Jim and Margaret Cuthbert: Why there is no such thing as a Union Dividend

This is an article (previously published on Open Democracy) from Jim and Margaret Cuthbert summarising their detailed research critiquing the concept of a union dividend and effectively blowing out of the water, the UK Government’s analysis of Scotland’s income and wealth. It makes for compelling reading and if you are trying to persuade undecided voters of the economic case for independence, you might want to give them this piece or even the full analysis. It was published by Options for Scotland on 14th August and is available here 

On May 28th, the Treasury produced its report “Scotland analysis: Fiscal policy and sustainability” on the size of the union dividend which every Scot, it was claimed, received as part of the UK. According to the Treasury, over the next twenty years, every man, woman, and child would be £1,400 better off each year for staying in the union. 

One thing we found is that there are large technical flaws in the Treasury analysis and calculations: in particular, the model the Treasury used fails to account for various known features which will inevitably affect the future they are trying to predict. The identified flaws include, among others:

  • the Treasury’s failure to allow for the Barnett squeeze which, on the Treasury’s own growth assumptions will automatically begin and adversely affect the Scottish government’s funding under a continued union.
  • Failure to recognise that the funding model for the devolved Scottish government has no mechanism for making provision for a significant element for the extra costs associated with Scotland’s relatively ageing population.
  • Failure to allow for the implications of quantitative easing.

However, the problems with the Treasury’s approach go much deeper than these technical flaws. Its failure to model the way the Scottish government is funded under the union, allied to its failure to look at variant scenarios for UK public expenditure growth, means that the Treasury entirely miss the lose/lose situation which Scotland is in under continuation of the union.

On the one hand, if the Treasury’s optimistic growth scenario is realised, then there will be a Barnett squeeze. But on the other hand, in the very likely case of continued austerity, then the Barnett formula would mechanistically deliver increasing levels of per capita expenditure on devolved services to Scotland relative to England: in the face of universal austerity in the UK, this would make the continuation of Barnett politically impossible. Either way, Scotland loses.

The Treasury calculations also fail to allow for the adverse effects which are, in effect, baked into the UK baseline from which the Treasury attempts to measure its “union dividend”. These negatives include:

  • The very serious risks of a UK financial crisis.
  • Having successive Conservative governments which Scotland has not voted for.
  • Illegal wars.
  • Trident, which is based on the doorstep of Scotland’s largest conurbation, and which polls show is anathema to the bulk of the Scottish population.
  • The adverse effects of Scotland’s lack of direct representation in international bodies like the EU and the UN.
  • The inefficiencies in the operation of reserved functions in the UK, which means that Scotland has at times to seek permission to allocate part of its own budget to overcome deficiencies – and is on occasion even penalised for so doing. (A classic example of the latter was free personal care for the elderly, where the Scottish government hoped to use the attendance allowance of those in care homes to help meet the overall costs. The UK government refused to transfer the attendance allowance monies, so Scotland was penalised by over £20 million per annum).
  • The fact that Scotland has to take on board, without any option, divisive UK policies in areas like social security.

In effect, the Treasury approach is fundamentally and implicitly union-centric: so that the present state of the union is inherently regarded as being natural, beneficial, and risk-free. What should have taken place was a proper assessment of the pros and cons of the union, going into the risks and costs attaching to continued membership of that union.

And last, but not least, is the question of the assumption that the Treasury made about the independence scenario – in areas like start-up costs, oil, and debt. These assumptions have, rightly, been strongly challenged by others: see for example oil expert Donald MacKay in the Sunday Times on 6th July. While it is not the primary purpose of this paper to go into these areas in detail, there are good grounds for believing that the Treasury has chosen to be unduly pessimistic.

The Treasury paper is, of course, meant to tell us something about Scottish independence: but actually, what it does do is to indicate something very significant about what has happened to the Treasury itself. The two fundamental failings in the Treasury paper are the failure to take on board in their modelling known, and essential, features of the real world – particularly the funding arrangements for devolution: and the failure to produce a balanced view by addressing the risks attaching to the UK economy. These failings tell us that the once proud Treasury has become a thoroughly politicised organisation, and one where technical standards have badly slipped.

Overall, where does our critique leave the “union dividend”? Is it just a question of reducing the Treasury’s assessed dividend in relation to those technical mistakes that we have identified and which can be quantified? 

