s annual deficit. The claim that Scotland is responsible for over half of the UK’s annual deficit is quite simply utter nonsense.

This claim is the product of a simple accounting trick, a trick which is so transparent that even the Scottish media ought to be able to see through it. The fact that they don’t tells you that they have chosen not to, because it suits the interests of the anti-independence establishment that you don’t know how it really works.

Let’s explain how it works with a simple hypothetical example. For the purposes of this explanation, let’s use some invented figures in order to keep things simple, and let’s also suppose that the UK is split into four areas for the purposes of government revenue and expenditure. These figures and the areas may be fictional, but they illustrate how GERS works and how it acts as a political tool to artificially inflate the apparent deficit reported for Scotland.

Area A reports an annual surplus of £100. Area B reports an annual deficit of £75. Area C reports an annual deficit of £50. And Area D, which in this example represents Scotland, also reports an annual deficit of £50. That means that the annual deficit for the UK as a whole is £75. We calculate that figure by adding up the total deficit from each area, which comes to 175, and we subtract it from the surplus reported by Area A, which is 100. The product of that calculation is minus 75. That gives us a final figure of £75 as the annual deficit for the UK as a whole. (Because remember that a deficit is really a negative number.)

However what GERS does is to compare Area D, which in this example represents Scotland, with the the UK as a whole. Once we extract Area D, the rest of the UK now has a deficit of £25, because now we are only totalling up the deficits from Areas B and C and subtracting them from the surplus reported for Area A. Areas B and C have a total deficit of 125, subtracted from Area A’s surplus of 100, that gives us a deficit for A, B, and C together of £25.

So GERS would have us believe that with its deficit of £50, Scotland is responsible for two thirds of the total UK deficit of £75. GERS tells us that Scotland is responsible for two thirds of the deficit even though there is another area of the UK, Area B, which has a higher annual deficit than Scotland does, and Area C has the exact same deficit as Scotland does. It’s an accounting trick, and it’s one of the reasons why GERS was introduced as a political tool to use against those of us who argue for greater Scottish self-government.

Yet GERS is even worse than this example suggests, because in this example we are assuming that Area A’s surplus of £100 really is produced by Area A. With GERS, that’s not an assumption that we can safely make. In the UK, the surplus generated by London and the South East is not necessarily really generated by that region, even though it is apportioned to that region in the government’s financial statistics.

GERS claims that it makes a due allowance for the economic activity carried out by UK-wide businesses in Scotland, although the political economist Richard Murphy points out that the data to do this simply doesn’t exist. However there is a greater issue, the UK’s bloated financial sector, based in London, syphons off huge amounts of money from the rest of the UK and records it as revenue from London. The “financialisation” of the UK economy has increased greatly over the past decades, as Private Finance Initiatives have spread across the land like a bloodsucking blight.

In just one example, the Police Training Centre in East Kilbride will result in a cash stream of £111 million over the 26 years of the financing life of the project going to the financial company delivering a project which the public were told was only going to cost £27 million. This £111 million will be recorded as Scottish expenditure, but as London revenue. Had the government built this training centre using more conventional means, it would only have cost around £30 to £50 million. Instead the final cost will be well north of £100 million. That’s why PFI is described as “one hospital for the price of two.” For more detail on how this really works, to the great detriment of Scotland and everywhere else in the UK outside the City of London, see here – https://www.taxresearch.org.uk/Blog/2019/08/16/the-burden-of-financialisation-a-case-study-of-a-scottish-police-training-centre/

This massive growth the payments due because of the PFI initiatives so beloved of Tony Blair and Gordon Brown and successive Conservative governments is one of the main factors that has caused the ballooning of the Scottish deficit over the past decade. The result is that Scotland and the rest of the UK is told that it has a massive deficit, while London reports a surplus and Westminster governments insist that this means that we are all dependent on the goodwill and charity of the financial sector in the City of London and must all bow down before them.

So the next time Gordie Broon broontervenes and tells us that Scotland depends on pooling and sharing with the rest of the UK, remember that what he’s caused is that the income is shared with London, but the costs with Scotland. Of course the GERS figures don’t reflect any of this. That’s just the UK unitary market working normally. Which is precisely why we need independence, because the UK unitary market is designed to suck money out of the public sector in rest of the UK, and deposit it in the bank accounts of the wealthy.


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25 comments on “Lies, damned lies, and accounting tricks

  1. panda paws says:

    “In the UK, the surplus generated by London and the South East is not necessarily really generated by that region,”

    There is also the trick that if expenditure is deemed to be “national” the three countries and the 9 English regions of the UK all contribute a population share to it. National expenditure is most of the time in London. London is charged a population share of the cost circa 14% but gets 100% of the revenue generated by the item as a credit. Hence Scotland is charged £0.5BILLION for Crossrail but ALL the taxes of the workers building it and all the taxes from the investment attracted by the excellent travel links is credited to London.

