Last year, Dublin City University Professor John Doyle found the fiscal gap – the difference between raised revenue and government expenditure – in the early days of an independent Wales would be a fraction of what has previously been assumed by the Office for National Statistics (ONS), after being commissioned by Plaid Cymru.
Figures from the ONS are often quoted as suggesting the deficit in an independent Wales on day one would be £13.5bn, but Professor Doyle – who looked at the year 2018/19 – concluded it would actually be £2.6bn when he factored in that a few central UK costs, such as UK debt charges and historic pension liabilities, would not transfer to an independent state.
Plaid Cymru leader Adam Price said his work “debunks” the argument that Wales is too poor to be independent and was “game-changing” for the campaign.
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On hearing about the groundbreaking research, Robin Thompson – who had a career in economic development with various Scottish councils – applied Doyle’s methodology to GERS figures for the same year of 2018/19 in a bid to examine whether an independent Scotland would inherit the giant fiscal gap the UK Government often claims it would.
The GERS [Government Expenditure and Revenue Scotland] figures for 2018/19 suggested the deficit in Scotland was £12.6bn, or 7% of GDP, but Thompson concluded an independent Scotland could actually inherit a surplus of £2.7bn.
GERS has been consistently criticised for only representing what Scotland’s economic situation is as part of the UK and gives no indication of what an independent Scotland would absorb.
Even in what Thompson regards as the “worst-case scenario” – where Scotland had to pay 100% of pension costs – he concluded the deficit would still only be £6.3bn or 3.4% of GDP.
He has highlighted the EU target is only 3% and so argues this would be “well within” Scotland’s reach.
Thompson, who is secretary of the Tinto SNP branch near Biggar, said: “I’ve lost count of the amount of times I’ve heard GERS represents the opening position for an independent Scotland.
“What Professor Doyle has done is set out why that is completely wrong.
“I’m not claiming to be an expert in government finance, but I do know enough about economics to know this [work of Professor Doyle’s] is significant and I thought it was an easy enough task to look at this myself.
“He made about five or six changes to the ONS figures and if you make these same changes to the GERS figures for the same year, 2018/19, you get a similar result. It knocks about £14bn off the alleged fiscal gap.
“The vast majority of the credit for this goes to Plaid Cymru and Professor Doyle for having the initiative to do this. One of the really clever things is instead of getting bogged down in whether GERS is an accurate presentation of what happens at present, they’ve just taken GERS, the current situation under devolution, and asked what of that fiscal gap would transfer to an independent state, and that is a new slant.”
The methodology assumes any historic public sector pension liabilities would be the responsibility of the government that made the commitments to retired and current employees – in this case the UK Government – and so would not be an inherited liability of a newly independent state. This figure is therefore not included within the estimate of the post-independence budget deficit.
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At present, the UK pays pensions to people who have worked some or all of their lives in the UK but now live elsewhere. Many Irish citizens, for example, in retirement in Ireland, receive their UK pension, and research concludes the two tax and benefit systems have a well-developed model of co-operation.
Doyle argues it is consistent with other practice that the UK would accept pension obligations which had been built up through tax and social insurance contributions, while an independent Wales – or Scotland – would take over such future liabilities building up from day one of the new state, hence Thompson has concluded the £9m of pension liabilities in the 2018/19 GERS figures would not exist.
Even in the “unlikely” scenario the UK rejected any obligation to pay state and public sector pensions, Scotland’s deficit would still be dramatically reduced, Thompson suggests.
The methodology also concludes the UK’s national debt – as the Treasury recognised in January 2014 – would be a matter for the UK Government and cannot be assigned to a newly independent state. It additionally suggests the level of defence expenditure post-independence would be a decision for a future government to make and not an inherited liability.
Research suggests there is no likelihood of an independent Wales – or Scotland – maintaining the same level of defence expenditure on items such as nuclear submarines or aircraft carriers.
Doyle also notes fiscal deficits are a product of decisions on taxation. An independent Scotland or Wales would have the power to decide what kind of tax policy they wish to adopt and this would have an impact on any fiscal gap.
Thompson – who highlighted Professor Doyle’s work to public finance minister Ivan McKee – said he was frustrated the Scottish Government had not sought to commission the Irish academic to do similar analysis as he had done for Wales.
He argued it could be the key to convincing undecided people to believe in Scottish independence.
He said: “The Scottish Government should be commissioning Professor Doyle to do this and then every year after adopt the same methodology.
“I suspect a significant number of middle-class people who are doing reasonably well just now are scared [to vote for independence] because they keep hearing there’s a £12bn black hole in Scotland’s finances that would need to be filled by austerity on stilts.
“It’s complete fiction. It’s like an urban myth.”
The Scottish Government has been approached for comment.