Absolutely not. What we argue is that the whole concept of a single figure “union dividend” is nonsense and must be abandoned. The decision that the Scottish people will take on independence involves many factors. To try to boil that decision down to a single monetary amount is basically meaningless: and when the method adopted essentially assumes away all the risks and costs attaching to staying in the union the result is not merely meaningless, it is intrinsically biased.

When the Treasury produced their results, their use of children’s lego men to explain their findings to the simple minded Scots was widely, and rightly, seen as insulting. In fact, the real insult was not in the use of lego men to present the results: but in the fact that the Treasury adopted a flawed and biased methodology in the first place.

 

 

 

 

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“We will support our vulnerable people, not vilify them” – John Swinney’s address to SNP conference

Just over six years ago, we were given the greatest privilege in our Party’s history – we were asked by our people to be their Government.

We set out to make this country healthier, wealthier and fairer. We embarked on a journey to make Scotland greener, safer and smarter.

Every day of every week of every year of our Government, we have all worked hard to make Scotland as successful as we possibly could and to tackle the real issues our people face.

That commitment to focus on the priorities of our country was clearly demonstrated again just yesterday.

Amidst the demands of a Party Conference timetable, the First Minister travelled back to Edinburgh last night, to speak face to face to the parties in the Grangemouth dispute, to try to create common ground. The Government cannot solve the dispute; that can, and will only happen, if the company and the workforce can build an agreement.

But what the Government must do is to leave no stone unturned in trying to secure the future of the largest industrial site in Scotland and the livelihoods of thousands of families the length and breadth of our country who depend on the continued operation of the Grangemouth site.

So yesterday the First Minister did what he always does – he acted to promote the interests of Scotland.

Last night the First Minister asked each side to take a step forward. The union to confirm that there will be no industrial action to the end of the year and the company to fire up the plant and return to normal production. I urge both parties to the dispute to respond positively to the First Minister’s initiative and put Grangemouth back to work.

Every day within Government our team is working on the priorities of the public. Within my Ministerial team, Derek MacKay working to create partnership with local government and improve our planning system. Fergus Ewing acting to give clear leadership to our renewable energy drive and to build the tourism sector in Scotland. Angela Constance working every day to get young people into employment and addressing the need to support more women into the labour market. Backed by our parliamentary liaison officers Mike MacKenzie and Stewart Stevenson, Derek, Fergus and Angela work day in day out to secure the future of Scotland and I warmly thank them for all that they do.

In taking forward our work to deliver for Scotland we do so within the confines of devolution and against the constraints of a Westminster government that does not share our vision. And we go the extra mile to pick up the pieces from bad Westminster decisions. Never has that been more the case than on the welfare reform programme.

Without our help, and the help of our local government partners, over 500,000 people in Scotland would have faced a 10% cut in Council Tax benefit imposed by the UK Government. We protected the people and stopped that cut.

Without our help, thousands of Scots would have faced real harm – very real harm – as a consequence of the Bedroom Tax. We are doing everything we have the power to do to mitigate the Bedroom Tax and of course we want to do more. We need the powers of independence to stop dreadful policies like the Bedroom Tax.

Many families across Scotland have faced real hardship since the financial crash in 2008. Victims of a crash that was not of their making, ordinary people have struggled to manage their finances, to protect their livelihoods and to provide for their loved ones. And this Government has helped them through that difficult time.

Against the tides of recession, the austerity of George Osborne and the reactionary policies of our opponents we have taken the side of the people.

A Council tax freeze in each and every year we have been in office and guaranteed to the end of this parliament

A living wage for all our employees – helping families in hard pressed times

Free prescriptions putting an end to the tax on ill health

Concessionary travel for our older people

Free University education for our students

Extra childcare to support families and children

And of course – ensuring our older people are treated with care and with dignity with free personal care for our elderly.

We have used our powers to protect household budgets in Scotland.

And when our Labour opponents say we cannot afford to support people and businesses with these policies, I have one simple message. When you have been away spending the same money twice, when you have been dodging the difficult budget choices, we’ve been putting in the hours balancing the country’s books in every single year we have held office. That’s what you do when you work on Scotland’s behalf.

