Scottish Independence: False Arguments About Wealth And Poverty Don’t Help Anyone

This article by Gordon MacIntyre-Kemp at Business For Scotland annoys me on so many levels.

Firstly, he buries the only substantial fact in a short paragraph in the middle of the piece. According to GERS (Government Expenditure & Revenue in Scotland) in 2012 Scotland contributed 9.9% of UK tax revenue but received only 9.3% of UK spending. This means that the portrayal of Scotland by some newspapers (you know who you are) as a scrounging appendage to a benevolent UK is a heinous calumny. In 2012 Scots were net annual contributors to the UK Treasury to the tune of £824 per head.

Most of the article is taken up with a cack-handed attempt to prove that the south of England is sucking wealth away from Scotland, using coloured maps of the UK to show differences in wealth, GDP and life expectancy.

The first map purports to show a concentration of wealth in the far south of England. What it actually shows is the percentage of households with assets of a monetary value that’s greater than £967,000 is higher in the south of England than in the rest of the UK. The second map shows regional GDP per capita in 2010, clearly indicating that large chunks of Scotland contribute just as much to GDP per person as some of the south of England.

Comparing the first map with the second one, Gordon concludes that much of the wealth produced in Scotland ends up in the south England. Based on the data that he’s presenting us with this analysis doesn’t stack up.

The first map could mean that loads of people in the south of England are rich, or it could mean that there are lots of elderly widows living in poverty on state pensions in houses that they’ve owned for decades which, thanks to the property bubble, have a nominal value of a million pounds. We have no way of telling to which extent either of these interpretations, or any other, is true.

The second map doesn’t tell us anything at all about wealth. GDP (gross domestic product) is an estimate of the value of monetary transactions over a period of time. If I buy a lottery ticket and an avocado pear in the supermarket in Portree the value of these purchases is added to Scotland’s GDP despite the fact that no-one involved in the transaction has produced a single atom of wealth in Scotland. The avocado was grown in Portugal and the lottery ticket is nothing more than a transfer of money from one mug to another.

There is doubtless some wealth produced  in Scotland that gets accounted for in the GDP figures, but there’s no way of telling its monetary value, or indeed its real value. In short, the two maps tell us nothing about where wealth is produced and where it is accumulated.

Gordon’s interpretation of the third map, which shows average life expectancy by region, is another egregious abuse of data. He asks us to believe that people in Scotland die younger than people in the south of England because they are less wealthy. Looking at the map and applying random knowledge of the UK we could just as easily say that life expectancy is related to weather, or genetics, or culture.

I understand that enthusiasts for Scottish independence want to make arguments to support their case but articles like this do nothing to help. Using feeble analysis of economic data to demonise the south of England  and lionise Scotland is puerile and counterproductive, giving opponents of independence an easy bone on which to chew while diverting attention away from what’s really wrong with our economy and how it might be fixed in an independent Scotland.

Whether we take Scotland or the UK as our political arena the distribution of wealth and opportunity is a lot more complex than the lazy averages of Gordon’s maps. There is plenty of poverty in the Greater London area and plenty of wealth in post-industrial Lanarkshire. The problem has nothing to do with the location of political power.

So much of the rhetoric of the pro-independence movement is about fairness and equality and distribution of wealth but I have yet to hear a single cogent argument from any mainstream independence enthusiast that tells me how poverty will be eliminated post-independence or what will be done to ensure that the Scottish economy is able to flourish.

The established ways of doing economics and politics in the UK are barely functioning, limping along, crying out for reform. Scottish independence presents us with a golden opportunity to make comprehensive changes to our chronically dysfunctional financial and political systems but all we’re getting from our political and economic leaders is the promise of more of the same. They want us to believe that doing it from Edinburgh will somehow be much better than doing it from London.

The demographics of poverty don’t recognise the borders that we draw around our councils and parliaments. In this land of plenty (Scotland or the UK, take your pick) poverty, and the fear of it, is a direct result of the way that we allow our financial systems to operate. Gaining control of the conventional fiscal levers in Edinburgh will do nothing to stop the inexorable growth of debt that holds most of us in its thrall and is the root of all our economic woes.

To Gordon and the team at Business For Scotland, if you’re serious about developing a thriving economy in which people no longer have to live with the fear of poverty then you need to stop wasting time on petty, false arguments with the neighbours and start focusing on what’s actually wrong with our financial systems and what could be done to make them work for the benefit of all of us.

Independence, of itself, is not a solution, it’s merely an opportunity to develop solutions. Please stop wasting that opportunity.

11 thoughts on “Scottish Independence: False Arguments About Wealth And Poverty Don’t Help Anyone

  1. Er – just to point out that the 9.9% and 9.3% refer to different numbers. According to GERS 9.9% of UK tax revenue contributed by Scotland amounts to £56,871 Million – whereas the 9.3% of UK expenditure spent in Scotland is £64,457 Million. So what the SNP are doing is trying to make out that Scotland contributes more to the UK in tax revenues than it gets back in government expenditure when in reality the opposite is the case.
    http://www.scotland.gov.uk/Resource/0041/00415875.pdf see page 5
    So where do you get the £824 per head net contributor figure?

