Revealing the truth

about the SNPs

plans for full fiscal

autonomy

The case against the Scottish Government

We believe the Scottish Government has misused civil service resources to publish

misleading statistics about Scotlands economic future.

They have done this to conceal the significant austerity that would be caused by their key

general election demand: Full Fiscal Autonomy within the UK.

Full Fiscal Autonomy means that taxes raised in Scotland pay for all public services in

Scotland. Impartial analysis from the Institute for Fiscal Studies (IFS) shows that this means

a 7.6 billion gap (by 2015-16)1 that would need to be filled by borrowing, tax increases or

cuts.

SNP Ministers have:

Presented an analysis which purports to show how Full Fiscal Autonomy would work

in Scotland - but according to SPICe and Professor Brian Ashcroft, the Scottish

Government has either double counted or failed to explain what cuts, increased

taxes, or borrowings they would make instead. Their analysis is appears to be based

on the assumption that Scotland will continue to receive the block grant (determined

by the Barnett Formula) while retaining all taxes raised in Scotland. Further they have

based their economic analysis on growth assumptions that are not supported by a

policy analysis, or an assessment of the likelihood of achieving such growth.

Blocked analysis by the Scottish Parliaments Information Centre (SPICe) on behalf

of MSPs.

1 Institute for Fiscal Studies Scotlands Fiscal Position: an update in light of the OBRs March forecasts, 19

March 2015. http://www.ifs.org.uk/publications/7652

Timeline

3rd

March

The SNP Government publishes Scotlands Economic Strategy which argues for Fiscal Autonomy.

Alongside it they publish a document titled Benefits of Improved Economic Performance. This looks at the impact of the new Smith Powers on GDP, jobs and revenues. And it sets out the potential impact after 10 years of increasing productivity by 0.1% a year, narrowing the investment gap between Scotland and its peers, and boosting exports by 50%.

Neither the Economic Strategy, nor the accompanying document, sets out policies which would achieve these goals.

9th

March

At 4 am the Scottish Government published a press release claiming fiscal autonomy could lead to greater tax revenues.

At 9.44 am the Scottish Government published another document, also titled Benefits of Improved Economic Performance to go with the press release. This document adds another scenario - Full Revenue Retention or Fiscal Autonomy as it is described in the Economic Strategy.

10th

March

The Scottish Parliament Information Centre (SPICe), which provides MSPs with accurate information and analysis, contacted the Scottish Government asking for details of the statistical model used in the Economic Benefits papers.

11th

March

The Scottish Government published the annual GERS figures for 2013/14 which show Scotland would face billions of additional cuts from the introduction of Fiscal Autonomy and the loss of the Barnett Formula.

The IFS estimated that in 2015/16, Full Fiscal Autonomy would mean 6.6 billion of extra austerity for Scotland.

12th

March

Having failed to obtain a response to their request for details of which statistical model was used to calculate the Economic Benefits papers, SPICe contacts the Scottish Government again asking for the information on behalf of MSPs.

15th

March

Professor Brian Ashcroft of Strathclyde University, who prepared a Computable General Equilibrium (CGE) model for the Scottish Government, writes speculating that this was the model used by the Scottish Government for its Economic Benefits papers, and on that basis concludes that they have failed to remove Barnett from their calculations for Fiscal Autonomy.

16th

March

Nearly a week later, the Scottish Government finally respond to SPICe and confirm that they did use the Scottish Governments CGE framework for the modelling work.

SPICe then confirm that the Scottish Government has used a common starting point for calculating revenues for the current devolution plans and Full Fiscal Autonomy. i.e when calculating revenues under fiscal autonomy they had not removed the proceeds from the block grant.

17th

March

In response to a request on behalf of MSPs, SPICe asks the Scottish Government if it would re-run the CGE model using a different set of assumptions. This would have allowed for the removal of Barnett under Full Fiscal Autonomy.

18th

March

The UK Budget announces new tax cuts for the North Sea oil industry. The OBR estimate oil revenues will fall to 600m, ten times less than the SNP Governments official estimates.

The IFS revise its cost of Fiscal Autonomy to 7.6 billion after the budget measures.