Those commitments, and our focus on delivering them, are the hallmark of your SNP Government.

And there’s another commitment I want to make today. Yesterday I joined Shirley-Anne Somerville campaigning in Dunfermline. In 2007 – after years of Labour failure – the first legislation we passed was to lift the tolls from the Forth and the Tay Bridges – saving commuters £233 a year.

Lifting those tolls helped business by bringing down their bills, it helped people working in Edinburgh, in Fife and in Dundee or here in Perth to manage their costs and it helped people when fuel prices continued to rise.

Now the Queensferry crossing – the biggest infrastructure project in a generation – is helping the people of Fife with jobs, apprenticeships and contracts for local companies as it rises up from the waters of the Forth. It is being delivered on time – and given the stringent management of this government – it is being delivered not on budget but under budget – under budget – by £145million.

And when it opens in 2016, and for as long as we are in Government, I guarantee, there will be no tolls on the Queensferry crossing.

These are all examples of what Scotland can do when we have the powers and the responsibility to take our own decisions.

The Independence debate is quite simply the question of whether we should exercise that full responsibility across the issues that are today controlled by Westminster. And our appeal to the public is this – if you believe we have used our limited powers wisely, join us in winning the wider powers to transform our country.

When people come to consider the Independence question, they will understandably want to know about the prospects for the economy. And we need to spell out the full facts for our people.

For the last five years Scotland has had to face the challenges brought about by the economic mismanagement of successive Westminster governments.

Even before the financial crash, the UK had the third largest structural budget deficit in the developed world. Now after five years of austerity, and with another five to go, the UK hasn’t paid down the deficit and household incomes have fallen. The UK deficit is now £121bn.

As part of the UK, every person in Scotland is paying the bill for Westminster’s mismanagement.

So when our opposition say Scotland can’t afford to be independent because we might have to pay off some debts – let’s remember who built up the debt, let’s remember how much of our oil wealth they squandered running up that debt, let’s remember how much they are borrowing to pay off their debt and let’s remember that if Scotland votes No we will be saddled with UK debt for many, many years to come.

But aside from the reckless deficits Westminster has built up or the poor economic management they showed before the crash, the greatest failure of the Westminster system is the absolute failure to understand that to deliver real economic growth you have to invest in the economy.

But our approach as a Government, acting in the Scottish interest, demonstrates what can be done and what is within in our reach with a vote for Independence.

Where the UK cut during the crunch years, we invested what we could.

We invested all that we could in the economy, make savings to put more into employment schemes, into training and apprenticeships and boosting capital budgets to build homes, schools and hospitals. We protected public sector jobs by keeping the focus on delivering frontline services throughout Scotland. And we have done that within the constraints of UK budget cuts that show no sign of going away.

And despite all of those challenges, our economic results show the difference our efforts have made.

This week we have seen what can be achieved in Scotland when we act with Scotland’s interests at heart.

This week the official figures showed Scotland’s economy has grown further and faster than the UK’s as a whole with UK growth of 1.3% out-stripped by Scottish economic growth of 1.8%.

This week the labour market figures showed that in Scotland, unemployment is down, youth unemployment is down, employment is at a five year high, Scotland has the lowest unemployment, highest employment and highest youth employment of any part of the United Kingdom. That’s what happens when you invest with Scotland’s interests at heart.

Our £8bn investment programme – is supporting 50,000 jobs

Our Modern Apprenticeship programme means over 25,000 young people are completing training on the job and 77% go into jobs or more training at the end of it.

Community Jobs Scotland – working with the voluntary sector – has helped nearly 2000 young people.

Youth Employment Scotland is investing in all 32 local authorities to help small and medium sized businesses play their part by taking on and training our young people

And Opportunities for All – giving a guarantee to all 16-19 year olds of work or training is unique across the UK.

Our businesses, our public sector, schools, trade unions, colleges, universities and voluntary sector have all responded to the challenge, risen to the task in hand, worked co-operatively as a country and as a result the economic performance of Scotland is better than the UK.

Conference that is what we can achieve with devolution. We could do so much more with Independence.

Just as we have taken decisions on the economy with Scotland’s interests at heart, I would like us to take more decisions on welfare and employment with Scotland’s interests at heart. We need the powers of independence because Westminster’s welfare reforms and the failing Work Programme are only serving to increase the pressure on our services and present more difficulties to those we are seeking to support.