    I think we could all have a healthy surplus if we had that dodge available to us.

  2. Bob Lamont says:

    Definitely one for the Wee Ginger Book, it is pivotal for Scots to understand how much they’ve been misled over finances, and continue to be herded…
    “This claim is the product of a simple accounting trick, a trick which is so transparent that even the Scottish media ought to be able to see through it. The fact that they don’t tells you that they have chosen not to, because it suits the interests of the anti-independence establishment that you don’t know how it really works.”
    Yup, and that infuriates me more than (77 Brigade etc?) BBC comments, conscious duplicity of the media wearing the masque of impartiality…
    As was commented earlier on the GERS rerun, the fact that lies go unchallenged by the media unless it suits their particular political agenda (Andrew Neil etc) may have worked previously but is driving people to increasingly look askance, but where do the non-internet crowd go, as WoS, WGD and Bella etc has limited reach… I’m convinced that leafleting the debunking articles such as this and highlighting alternative news sources could stir many from their lethargy to investigate, even potentially be furious… Not necessarily a bad thing, but essentially outside the Cummings bubbleverse, which will be feeding through…

  3. Connor McEwen says:

    I am taking your advice from your last blog and sitting in rainy Largs looking for rusty knitting needles.I would rather believe Prof. Steven Hallet. https://www.snpdumfries.org/scotland-subsidises-rest-of-uk-says-leading-economist/2010-10/

  4. Connor McEwen says:

    Oops Andrew Hughes Hallet!!!

  5. Neilyn says:

    UK = Ponzi scheme?

  6. Derek Rogers says:

    Greetings, WGD! In all its tables and narratives, GERS says “Scotland” and “UK” – I don’t see the words “rest of the UK” anywhere. Can you point us to somewhere where the trick is described (no doubt in very small print), or visible in the figures?

  7. Charles McGregor says:

    Following on from my observation that the nominal Scottish deficit was only about 36% of the total for the three ‘Celtic’ countries which are all in nominal deficit and noting that there are many English regions in nominal deficit to boot, I tried to find out what those English deficit regions amounted to.

    I was unable to get the figures for 2018 as they are not on the ONS site yet, so I had to make do with the available 2017 figures.

    It turns out only 3 regions were nominally in surplus, all in the SE corner of the UK and one of which is, of course, London.

    Hooray for them (ignoring the litany of dodgy reasons why that is the case).

    So, I totalled up the deficit for the 9 regions and countries which are in deficit and the result was that the Scottish deficit accounted for only 11.4% of that total figure.

    Furthermore since Scotland’s population is over 14% of that of the ‘deficit area’ then our deficit is actually significantly LESS than the average for that area.

    But instead of pointing this out they scream ‘Scotland’s deficit accounts for 55% of the UK’s’. Which, of course, misleads people into thinking the other 8 regions which are also in deficit only account for 45%.

    Somehow I don’t think the story line ‘If all the regions in deficit in the UK improved performance to Scottish levels then the UK deficit would be reduced by 25%’ would have quite the same allure for our wonderful MSM

    • Bob Lamont says:

      I also wondered what that scenario would derive, well done for following through on it.
      Let’s face it, Ian Lang’s political objective in undermining the financial soundness of devolution has simply been re-purposed to independence=ruination.
      That it is CRAp has been well documented elsewhere, the problem as ever is a dominant media repeating the CRAp headlines unquestioningly, it is not journalism but propaganda.
      Common Weal’s plea for a Scots stats office is slowly being advanced, but you can bet London will fight it and release of any meaningful data lest their con is revealed.
      Only as an independent state will the real data on our financial condition begin to flow, but Craig Dalzell’s talk on “Public Finances in an Independent Scotland” from a few months back is worth revisiting. he gave good insight on what could be gleaned from the previous GERS data, it is far removed from the doom and gloom of the headlines.

  8. Millsy says:

    G.E.R.S = Ghost Economics Rogers Scotland !

  9. Marion Richardson says:

    Thanks everyone. This form of statistical analysis is so important to the Independence Vote #IndyRef2 Share and spread the knowledge!

    • Cubby says:

      Only an independent country can truly be said to run a budget deficit or surplus. If you are not in control of revenue raising and expenditure you are not responsible for a deficit or surplus. This is financial reporting of the kind that is best described as political propaganda.

      There is only one deficit in the UK and that is the UK deficit.

      Another example of Westminster being a corrupt system that we need to depart from and then run our own budget deficit or surplus as decided by the people of Scotland not phoney ones put together by Britnat politicians.

  10. Macart says:

    Yes it is misrepresentation. It is misleading. It is propaganda with a very definite aim and it is a lie by any other name.

    Persuasion isn’t the aim of politics in the UK, (Well. Most everywhere tbh), but manipulation is. The bigger, the more outrageous, the better … so far as some folk are concerned.

