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The ability of neoliberal economics to crush the lifeblood out of an economy and the people of a country has not ended as yet

Published by Anonymous (not verified) on Mon, 04/10/2021 - 6:17pm in

My column in The National this week came out last night instead of being in its usual Friday slot:

My argument is:

One big issue that is looming on all our horizons at present is politicians’ newfound enthusiasm for what are called fiscal rules. Like so much else in economics, the term ‘fiscal rule’ is not what it seems. It’s meant to convey order. What it actually means is that the person promoting the rule intends to balance the Government’s books so that government expenditure is equivalent to it tax income.

And as I point out:

Labour are not alone in saying this though. The Tories already have such a rule. They might have abandoned it during Covid, but Rishi Sunak is set to restart using it in his budget to be announced this month. And just in case there is any doubt about it, this is also logic that underpins Andrew Wilson’s Growth Commission Report for the SNP, which is the best indication of that party’s thinking on this issue.

In other words, we are in trouble on all fronts. The ability of neoliberal economics to crush the lifeblood out of an economy and the people of a country has not ended as yet, and all because our politicians refuse to engage with the economic alternatives that really do exist and which so obviously work. One day we will have politicians that do that. But not yet it seems.

Can Scotland afford to be independent? The answer, of course, is yes

Published by Anonymous (not verified) on Sun, 19/09/2021 - 5:29pm in

The London based Institute for Government has opined on Scotland’s currency options in the event of independence. The result is, unfortunately, very London-centric.

To give credit where it is due, they have noted that:

[T]hree currency options – a formal currency union with the rest of the UK, joining the euro, and ‘pegging’ a new Scottish currency to the value of another – are not initially viable.

In other words, the only possible option for Scotland is independent is its own, free floating, currency, which is exactly as modern monetary theory would suggest appropriate. Debate on any other option is, to be candid, meaningless.

It’s also unnecessary. Given that exchange rates are largely set by relative productivity rates after hot money flows are taken out of account then Scotland should have little difficulty in establishing a stable currency settling just a little lower than the pound (which will assist Scottish exports) after independence. This is a rate differential simply reflecting the absence of the hot money that the City of London generates.

Thereafter the report goes downhill. Its assumption are fourfold, although it is not explicit on them all:

a) Scotland will run a deficit of 8%;

b) Scotland will be dependent on international money markets;

c) Scotland will not be able to use QE;

d) Scotland will not be able to fund its own deficit from Scottish sources.

These assumptions are wrong. First, that deficit is based on data within the Union and is rigged to suggest that Scotland has higher deficits than it actually has. Do we need to keep revisiting this debate when even GERS makes it clear it is no indicator on this issue?

Second, it would seem that the Institute for Government has not noticed that the Covid pandemic has proved that countries do not need to borrow to fund deficits. It’s simply staggering that they have not.

That, of course, is linked to their overlooking QE, which Scotland could do if it had its own currency and central bank, which is the only option the Institute for Government suggest possible. It is a very basic error on their part to ignore this.

And last, there is the rather odd assumption that the Scottish people would not be willing to lend their own government money after independence. As in the rest of the UK there are substantial savings owned by Scottish people. My research has shown that maybe 80% of  UK savings are tax driven as to their location. This is likely to be true in Scotland, therefore. If the Scottish government decided that it wished to change tax incentives in ISAs, pensions and its own range of savings accounts to encourage people to save with it then that would very likely be successful in raising significant funds for it. The dependence on foreign money markets could be eliminated.

Better still, my solution puts Scottish savings to work, when at present few of those savings will actually fulfil any useful function within the economy. Much will be lying dormant in bank accounts earning almost nothing. And by Saving for Scotland what people will also do is provide the capital for the solid foundation of their new state - and in the process help build it for the generations to come. As a move towards national solidarity little could work better.

The Institute for Government looked for a problem and found it.

I looked for a solution and also found it.

Which of us is right? Might I suggest it’s the one who thought a little harder and worked out how to answer the question?

How do we get the Scottish Pound?