Where our apprenticeship programme has a success rate of over two thirds, the Work Programme sends two-thirds of people back to the job centre.

Where we are providing funding to support those being harmed by welfare reform, Westminster is using welfare cuts as a punishment for the vulnerable.

Let me be clear conference, those who can work should work and it is our ambition to ensure that there are opportunities for all in Scotland – of any age and any ability to work. But let me also be clear that in an independent Scotland we will help our young people into work not humiliate them and we will support our vulnerable people not vilify them.

I have been around the debate on Scotland’s economy for nearly 20 years now. We have always said that Scotland is a wealthy country. We have always been proud of Scotland’s potential. But how the arguments of our opponents have changed.

In the course of the referendum debate even the arch opponents of Scotland’s independence have had to admit the truth.

David Cameron and Alasdair Darling – now say Scotland can be a successful independent nation.

Even the Treasury has had to publish a paper showing Scotland’s revenues are on a par with the rest of the UK’s. And that’s before you add in North Sea Oil.

The debate over Scotland’s wealth has been won. Scotland can afford to be independent.

The facts and figures are clear and indisputable.

Scotland is in a stronger financial position than the UK.

Every year for 30 years Scotland has paid more in tax per person than the UK.

Scotland pays a higher share of taxes than we get back in spending.

And our economic strength goes beyond the figures in our balance sheet.

We have immense natural resources with 25% of Europe’s offshore wind and tidal energy.

We have more top universities for our size than any other country in the world.

Our life sciences sector, our tourism industry, our creative industries, food and drink, financial services, manufacturing all contribute to our economy now and have huge potential for our future.

Conference our opponents like to claim that the basis of an independent Scotland’s economy would be oil.

But our strength is not an accident of geology or geography.

It is not some twist of fate or turn of chance.

The basis of our economy is our skills.

The basis of our economy is our ingenuity and our spirit of relentless invention.

The basis of our economy is, and ever will be, founded on the creativity, the intelligence and the boundless talents of the people of Scotland.

That is the basis of our economy. Scotland has all that it takes to be a successful independent country.

The question is no longer whether Scotland could be an independent country. It is whether Scotland should be an independent country.

And it is our job, from here to referendum day, to speak to everyone we can, to give people the information they want and to persuade those around us that the answer must be Yes.

With a yes vote, we can be a successful independent country. We can take new steps to grow our economy and to tackle inequality.

With a Yes vote, we can invest in an oil fund, and take steps to protect our resources for future generations. We can invest in research and innovation, incentivise our key industries, make business more competitive and create more quality jobs.

With a Yes vote, we can cap payday loans, deal with abuses of zero hours contracts and make work fair.

And with a Yes vote, we can end the reckless economic mismanagement of the UK and manage our finances properly – properly and always – in the interests of the people of Scotland.

And with a Yes vote we can protect our public assets and bring the Royal Mail back into public hands.

Conference, as this Party has grown from its early roots to our position as the Government of Scotland, we are now closer than we have ever been to winning our aim.

We have in front of us, the exciting opportunity to work with everyone in Scotland to build a better country. To use the wealth and the talent and the capability of our people to the full.

Let us now give the next 11 months everything we have got to persuade our people of the merits of our case. And let us put down the foundations of a bright new future, a future for all of our people, a future of which all of us can be proud. Let us build our country’s Independence.

 

 

UK: broke, broken, brokenest

The worst thing about the most recent unemployment figures is that they are going to get worse.  Much worse.

In the three months to November 2011, unemployment across the UK rose by 118,000 to 2.69 million and the respected Item Club is now predicting that unemployment will peak in 2013 at the talismanic 3 million.

The other economic runes are not good – growth is flatlining with forecasters like the Item Club revising their estimates for both the UK and Scotland downwards.  And all of it predicated on a steady international ship – more Eurozone drama or international economic dips and we will be in crisis.  If you want a cheery read, I’d avoid the Scottish Item Club’s latest projections for 2012.  We’re heading for a “lost generation” in terms of youth unemployment and a “lost decade” of economic growth.

Few forecasters mention collective wealth.  How much money does the UK make and have?  The best measure (or at least, the most obvious one) is Gross Domestic Product or GDP.  And one analysis brought home just how perilous the UK’s situation is.  Basically the UK is broke and its economy is broken.

