Murphy v Hague: Making sense of the GERS argument #ScotRef

MurphyvHague

For those unaware of it, yesterday (Wednesday 12 April 2017), economist Richard Murphy and businessman Kevin Hague debated (argued) about GERS on the John Beattie BBC Radio Scotland show. I want to try and summarise their arguments, as they came at the matter diametrically opposed, although there was at least a point of agreement, that should be regarded as critical to the ongoing debate.

You can find a recording of the show on the BBC iPlayer.

Murphy’s view of GERS

Murphy argues that the GERS figures are not fit for purpose. He regards the level of estimation within them as unacceptable to him and his profession. He expressed the view that they may have been fine in the past but devolved government has changed this and GERS has not evolved sufficiently to enable Scottish politicians, especially Ministers, to make fully informed judgements or decisions.

Hague’s view of GERS

Hague argues that GERS is fit for purpose. He feels that Murphy does not appreciate that purpose – which is to reflect as accurately as possible the state of Scottish finances within the UK. Hague refers to the fact that GERS is widely accepted, including by the Scottish Government, quoted for the purposes of national statistics, as independently compiled.

 

Where they agree

The point of agreement is important to note. Both Murphy and Hague agree that GERS does not represent what the finances of an independent Scotland would look like. They are there to reflect the current state of affairs.

What this basically means is that you cannot simply quote GERS figures when opining a view on the finances of Scotland in the event of independence. To gauge this you must extrapolate the data from GERS into a theoretical scenario where that state exists.

This is no mean feat and the best that anyone has published to date is the Beyond Gers report from Common Weal.

To demonstrate the difference between GERS and Beyond GERS, you only need to look at the headline figures. GERS indicates that there is a £15bn deficit in Scotland’s finances, whereas Beyond GERS indicates that an independent Scotland would have a significantly smaller deficit of £5.6bn.

It is important to note that there is no alternative to GERS. It is not a case where the GERS figures can be rejected and you can go and ‘shop’ for better ones.

At this point I might throw in a little Twitter exchange that occurred shortly after the broadcast.

Kevverage

The real bone of contention

Where Murphy and Hague fundamentally disagreed with each other is whether GERS is fit for purpose.

Hague’s position is that GERS is widely accepted as being as accurate as possible and independently compiled.

Murphy’s view is that this may be so, but that the standard should be higher, now that there is devolved government. Scotland’s GERS figures should be quoting far more actual data than the estimates that it uses. Murphy referred to the difficulties HMRC has had in identifying Scottish taxpayers for administering the Scottish Rate of Income Tax (SRIT), which are ongoing.

HMRC: Finding Scottish taxpayers ‘more complex than predicted’ – February 2015

HMRC faces ‘challenges’ over Scottish income tax – December 2016.

Conclusions

In many ways, both are right about what they say and the disagreement between them boils down to whether or not you accept that GERS data should be better than it is. Here is where I feel the problem really lies – whether or not it currently could be.

I agree with Murphy that the data should be better than it is, but I don’t know if it could be.

Does Hague? Does the Scottish Government? Have they let this issue slide or are they accepting lesser standards than they should? As to the latter, clearly Murphy feels that they are.

I’m inclined to think that they may have given up trying to push for the level of improvements that Murphy says there should be, and have instead accepted small, gradual improvements.

There are historical reasons why the level of actual financial data is as it is. The issue with HMRC identifying Scottish taxpayers, when it needed to for SRIT, indicates what the issues are and why they exist.

UK government departments have historically been exactly that – UK departments. They have not been set-up to deal with devolved government or assemblies.

The civil service has been constantly diminished in size by successive governments for decades, so differentiating between data that is Welsh, Scottish, Irish or English has not been a priority, although technology has been improving that should enable this.

Pretty much everyone in government – and Hague – has pragmatically accepted that the data is as good as it is going to get in these circumstances.

The establishment of the Scottish Rate of Income Tax and the problems HMRC has had, and is having with it,  is a wake-up call to this issue.

Murphy is essentially arguing that all have let this issue slide for too long and that GERS is overdue a significant upgrade in the level of actual data used in their compilation. He is calling for improvements and a higher standard than is currently accepted.

Hague’s position in stating that GERS is fit for purpose infers that he disagrees that this is necessary. He was not explicitly asked, nor offered an opinion on, whether doing this would be either practical or beneficial.

It seems reasonable to assume that no one would have a good reason to object to better quality data if it is available or if it can be readily made available.

The barriers, as to whether or not it is currently possible to obtain this quality of data, are largely a matter of political will, as well as practicality. It seems to me that Murphy is attempting to kick people out of their (perceived) complacency about GERS and to bring that political will about.

The practicality argument can largely, but not perhaps entirely, be overcome by political will. Again, I refer to the introduction of SRIT and getting HMRC to identify Scottish taxpayers as an example of exactly that.

HMRC was forced to identify Scottish taxpayers due to political will, but there have been considerable issues to overcome in doing so. And that’s just with one department’s set of figures.

It’s ‘Should v Could’.

 

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