Published by Anonymous (not verified) on Fri, 10/09/2021 - 4:23pm in

The Scottish Currency Group, of which I am a member and which is run by Dr Tim Rideout, has issued a new publication entitled 'How do we get the Scottish Pound':

The dates are, of course, indicative.

The plausibility is not.

Sunak’s NIC rise is not just a disaster for most people, it’s a disaster for the whole idea of devolved government as well

Published by Anonymous (not verified) on Tue, 07/09/2021 - 4:31pm in

Unless the government briefing machine has gone very wrong we are going to see the announcement of 1.25% increases in both employer’s and employee’s national insurance contributions across the whole of the UK today. The funds are to be used to pay for increased spending by Westminster on the NHS, with the plan being focussed entirely on need in England. As yet no indication has been given as to how the devolved governments will get their fair share of these funds. I presume something will be done.

However, what I suggest is that whatever that ‘something that will be done’ might be it will not be enough to overcome the failings in this aspect of the decision being made. It is simply unacceptable that a decision made by England to address a crisis in a service that is managed and funded differently in each of the countries of the UK be imposed on the devolved countries.

Either those countries have devolved health care and associated budget responsibility, or they do not. If they do, that requires that they have tax autonomy. If they actually don’t now have that responsibility, as this decision implies, despite the legal representation that they do then the time for this type of devolved government has come to an end because it is no longer working.

Sunak’s wish to undertake class warfare against those on low pay when there is literally no need at this moment to fund an increase in NHS spending, let alone do so in just about the worst possible way, only very slightly disguises the naked aggression towards Wales, Scotland and Northern Ireland that is also an integral part of the modern Tory psyche.

Unfortunately for Sunak, his time has come at a moment when decades of deceit as to the intent of Tory politics has come to an end. Tory politics has not changed since the 80s. It has always been about English elite exceptionalism, contempt for most people and a desire to shift wealth ever upwards within society. However, from 1990 until the Cameron era there was an attempt to disguise that. But then the gloves came off, and now the bare-knuckles are apparent.

What is now happening is that the reality of Tory contempt is becoming apparent. It’s not that they do not care. It’s what they care about comes at considerable cost to most people in this country. And the consequences of that are clear. People will literally pay an unnecessary price in terms of additional tax just as they are being punished in so many other ways by the government and its failed policies. And in politics the compromises that have made the cooperation that underpins devolved government are being exposed, with the result that those systems will begin to fail.

For people in England one has to hope the ballot box will provide a chance to remove this government.

In Scotland, Wales and Northern Ireland the choice is going to be even more significant. Why they should wish to be treated as the last English colonies for any longer is hard to understand. The reasons for independence are growing.

I am aware that the only reason that we are getting an increase in national insurance is that this tax increase was the one that worked with focus groups. Let’s not pretend that at some levels there was any more analysis behind this decision than that. But the fact that having got this result the alarm bells did not go off in the supposedly politically astute minds of the ministers responsible is what is really telling. Their DNA is now so indifferent to the lot of those on normal earnings, and so contemptuous of devolved government and the nations that they represent, that nothing told those ministers they were about to make a major mistake that could be profoundly politically costly. Just as they no longer want Covid testing data because it might indicate a problem, so they seemingly disconnected their political alarm bells on this one to satisfy the expediency of the moment. Their indifference has been exposed.

I have no idea if what is planned today will be the tipping point that reveals Tory thinking as the facade for abuse that it really is, but it might be. And that is the only silver lining I can find in all this. Because what is happening is disastrous at every possible level.

The SNP – Greens Deal: is the devil in the exceptions?

Published by Anonymous (not verified) on Fri, 27/08/2021 - 4:35pm in

As The National tweeted yesterday, referring to my column in their paper:

It was long ago that I learned to look at what was not in deals, and what the stated exceptions were to really get a feel for what the whole thing might be about. In my column I concentrates on the exception clauses that the SNP and Greens in Scotland (who, I stress, are not the same party as the Greens in England and Wales) have agreed. I noted two things.

The first is that the two parties have agreed to disagree on the criteria for economic success. For the SNP this is inclusive growth - which I always fear has a feeling of trickle-down within it, although I am sure supporters would not agree - and sustainable growth, which is something very different.