John Ross, a visiting Professor at the Jiao Tong University in Shanghai, modelled growth and decline in a range of countries’ GDP by converting everyone’s currency into dollars, on the basis that it is one of the most common international purchasing measures and doing so, allows meaningful comparison.

And he found that “no other economy in the world has shrunk even remotely as much as the UK“.  Our economy has shrunk more than all those basket case countries like Ireland, Spain and Italy.  Indeed, the decline in the UK’s GDP is greater than the whole of the Eurozone taken together.  We have 562 BILLION dollars LESS value in our economy, amounting to an eyewatering 20% decline.  As the Professor also helpfully points out, “the UK’s decline was more than two and a half times that of the entire Eurozone. The UK accounted for a somewhat astonishing 77 per cent of the EU’s decline.”

Two issues appear to have combined to create this dazzlingly depressing situation.  Low economic performance – lower even than the Eurozone countries – and the declining value of the pound against the dollar.  You could argue that this latter fact distorts the modelling process but few would argue that it is unacceptable to apply the currency of choice in times of flight to an examination of a range of counries’ economic performance.  It does indeed allow for comparison.

Perhaps what is most remarkable about this little exercise is the fact that it has been unable to factor in the impact of the Conservative-Liberal Democrat government’s austerity measures.  For the GDP figures analysed are for 2007 – 2010.

This analysis is in fact a damning indictment of Labour’s stewardship of the UK economy in the last years of its government.  It was indeed Labour what did it.  Professor Ross does not really acknowledge this fact in his article, though he does point out that as there was “no substantial growth in dollar terms” in the UK economy in 2011, there is unlikely to be a turnaround in our fortunes.  If anything, given what we know about the UK’s output and economic performance during 2011 – technical recession as the Item Club put it for the last quarters – our GDP value could diminish still further.  Something to look forward to then.

In political terms, it is Labour who broke Britain and it is the Tories and Liberal Democrats who are determined to make us the brokenest (yes, made up word I know but it’s a good one).  And while it might make political sense for Labour in Opposition – though I confess I am failing to see it – to adopt the austerity policies of the UK Government, it clearly doesn’t make any economic sense.

Using my very limited economic understanding, which largely comprises of common sense, the financial crisis and economic contraction that resulted from it probably caused the start of the decline in GDP.  But the Labour UK Government had run out of ideas and steam and therefore had nothing to offer by way of a fix.  Now, the austerity measures, high inflation, lack of consumer spending power, continued lower export demand (despite the lower value of the pound) being peddled by the Tory-Lib Dem Government are combining to reinforce and indeed, accelerate further decline.

And with no one having a scooby how to shift our economic house of sand onto firmer foundations, nothing is being done to fix the deep-seated issues.  Neither symptoms nor causes are being effectively tackled and both Conservatives and Labour have signalled this to be their approach for some time to come.

It is this maelstrom of poorly performing economic indicators that also causes the money men to continue to look askance at the pound.  And without any interventionist attempts to address any of these factors in our economy, the value of GDP is likely to continue to contract in international terms.  Kinda puts all that jingoistic waving of the triple A credit rating into a more meaningful, wider perspective.

It would be interesting if some pointy-heid somewhere could model Scotland’s GDP performance over the same period using the same measure.  Just to compare.  The picture won’t be pretty but will it be as bad as the UK’s as a whole or have we managed to punch above our weight?

But in some respects, it doesn’t matter.  Because the big economic and fiscal levers are controlled by the UK Government, our performance is largely determined by decisions made in London.  No matter how hard the Scottish Government tries with its Plan MacB and investment for growth strategy, it is fiddling around the margins and can only really, try to ameliorate the worst effects of decisions made elsewhere.

This kind of analysis and modelling is important in the months ahead.  We need to add it into the mix, if only to mitigate against the impact of the partisans.  Naturally, the pro and anti-independenistas will be utilising statistics and data to suit their own ends.

Yet, it doesn’t take Sherlock Holmes to deduce that this is clearly the kind of analysis that is more helpful to the pro rather than the anti arguments.  Better off together?  Scotland too wee, too poor?  Scotland can’t afford to stand alone?  Hmm.