    • As I understand it the difference between revenue and expenditure is accounted for by Scotland’s share of UK government borrowing c.£7,600 million – a deficit of 113%. If you do the same sum for the UK as a whole I’m told that the deficit is 121%. So Scotland’s tax contribution is proportionately higher than the UK as a whole. I think that’s where the £824/head comes from.

      In this video – http://www.youtube.com/watch?v=1W8cKHcZn60 – Ivan McKee seems to be working from the same figures as Gordon MacIntyre-Kemp. He summarises the deficit stuff in the first five minutes, after which he slides into the same conjectural nonsense as GMK.

      EDIT: Even better, scroll down to page 6 of the GERS document to Table E4 Net Fiscal Balance: Scotland -5.0%; UK -7.9%. Not sure how they get from here to £824/head because we don’t have figures for UK minus Scotland (and I can’t be bothered working them out), but Scotland is clearly a net contributor.

      • Malcolm, If you had watched the whole video you would know the answer to that question.

        Had Scotland received 9.9% of UK spending to match its 9.9% of UK tax take it contributes then total Scottish revenue would be £4.4bn higher. Which is £824 per person.

        Frankly if you cant be bothered to work out the numbers, but have the time to spew forth about them on your blog from a position of self-confessed ignorance, then its hard to give you much credit for rigorous analysis.

        “When you can measure what you are speaking about, and express it in numbers, you know something about it, when you cannot express it in numbers, your knowledge is of a meagre and unsatisfactory kind” William Thomson (Lord Kelvin).

        I don’t disagree that discussion around which of the many opportunities that Independence opens up we should build on is to be welcomed. The work from the Common Weal for example is part of that dialogue. But that absolutely doesn’t remove the need to kill stone dead the myths around Scotland the subsidy junky, which all the polling evidence shows is the main reason why Yes isn’t yet in the lead.

        Helen Taylor – go watch the video then you will understand where the numbers come from.

        The whole point is that while Scotland runs a deficit it runs a much smaller deficit than the UK as a whole (and lower than the OECD average).

        I can understand Johann Lamont not understanding that, (as her salary depends on her not understand it), but I’m sure you can do better than that 🙂

        • Why should Scottish taxes not be used to help alleviate poverty in Middlesbrough? Why is it better to use this money to fund prescriptions for rich people in Scotland? Why do values stop at a border? Scotland’s deficit position is reliant on the oil – which does not last forever. A vote for independence is forever – removing forever the security and mutual benefits which we enjoy being part of a bigger country. I believe pooling and sharing resources across the UK is good for Scotland – for one thing we would not have so much renewable energy activity in Scotland were it not for the subsidies paid by electricity customers in the rest of the UK – so this is a real benefit to Scotland. This is not saying that Scotland is a subsidy junkie – it is just saying that there are many many benefits from being part of the UK, and a huge number of unknowns and risks in cutting ourselves adrift. If every area of the UK which thought it was ‘better off’ than the rest of the UK decided to go it alone – where would that leave the poorer areas?

          • Helen,

            In your first post you said “… trying to make out that Scotland contributes more to the UK in tax revenues than it gets back in government expenditure when in reality the opposite is the case.”.

            You now accept that Scotland does contribute more than it gets back but you want to debate how we best use that money – that is good progress.

            Value shouldn’t stop at borders, I agree – but you seen to suggest that they should stop at Dover – why not use the money to alleviate poverty in Gdansk or Mumbai ?

            If you believe there are benefits in being part of a bigger country are you in favour of a United States of Europe ? Or maybe we should apply to become the 51st state of the USA ? Your argument only make sense if you accept the British Nationalist position that there is something sacrosanct about the nation state that is the current UK (the geographical entity that is the island of Great Britain and a bit of Ireland).

            Even without Oil Scotland’s GDP per head is 99% of the UK average – we are not dependent on oil.
            The UK however is dependent on the City of London financial services sector – a much more volatile, transient and potentially short-lives sector than the North Sea.

            All of these points are in the video – did you not watch it ?

            Scotland is well able to fund investment in renewables from its own resources, and this is a source of energy and wealth that will go on for ever.

            If you really feel bad about poverty in rUK then after Indy you can make the case that we send cash south as part of our Overseas aid budget – which will be 0.7% of GDP, the international target that the UK has failed to achieve – so much for values not stopping at borders.

            The reality is that wealth in the UK flows to the South East, and in particular London and the City of London. That is not just economics, its politics, with all of the UK parties having shown that they are perfectly happy with that state of affairs. The best thing we can do for the North East of England (an area I lived in for many years) is to demonstrate that there is an alternative way to do things that differs from the current austerity program that all the UK parties advocate.

            The main risks are all associated with a No vote. As you will know if you have watched the video Scotland receives £1200 more per head in public spending than the UK average (but still less than London receives), but this is more than paid for by the £1700 extra that we generate in taxes. In the event of a No vote there will be substantial cuts to Scotland’s block grant, of that there is no doubt -why would voters in the SE of England allow the current situation to continue as austerity starts to bite in earnest after 2015.

