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Monday, 13 October 2014

And another thing ....

I never got round to posting on the subject because I didn't have time to do the full research, but I think I should nail one of the biggest lies in the SNP's independence campaign.

One of the loudest grievances expressed by nationalists was the claim that whereas Scotland pays in 9.6% of the UK government's revenues, only 9.3% of UK government expenditure is spent in Scotland. The former figure assumes a split of offshore oil based taxation in proportion to the geographic split of the North Sea oil and gas fields and the latter figure comprises all spending by UK and Scottish government departments including Social Security and other welfare payments. The Scottish population is approximately 8.2% of the UK population.

And the claim is all backed up by figures and statistics, so on the face of it, it is a plausible grievance, albeit that it doesn't look right when we look at the average spending per capita in Scotland compared to that in England, Wales, Nor'n Ireland or the various English regions, where the Scottish spend is higher than everywhere else except Ulster.

So what gives? The answer - and this is the bit that I hadn't fleshed out in detail - is that while most government expenditure is attributable to Scotland or elsewhere, a fair amount is not attributable to anywhere, so the correct figure for comparing the spend in Scotland is not 9.3% of the total government spend but the Scottish spend divided by whatever percentage of the government spend is attributable to a particular area in the UK.

So what sort of government spending is not attributable to any particular area. Well, first of all there is the interest on government debt, which runs at about £45 billion a year. Then we can probably add in the cost of defence (although I admit that this is a little contentious because some areas will benefit from having defence bases nearby),but that runs at another £40 billion or so.  We can also add in any foreign aid (0.7% of GDP, which I make to be approximately £10 billion), most of the cost of the Foreign Office (£1.3 billion), and then there are the payments to the EU.  The Scottish government spending numbers do not include EU payments to Scots, because the Scots argue that is not UK government spending, but it follows that the gross payments that the UK makes to the EU should be excluded from the UK government expenditure attributable to areas of the UK (call that another £10 billion).

I make that £106 billion (but there may be more), compared to total government spending of just over £700 billion, which means that about 14% of government spending is not attributable to anywhere in the UK.  So the correct figure for Scotland's share of attributable spending is 9.3%/86% or 10.5% give or take a few groats.

Compare that with the 8.2% of population or the claimed 9.6% of revenues, and it becomes clear that Scotland is indeed a land of welfare junkies and public sector apparatchiks..

So what? Well, it will not be long before the Scot Nats start talking about independence again, so this time the rest of the UK should be telling the Scots the basis for the split of the National Debt. The SNP want to take oil and gas revenues on a geographic rather than a per capita basis. Fair enough, but it seems only fair that we should split the National Debt on the basis that it arose. A geographic basis might seem a bit unfair, but a per capita basis would be un acceptable to the English and Welsh when proportionately more had been spent in Scotland.

How do we work that out? Simple, working with the round numbers of a few years ago we would have had £700 bn of spending and £500 bn of tax receipts, i.e. £200 bn of deficit.  First we take of the £106 bn of unattributable spending (we will deal with that later), which leaves us with £594 bn of attributable spending. 9l.3% of £700 bn (£65 bn)  was spent in Scotland which leaves £529 bn identifiably spent elsewhere. The Scots claim to have paid 9.6% of the £500 bn tax receipts (£48 bn), meaning that the rest of the UK raised £452 bn. This gives a Scottish deficit of £17bn (£65bn-£48bn) and a deficit for the rest of the UK of £77 bn (£529 bn - £452 bn). If this was applied to the entire National Debt, the Scots would pick up about 18%.

However this seems a bit harsh on the Scots because we haven't taken into account the unattributable expenditure.  Now you could argue that the interest costs should be borne more heavily by the Scots if they are responsible for a disproportionate share of the National Debt, but we will be even handed and allocate the incremental deficit arising from the unattributed expenditure in proiportion to population [8.2:91.8], which would attribute a total of £25.8 bn to the Scots and £174.2 to the rest of the UK, which if applied to the whole of the National Debt would mean 12.9% being assumed by the Scots.

Seems fair to me.