Second, they have disagreed on how to measure success. The SNP want to use GDP and the Greens do not.

I admit I am on the Green side of this argument. I agree with Robert Kennedy who said before he was assassinated during his bid to become US President in 1968 that GDP:

does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

As I noted in The National:

If you substituted Scotland for America in the last sentence you’d know exactly why the Greens are right to reject GDP as a useful measure. The hopes, aspirations and quality of life of a nation can never be captured by GDP.

Sustainable growth can capture those aspirations. But inclusive growth? I doubt it.

No wonder this is not a coalition. I just hope that the Greens can stick to their positions if in office.

The Scottish government needs to say what it means about fair tax

Published by Anonymous (not verified) on Mon, 23/08/2021 - 6:30pm in

I noted this in the new deal between the SNP and Greens in Scotland:

I highlighted the last paragraph for a reason. Defining tax avoidance in this context is nigh on impossible. What you can do instead is define what is good practice that must be followed if tax avoidance is to be unlikely.

No one has tried to do this better than the Fair Tax Mark, run by the Fair Tax Foundation. Now, I am biased. I founded the FTM and still advise it, but am no longer a director. Those involved in this process will need to look at what it does.

Importantly though, grants, of course, do not all go to large companies. Critically, if the Scottish government is serious it has to:

  • Demand that all companies with public grants publish their full accounts on public record;
  • If they are a group full country-by-country reporting must be available on public record;
  • Ownership should be on public record;
  • There must be a tax governance policy in place;
  • It must be monitored and audited, annually;
  • That policy must require an explanation of the tax rate with workings supplied;
  • All cards must be face-up on the table;
  • No tax haven involvement should be permitted.

That is deliverable.

But if the SNP / Greens really wanted a level playing field they would demand this of all companies trading in Scotland.

And why not? Why is it only public procurement that matters? Can't people be fleeced in any sector at cost to society at large?  Why shouldn't everyone get the protection the government is seeking?

GERS on Scotonomics

Published by Anonymous (not verified) on Thu, 19/08/2021 - 9:55pm in

I did an hour-long special on Government Expenditure and Revenue Scotland (GERS) for Scotnomics last night. This is it.

Can Scotland afford to be independent?

Published by Anonymous (not verified) on Thu, 19/08/2021 - 4:24pm in

Having taken part in discussion on Scotonomics last night on yesterday’s GERS release it is clear that there are still big questions in people’s minds in Scotland over debt, and whether Scotland could afford to be independent. These are questions I have addressed before. These are a couple of videos on this theme:

This one on a Scottish currency might be relevant as well:

Why GERS is wrong – yet again

Published by Anonymous (not verified) on Wed, 18/08/2021 - 8:46pm in

The Government Expenditure and Revenue Scotland statement for 2021 is out. I suspect that it is no surprise to anyone that the tale is of gloom and woe for Scotland. This chart summarises the headline:

The claim will be that Scotland has done much worse than the rest of the UK. This chart supports that claim:

The gap between the Scottish position and the UK position has been running at around 7%. Now it is over 10%. So relatively it will be claimed Scotland has done much worse than the rest of the UK in the current crisis.

But is that true? Revenues as a proportion of those of the UK have been remarkably consistent:

The proportion of revenue raised in Scotland is almost constant.  So the claim has to be on the spending side:

And just look - the gap there has increased from spend being 5.% of GDP to 10% of GDP.

That is interesting. Because what I have spotted is something that supports my hypothesis that all this is manipulated by GDP being wrong. This is my modification of a table in the GERS document:

I have shown column headers to make it clear I added columns F, G and H.

What I show is that income tax is underpaid in Scotland, as is corporation tax pro rate to the UK. On the other hand, apparently Scotland overpays all the taxes on consumption compared to the UK, such as VAT and the various duties on tobacco and so on.

This could, of course, be true. But actually data on VAT and the duties is not known in Scotland, and the claim that even income tax data is known cannot actually really be said to be true: these are estimates. On the consumption taxes the estimate is based on people in Scotland having higher spending in proportion to income, and so paying more consumption taxes. This claim would be supported by the suggestion that incomes and profits in Scotland must be lower than in England because proportionately income and corporation taxes are lower.