            Do you remember the last time we failed to take our future into our own hands ? The aftermath of the 1979 referendum in Scotland was not pretty. If there is a No vote this year then we can expect the same, and more.

        • Ivan, the spewing that I did regards the revenue/expenditure numbers was in support of Gordon’s (and your) figures. I merely hadn’t followed the detail of the calculations that result in the £824/head figure. Knowing that the rest of the figures were correct in Gordon’s article I took the £824/head on trust.

          My complaint about Gordon’s article (and your video, and much of the rhetoric from the Yes camp) is that it offers no solutions to the real problems of our dysfunctional financial system, preferring to fill our heads with ideas of Scotland being disadvantaged by Britain, in this case supported by some very dodgy interpretation of data.

          All the conditions that are required for bank failures, boom and bust, material poverty, mass unemployment, and investment starvation of productive businesses are with us now and will still be there in an independent Scotland unless we work out ways of reforming how our financial and fiscal systems operate. My challenge to Business for Scotland is to debate these things and propose plausible solutions rather than demonise Britain as the source of our problems.

          And before you start berating me as a unionist you should know that I’ve laid down the same challenge to the No camp.

          I’m one of the many in the middle who are as unconvinced by the arguments for independence as we are disillusioned by the status quo. I would have thought that both sides would be keen to listen to what really matters to us and look for ways to address our concerns.

          • Malcolm,

            First apologies if I was over keen to jump on you about the sums.
            I can see where you are coming from now.
            Its not really a debate about the affordability of Indy you are looking for, you’ve got a different agenda, which is fine.
            I just watched the Krajack video.

            On some things I think we can agree, the need for better control of the Banks (and bankers) and the usefulness of an expansionary policy (borrow to invest) where It makes sense.

            Where I just don’t buy the Krajack message though is that in the long run I think you do need to keep the national debt under control. If all you do is keep on printing more money surely all that happens is that the exchange rate punishes you. Now some devaluation can be useful, but there is a limit – otherwise you end up like Zimbabwe surely ?

            All countries (even the US) are heavily integrated into the global economy. If you want to buy stuff internationally at prices you can afford then you need to make sure the value of your currency is able to support that. If the markets decided that the USD for example was only worth a fraction of what it is worth today (in relation to the RMB) then China is going to stop sending them all those cheap goodies pretty fast. They’ll sell them where they can get a better price for them – domestically or elsewhere.

            Isn’t that the end-game if you run unsustainably large deficits for too long, eventually your standard of living takes a tumble cos while you can still keep on printing your own currency if no-one thinks its worth anything then that doesn’t really help you.

            50 years ago the GBP was worth 11 DM (5.5 Euros), today of course its at around Eur 1.20.
            That’s a measure of a lot of things, but the consequence (once you factor in inflation) is that Germans are much richer than Brits these days – ie relatively speaking they can afford to buy a lot more than they could 50 years ago.

            So while the illusion of printing money can keep everything looking OK in the domestic economy for a while eventually the wheels fall off and you cant buy what you want/need in the global markets – be it manufactured goods, commodities or energy.Then things can get more than a bit messy.

            The west (primarily the US) because it has been in the position of being able to set the global rules on the how the world economy runs for so long, and, in the case of the US, has the main global reserve currency, has been able to get away with a lot of things that other countries would have been punished for (Argentina, Russia a couple of examples) but there is no god given right why that state of affairs would continue (American exceptionalism is a myth).

            • Ivan,

              Thanks for the reminder about the Krajack video (I should have guessed that you were referring to something that you found on my blog).

              The main point that I take away from the Krajack video is that government debt represents a significant chunk of aggregate private savings.

              This means that government spending is responsible for recycling a significant chunk of money through the economy, which is a good thing in our current system where we are constantly struggling against the curse of stagnant money.

              The problem with government borrowing isn’t the size of the debt (which can be maintained at whatever level you like as long as people are willing to lend and government is willing to spend) but the amount of interest that has to be paid – most of which fails to find its way back into the productive economy.

              Our economy is hampered by our obsession with capturing and hoarding money rather than putting it to productive use. For a productive economy to thrive money must be available and mobile, constantly cycling between producers and consumers.

              If we could only recognise the genius of money as a tool for commerce and the folly of using it as a proxy for wealth then we’d be more than half way to solving the problems of poverty, economic stagnation, inflation, lack of investment, and much more.

              I’d like to see a mainstream debate on what can be done to reform our systems of taxation and finance so that they encourage us to use money to facilitate productive activity rather than using it to make us feel rich.

              There are lots of good ideas out there that can inform the debate – Positive Money, MMT, my own book, for example – and help to develop plausible alternatives to the financial/fiscal burach that has us drowning in an ever-rising tide of debt.

              I see this as a much more pressing and important issue than independence, but I’m interested in the opportunity for reform that independence might represent, which is why I’m challenging the likes of yourselves to join the debate.

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