19th

March

Nicola Sturgeon, twice, at First Ministers Questions, denies that the analysis the SNP government published on the 9

th March included Barnett in its calculations. She tells Parliament: The modelling

does not simulate the continuation of the Barnett formula, and the Barnett formula is not part of the modelling framework.

23rd

March

The Scottish Government responds to SPICe refusing to re-run the model saying MSPs should ask Ministers themselves.

http://www.gov.scot/Resource/0047/00472389.pdfhttp://news.scotland.gov.uk/imagelibrary/downloadmedia.ashx?MediaDetailsID=3383&SizeId=-1http://news.scotland.gov.uk/imagelibrary/downloadmedia.ashx?MediaDetailsID=3417&SizeId=-1http://news.scotland.gov.uk/imagelibrary/downloadmedia.ashx?MediaDetailsID=3417&SizeId=-1

Full fiscal autonomy

The Scottish Government has repeatedly stated that its main policy platform for the

forthcoming general election is to achieve full fiscal autonomy within the UK.

Well I want full fiscal autonomy for the Scottish government. I want us to be responsible for raising our own revenues and deciding how those revenues are spent.

Nicola Sturgeon, The Andrew Marr Show, 25th

January 2015

Full fiscal autonomy is where Scotland raises all its own tax revenue to pay for all its own

public spending and pays the UK Treasury for shared resources, such as defence.

The SNP Governments economic strategy

On March 3rd, the SNP Government published its economic strategy, with a supporting

economic benefits analysis paper which showed how the SNP government would increase

growth using three economic drivers: productivity, investment and exports.

The paper gave an analysis of how much tax revenue this increase and growth would

generate for Scotland, under the proposed Smith Commission powers.

On 9th March the Scottish Government published a second economic analysis paper. It

asserted how much tax revenue would be raised under fiscal autonomy, where:

" .... all additional tax revenue generated by the expansion in the economy are

assumed to be retained in Scotland and reinvested back into Scotlands public

finances and public services. This scenario is referred to in the paper as Full

Revenue Retention.2

Both economic benefit papers assume a 0.1% increase per annum in productivity, without

giving any underlying policy analysis for achieving this. They assume a narrowing of the gap

between Scotland and our international peers on business investment, without giving any

policy on how to achieve it. And they assume a 50% growth in exports, again without giving

any analysis of how this would be achieved.

However, according to SPICe and Professor Brian Ashcroft, among others, the most

challenging feature of the second paper is that the analysis assumes full revenue retention,

i.e. that all taxes are retained by Scotland rather than paid into a shared UK pot, and further

assumes that Scotland will keep the benefits of the block grant which is determined by the

Barnett Formula.

Professor Brian Ashcroft of the University of Strathclyde has written criticising the Scottish

Governments analysis. He said:

Given that we currently benefit from Barnett, to undertake an analysis which does

not acknowledge this loss is partial at best and dishonest at worst.3

2 Scottish Government, Benefits of Improved Economic Performance, 9 March 2015.

http://news.scotland.gov.uk/Multimedia-Library/Benefits-of-Improved-Economic-Performance-d59.aspx 3 See http://www.scottisheconomywatch.com/ for Prof Ashcrofts analysis, Government economists and the

Scottish Government, 15 March 2015.

http://www.scottisheconomywatch.com/

SPICe is clear that the Scottish Government has either failed to exclude the block grant from

their economic modelling for the economic benefits papers, or failed to explain what fiscal

measures they would take to plug the gap.

As SPICe report, in relation to Full Revenue Retention, after conversations with Scottish

Government economists:

Principally, either government spending would need to be lower, tax revenues would

need to be higher or borrowing would need to be higher in order to balance

expenditure and revenue in Scotlands economy.

The definition of fiscal autonomy that is accepted by all, including the Scottish Government,

is that the Scottish Government would not receive a block grant from the UK Treasury,

instead it would raise its own tax revenues.

Therefore the assumption in the economic benefits papers that the Scottish Government

would receive all taxes raised in Scotland and its existing allocation of shared UK taxes,

inflates Scottish revenues by 4 billion. This figure, according to the IFS, would grow to 7.6

billion. It is double-counting.

