The annual GERS debate is settled, the real question is where the money goes

Headline numbers in this week’s update were that Scotland has a £25 billion deficit, which equates to a startling 10.9 per cent of GDP and we benefit from £2720 more per capita public spending than our English friends.

Fairly or unfairly – to which I will return – this is the annual spasm of economic headlines which more or less ensures that, if there is ever another referendum, the outcome would be the same as before.

People generally do not vote to be worse off and while the masses may not pore over the GERS details, most of them get the gist. In 2014, fiscal uncertainty and questions which could not be answered tipped the scales and in these respects, nothing has improved.

On the other hand, the “unfairness” element is summarised in the Fraser of Allander Institute’s annual health warning. “To use this (report) to say anything about an independent Scotland, in the absence of much-needed specific details about any future constitutional arrangement, is to misuse it”.

That’s true enough. The picture painted by GERS is the product of history. It would be roughly the inheritance on day one. Things might slowly get better but then again, they might get a whole lot worse. So a referendum would be another contest between evidence-based reality (see GERS) and a deeply hypothetical promised land, with only one winner.

The moon-howlers claim that GERS is all a pro-Union conspiracy though it is actually the work of the Scottish Government’s own statisticians. One of Alex Salmond’s first acts on coming to office in 2008 was to order a review of how the numbers are calculated, so arguing about their integrity is a lost cause.

Triumphalist conclusions from the other end of the spectrum can also be a bit tiresome. The case for spending allocations or per capita differentials should be based on need. I certainly don’t feel subsidised or dependent because Scotland comes out at the top of these tables.

Long before GERS or Holyrood were heard of, Scotland was a net beneficiary of UK-wide public spending for good reasons.

With a third of the UK landmass, it was assumed that extra costs were involved. The dire social conditions of the post-war years demanded a response, even more so as heavy industry declined.

Furthermore, though this now gets written out of history, Scotland was served by some exceptional politicians who knew how to get far more money out the Treasury than was proportionate to population alone. Names like Tom Johnston, John Maclay and Willie Ross spring to mind.

The gap between Scottish-based revenue and expenditure, though nobody measured it like that in these days, had become such a feature by the 1970s, that Bruce Millan, as Scottish Secretary, and Joel Barnett, Chief Secretary to the Treasury, struck a deal as friends as well as colleagues.

Instead of arguing over how much Scotland or Wales would get from each tranche of government spending, it would be tied to a formula – the fabled Barnett Formula as it became.

It was only meant to last for a year but, remarkably, is still with us.

When the Tories won in 1979 and George Younger succeeded Millan, he too realised the usefulness of a formula to protect Scottish funding. As Donald Dewar was wont to point out, it was a “convergence formula” to stop the gap getting even wider. But it still ensures that Holyrood enjoys a funding base that gives us that £2720 advantage for every man, woman and child.

That has nothing to do with recent political genius but is an inheritance from the success of pre-devolution Scottish politicians in establishing a principle from which we all continue to benefit. The highest fiscal priority of any Scottish Government should be to protect the Barnett Formula from envious eyes.

Within England, it is worth noting, there are big regional variations in per capita public spending. London, with all the infrastructure and social deprivation of a big city, is only a few hundred pounds behind Scotland while the gap with the prosperous south-east of England is £3500.

Maybe Scotland could do with our own internal version of that regional breakdown to test whether the budget at the Scottish Government’s disposal is reaching the parts which need it most, socially and geographically. The easiest way of delivering this would be to properly fund local authorities in proportion to needs.

I see this from both island and urban perspectives. The Western Isles in which I live have seen an 18 per cent cut in council funding over a decade, due to a formula which punishes depopulation. At the other end of the population range, Glasgow – with its all too apparent needs – has also seen repeated funding cuts.

A more pertinent question than “how much funding does Scotland get within the UK”, which GERS shows to be pretty decent, is how it is then distributed to address particular challenges.

The GERS figures show that Scotland has had some increases in tax revenues but not at a level which keeps up with spending. Additional devolved powers have been used to increase upper rates of tax while welfare spending rises. Both were predictable but represent an unsustainable direction of travel, to which the response cannot just be: “Send more money”.

The GERS debate is settled and the fundamentals are not going to change. Surely it’s time to turn the focus towards serious questions about how and where the money is spent and whether the outcomes reflect that funding advantage from which we continue to benefit.