But, suppose that is not true? No one actually knows how much profit is made in Scotland and no one will until there is a national account for it.

And no one also knows how much Scottish rent and interest paid is subject to tax in England when it should be taxed in Scotland.

And since wages only represent half of GDP the obvious fact that GDP may be shifted out of Scotland to present distortions is high, with tax being understated as a result.

I am willing to buy the story that the Scots overpay direct taxes and so are penalised by the lack of progressivity in the UK tax system. But I also think that income and corporation taxes, as well as capital gains taxes and inheritance taxes, are all seriously underpaid in Scotland - because the owners of that income and that wealth in Scotland pay their taxes on it in England.

How much would the adjustment be? It looks like to would be at least £3,000 milliu0n based on this data, although that is just a very rough estimate. That's around 5% of Scottish revenues though - and enough to cut the deficit by a  significant amount as a result. In other words - even the apparently consistent income side looks wrong - because maybe it always has been.

But let's look at the spend. Here, very oddly, GERS makes no direct comparison with the UK:

So, let me add the UK data and interpret it a bit:

The four columns on the right are my workings.

First, notice that Scottish data is inflated compared to the UK by including local pension fund costs, which are not in the UK data, which you might say is odd.

Then note how different the weightings of total spend are.

But the really interesting columns are the last two. The penultimate column shows the percentage of the total UK spend allocated to Scotland. Scotland had an 8.1% population share in 2020.

In the final column I compare the allocated share to Scotland with the anticipated 8.1% share and state the difference as a percentage of that 8.1% share. And then some really odd facts come out. For example,  why has Scotland got a disproportionately large share of interest payments, picking up almost 15% too much?

And why are common services so heavily, apparently, biased to Scotland?

Even accounting adjustments are over-apportioned to Scotland.

If these areas - which are likely to be simple apportionments - are overstated how reliable is the rest of the UK spend apportionment? I would suggest that the chance is very low. The evidence that costs are being piled onto Scotland looks to be very high to me based on this data.

I am trained as an auditor. The first thing I do when looking at any data is to make sure that it looks credible. Bluntly, and as ever, the data for 2021 within GERS looks to be wrong on both income (understated) and expenditure (heavily overstated).

But let's also look at what the auditor also asks, which is does this data first the need of the user? Here the GERS document says:

What Questions Does GERS Address?

GERS addresses three questions about Scotland’s public sector accounts for a given year:

  1. What revenues were raised in Scotland?
  2. How much did the country pay for the public services that were consumed?
  3. To what extent did the revenues raised cover the costs of these public services?

So, are the questions answered is what I have to ask?

With regard to question 1, the answer is we simply do not know: we do not know that Scotland's taxable income is fairly stated and we have no clue of what proportion of some tax were paid in Scotland. So the data on revenues is likely to be wrong.

With regard to 2, the data is just wrong. That's not just because the data estimates look wrong but also because of something else that is very important. In 2020/21 about £300 billion of the costs of public services in the UK as a whole were not paid for out of taxes. They were paid for by quantitative easing. There is not a single mention of this in the GERS document. But what that means is that actually total spending out of taxes was not £1,094,000 milli0n as the above data implies. They were actually about £800,000 million, or £800 billion. That QE is never going to be cancelled whatever the Bank of England says. In that case, the question asked is the wrong one: the UK did not pay with taxes for all the spend incurred so why should it be claimed that Scotland must?

And as a result the equation supposedly implicit in the third question is a false one.

The data in GERS is unfit for purpose. It is very likely wrong. And it does not answer any fair question that can be posed about the actions of any government of Scotland.  All we need to do is keep pointing that out in that case.

And keep asking that the Scottish government do better. I remain baffled as to why they do not want to do so.

Why is GERS completely rubbish accounting?

Published by Anonymous (not verified) on Wed, 18/08/2021 - 4:31pm in

In anticipation of GERS* day:

* Government Expenditure and Revenue Scotland (GERS)