First Minister denies double counting

When challenged on whether her governments economic analysis included the retention of

the benefits of Barnett and all tax revenues generated in Scotland, Nicola Sturgeon twice

told the Scottish Parliament that it did not:

The modelling does not simulate the continuation of the Barnett formula; the Scottish

Government analysis illustrates how being able to retain the benefits of improved

economic performance in Scotland would allow us to invest in Scotlands public

services and in turn further improve our countrys economic potential.

Well, you know just because Jackie Baillie thinks something is the case, doesnt

actually make it the case. As we know from past experience Presiding Officer, the

Barnett formula is not part of the modelling framework, what the framework and the

modelling does is look at how if we pursued particular policies and it then benefited

and boosted economic performance, we could grow the revenues of Scotland.4

This suggests that she either misled parliament as her statements appear to be a direct

contradiction of the information provided by her own economists to SPICe and the analysis

by Professor Ashcroft.

Or if her statements are true, then the Scottish Government is planning to cut public

spending significantly, raise taxes or increasing borrowing perhaps all three - to plug the

fiscal gap caused by fiscal autonomy.

However it is impossible to make a proper judgement as to what the First Minister means by

her statements, as the Scottish Government has failed to give MSPs the assumptions

underpinning their modelling. And further has refused a request to re-run their economic

modelling to test other scenarios, e.g. by removing the block grant from the baseline for

Fiscal Autonomy.

4 See Official Report, First Ministers Questions, Scottish Parliament, 19

th March, 2015.

The Scottish Government has a record of misusing

statistics

It is worth noting that, just as the fraudulent analysis of fiscal autonomy was rushed out

ahead of damaging GERS statistics, the Oil and Gas Bulletin that exaggerated oil revenues

was also rushed out by John Swinney in response to bad public spending statistics.5

The Scottish Government has also been exposed manipulating official statistics on an oil

fund. An official Scottish Government document published in 2013 predicted that Scotland

could have made a profit by borrowing to pay into an oil fund over the previous five years.

But when the full analysis that was provided to Ministers was revealed under a Freedom of

Information request, it was discovered that Ministers had in fact received advice that over ten

years Scotland would have made a loss from borrowing to pay into an oil fund. Ministers had

chosen to publish only the period showing a profit from within those ten years.6

On a further occasion, Nicola Sturgeon received an official rebuke from the official statistics

watchdog for misleading analysis underplaying the impact of Scotlands ageing population.7

This latest, and most serious, example of the Scottish Government using official statistics to

mislead the public, strengthens Scottish Labours call for an impartial Scottish OBR to

replace the politically appointed Fiscal Commission.

The Scottish Government has misled and misused statistics repeatedly. The Scottish public

can have no confidence that their government is telling the truth. It is time for an independent

Scottish OBR and answers.

5 See reports on exaggeration of oil revenues such as http://www.telegraph.co.uk/news/uknews/scottish-

independence/11481354/SNP-referendum-oil-figures-13-times-higher-than-reality.html 6 Scottish Government Freedom of Information disclosure http://www.gov.scot/Resource/0043/00435599.pdf

7 Letter from UK Statistics Authority http://www.statisticsauthority.gov.uk/reports---

correspondence/correspondence/letter-from-sir-andrew-dilnot-to-rt--hon--alistair-darling-mp-28-october-2013.pdf

http://www.telegraph.co.uk/news/uknews/scottish-independence/11481354/SNP-referendum-oil-figures-13-times-higher-than-reality.htmlhttp://www.telegraph.co.uk/news/uknews/scottish-independence/11481354/SNP-referendum-oil-figures-13-times-higher-than-reality.htmlhttp://www.gov.scot/Resource/0043/00435599.pdfhttp://www.statisticsauthority.gov.uk/reports---correspondence/correspondence/letter-from-sir-andrew-dilnot-to-rt--hon--alistair-darling-mp-28-october-2013.pdfhttp://www.statisticsauthority.gov.uk/reports---correspondence/correspondence/letter-from-sir-andrew-dilnot-to-rt--hon--alistair-darling-mp-28-october-2013.pdfhttp://www.statisticsauthority.gov.uk/reports---correspondence/correspondence/letter-from-sir-andrew-dilnot-to-rt--hon--alistair-darling-mp-28-october-2013.pdf