Scotland Debate Descends Into Statistical Farce

Written By Unknown on Kamis, 29 Mei 2014 | 10.18

If ever you were after an example of everything that's wrong with political economics today, you need look no further than the debate over Scottish independence.

This is an issue of immense importance - one that will define these two countries for centuries. And yet it has descended into a statistical farce.

According to the "yes" camp, independent Scots would be £1,000 better off; Danny Alexander and the Treasury think they'll be £1,400 worse off.

The Treasury's £1,400-a-person figure represents the total difference between Scottish and rest-of-the-UK government deficits by 2035 (but expressed in terms of 2016/17 money).

This £1,400 is comprised of: extra borrowing costs an independent Scotland would face, the cost of long-term North Sea decline and the cost of an ageing population and higher public spending. All that set against the higher oil revenues an independent Scotland would enjoy.

Scotland's £1,000-a-head number is based on something else entirely: the extra tax revenue the country will derive from having higher employment and greater productivity growth - 2.5% as opposed to the 2.2% projected by the Office for Budget Responsibility (OBR).

All of that adds up to £5bn a year by 2029 which, according to Alex Salmond, works out as £1,000 a person.

Having established that these numbers aren't strictly comparable, we then find that the two sides' estimates of an independent Scotland's deficit in 2016/17, the year of possible independence, also disagree widely.

Both agree that the rest of the UK's deficit will, by then, be 2.4% of GDP. But they differ on what Scotland's will be.

Danny Alexander and Alex Salmond Danny Alexander (L) and Alex Salmond

The SNP says 2.8% of GDP. The Treasury says between 5.2% and 5.5% of GDP, citing the Glasgow-based Centre for Public Policy for Regions and the Institute for Fiscal Studies.

These numbers differ in large part because of their assessment of revenues from North Sea oil.

The OBR thinks these revenues are heading downwards, or at best plateauing. The SNP, using numbers from the industry group Oil and Gas UK, disagrees, and thinks they will increase.

HMT estimates the oil and gas tax take in 2016/17 will be £2.9bn, the SNP's comparable figure is £6.9bn.

It is not merely that these figures are different; they are, single-handedly, able to change the entire outlook for the country's finances.

So who should one believe? Or, to put it more appropriately, whose sums are the least egregious?

In the case of the Treasury, the supposed source for their initial estimate of how much it would cost to set up a Government north of the border, Patrick Dunleavy, described their figures as "bizarrely inaccurate".

The SNP's £1,000 a head dividend, meanwhile, is predicated on a best-case scenario rather than a cautious forecast for growth.

The Treasury's is based on independent numbers. I tend to prefer using independent forecasts, provided they're from reputable organisations, as these are.

But then this is the greyest of grey areas. It's a useful reminder of the fact that economics doesn't have answers to everything. Trying to pretend it only devalues your case - and your credibility.


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