    Pretty much tells you all you need to know about the Yookay’s political class, the meeja, their practice of politics and their perception of the public right enough.

    Questions you need to ask yourself:-

    1. Why do they feel they have to fib/mislead/misrepresent?
    and
    2. Is this how you want/expect to be treated?

  11. bringiton says:

    Given the hysteria from the Torygraph and other members of HM press regarding the “Black Hole” that Scotland apparently represents in UK finances,I fully expect them to be in the vanguard of the next independence campaign in an attempt to extricate England from this burden.
    They,clearly don’t want to see the UK handing money over to Europe,money which they claim could be spent on England’s health services etc,so they have history on that issue.
    We should use GERS in the same way as the Brexiteers used their fantasy figures to encourage English voters to support our cause.

    • Bob Lamont says:

      Agreed, but it is already established among those who see beyond the bullshit and vehemently supported by the blue rinse brigade…
      It reminds me of that English petition to throw Scotland out of the UK, the last thing they expected was Scots to support it, then the political buttons started getting pressed to shut it down, but GERS and the myth is now well engrained…
      This is the problem with lying, it if you don’t own up and nip it in the bud it grows arms and legs like the Boris Banana then you get Brexit. How do you tell the lynch mob it was all just a huge joke? Sooner or later that particular lie will dawn on the English electorate who are currently jingoistic but sick of it all, when it does the authorities could have their hands full keeping a lid on the reaction…
      Just as Brexit, GERS is largely a fabrication for nefarious means, the backlash will be against not only those who repeated the nonsense but those who remained silent, essentially condoning the lie.
      What served the London clique as a frightener for the unsure Scots bought resentment elsewhere, and it WILL bite them in the arse shortly trying to explain why Indy2 should not be held after decades of “necessary” austerity…
      And let’s not forget Wales and NI are likewise in the frame… Perfidious Albion is about to have it’s finest hour….

  12. Legerwood says:

    If Scotland’s ‘deficit’ is £12.6 Billion or so and that, according to GERS, is 7% of GDP the Scotland’s total GDP is around £180 Billion.

    For comparison – Ireland, Republic of:

    “”Ireland is the 29th largest export economy in the world and the 13th most complex economy according to the Economic Complexity Index (ECI). In 2017, Ireland exported $159B and imported $84B, resulting in a positive trade balance of $75.2B. In 2017 the GDP of Ireland was $333B and its GDP per capita was $75.6k.””

    From https://oec.world/en/profile/country/irl/

    The full breakdown on Ireland makes for interesting reading. Note, Ireland has had a positive trade balance every year since 1990.

    • Bob Lamont says:

      ROI saw the EU as marker for a future life beyond that they had experienced under the UQ monopoly, a “rogue state ” at the mercy of UQ’s dictats, yet it proved a wise decision, and ROI flourished under the EU..
      The problem now is ROI is caught in a web of the UQ’s construct 100+ years later, but have 26 Allies prepared to fight their cause… It’s not anti English anymore but solidarity with like-minded souls looking for decency.
      The difference for Scotland is that a naval blockade and starvation would be obvious to all the world, it is only a question of when we jump not why….
      London and it’s SE England dominance is over, but it may take to unravel the knitting of what these asset-strippers have woven into Scotland’s politics, but it is unravelling rapdily…

      • Legerwood says:

        I was on holiday in RoI in Apr 2008 when they were in the midst of a referendum I think on the Lisbon Treaty. The quality of the debate, information, media participation etc was of a far, far higher standard than what we had here in 2016. One comment, from one of their 1st EU Commissioners, stayed with me. He said when they decided to go into Europe they decided to go all the way in. In to every nook and cranny and make it work for RoI. They certainly did that in spades. You just had to look at their infrastructure – roads, sewers etc – to see how successful they had been. Lessons for iScotland there.

        One of the other things they did was move their economy from one that took things out of a box and screwed it together to one that researched and developed what went into the box in the first place. A young, well educated workforce helped realise that transition. Just look at the info in the link I gave.

        Again lessons for iScotland there. We already have a significant Life Sciences sector, for example, so something to build on.

        And yes RoI had a torrid time after the crash of 2008 but they emerged from that crisis ahead of the UK

      • Bob Lamont says:

        I was referring to an earlier time when Britain almost starved Ireland to death for their temerity in seeking independence from the Crown, it is the UQ’s habit to visit hell on those who defy their bidding, which is what made Johnson’s overtures to ROI such a bizarre joke, and the Irish laughed in unison.
        It was once said that the Irish have a healthy disrespect for authority, if their is one Irish export desperately needed by Scotland..

  13. Craig P says:

    That chart in the tax research blog is really something. 16 layers of shell companies all taking their cut before the final owner of the debt. I’d also recommend the financecurse.net website. Really good explanations of the predatory and GDP damping nature of the finance sector when it gets too big.

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