Westminster charges Scotland billions of pounds in service costs

| 12/03/2014 | 28 Comments

de_1962807cThe latest Government figures on Scotland’s economy contain billions in service charges for activities in the rest of the UK. As pointed out by Douglas Fraser, BBC Scotland Business and Economy Editor, this raises a challenge over measuring Scotland’s economy.

Despite claiming to present Scotland’s financial position, the Government Expenditure and Revenue Scotland figures include higher costs for defence, debt and administrative services that should not apply to Scotland.

The extra costs for services in the rest of the UK make Scotland’s finances appear worse than they actually are by billions of pounds every year. In the last 5 years these sectors cost Scotland £35 billion; yet Scotland did not receive or need £35 billion in services. Only in an independent Scotland will Scotland have full control over its own financial decisions and spending.

Westminster debt costs Scotland

Screen-Shot-2013-11-05-at-12.13.33Business for Scotland previously highlighted that Westminster has cost Scotland £64 billion in unnecessary debt interest costs. Today’s figures subtracted another £4.02 billion from Scotland’s accounts due to Westminster’s debts.

In the last 5 years Scotland has paid £17.067 billion to service Westminster’s debt. The UK’s failed economic model has dragged Scotland down. As a recent report by the Reid Foundation explained, political decisions have benefited London and the South East at the expense of the rest of the UK. Scotland’s accounts pay the price for this in debt interest.

On the basis of a fair division of assets and liabilities, (and therefore the continuation of the currency union),  Scotland will continue to service a share of the UK debt. However, Scotland’s debt to GDP ratio will be lower than the UK’s in all circumstances. This means that Scotland will be in a stronger position to service this share of the debt going forward.

Scotland’s excessive defence charges

In the past 5 years Scotland was charged £15.813 billion in defence costs. However, government figures have found a massive defence underspend in Scotland. Between 2002 and 2008 £5.6 billion less was spent in Scotland than Scotland paid in costs.

Scotland has also paid for one of the largest military budgets in the world while defence jobs in Scotland have been cut by 27.9% across a decade. Scotland continues to face the brunt of UK military cuts.

This year £3.027 billion was taken out of Scotland’s budget for defence. Similar countries operate strong military forces on costs between £1.5 and £2.5 billion a year. Currently Scotland is charged extra costs for a poorer service, receiving only around £2 billion of these costs.

6a00d8341c091653ef013480457bf1970c-500piThis service cost includes around £200 million a year for Trident nuclear missiles. Over its lifetime Scotland’s financial accounts have been damaged by billions of pounds due to the cost of nuclear missiles. Currently Scotland does not even have Maritime Patrol Aircraft or Maritime Patrol Vessels despite the significance of its coastline to national security.

Scotland continues to be charged billions of pounds extra in its national accounts without benefiting from the services it pays for.

Administration and service costs

£1.381 billion is subtracted from Scotland’s finances for ‘public and common services costs’. Over the past 5 years £2.1 billion has paid for Westminster’s administration structure – ie. services in the rest of the UK and Scotland.

This includes Scotland’s contribution to the UK’s £3.84 billion tax administration spend, £1.6 billion in UK Border Agency costs and hundreds of millions of pounds for the House of Lords and Commons.

Some of this £2.1 billion will have been spent in Scotland. However, Scotland is subsidising Westminster costs in a number of areas.

Firstly, the UK’s tax administration costs are based on an inefficient model of tax collection. As a result, Scotland has to pay far higher costs than similar countries. Collection costs are 50% lower in Sweden and Switzerland.

tax collection costs

Scotland’s current population share of UK costs is around £323 million. Following sensible reports (Mirrllees and Beveridge) could save Scotland significant amounts in administration costs.

The UK Border Agency is also an area of heavy spending in the rest of the UK. Scotland’s share of its £1.6 billion contributes towards its heavy focus on the English Channel. This is the key entry point to England from mainland Europe. Therefore Scotland subsidises its £416 million in ‘Crime and Enforcement’ costs (page 73) with little return.

A Scottish Border and Migration Service would require lower spending on security for airports, ports, coastal regions and in police support. This would not amount to the same level of costs of £1.6 billion that the UK spends or require the level of intense policing that takes place between Dover and Calais.

Paying for the Westminster Parliament

Britain's Queen Elizabeth delivers her speech during the State Opening of Parliament at the House of Lords in LondonScotland will save £60 million a year in paying Westminster’s expenses for the House of Commons and Lords. This may seem like a small number within a national budget – but over 5 years £300 million would be a significant sum of money for extra spending, lower debt and lower taxes in taxes.

Conclusion

Today’s GERS report demonstrates that Scotland is a wealthy nation – but it also highlights that people in Scotland are also paying the price for Westminster’s incompetence. Last year the Union cost Scotland £9.4 billion in services Scotland had no control over. A Yes vote will reduce these service charges and put Scotland’s finances onto an even stronger financial position.

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Category: Entrepreneurship

About the Author ()

Michael is Head of Research with Business for Scotland. A graduate from the University of Glasgow, he has carried out a series of interviews with academics, politicians and the public in Denmark, Iceland and Ireland. Michael's on twitter @GrayInGlasgow.

Comments (28)

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  1. jim scarlett says:

    we all have our opinions on whether scotland can go it alone or not, but we all agree on one thing, wastemonster must go, so forget all the questions of can we or can we not and concentrate on getting rid of the worst prime minister in british history and his cronies, only then can we choose a new prime minister not for scotland but for britain, and if all goes well then scotland or wales wont need to become independent, ‘better together’ is right, but without wastemonster

  2. Sylvia Jardine says:

    What about the HS2 railway money and the payment towards public buildings in London e.g. Museums. Repairs to Westminster. Our Water being pumped south.

  3. Graham Ennis says:

    The “Overhead costs” do not reflect the cost of participation in the illegal Middle East wars, of which Scotland had other surcharges made, or the transfer of oil royalty revenue to london, or the severe distortion of the export/import current account, which leads to gross distortion of apparent VAT revenue in Scotland. There are numerous other examples. In plain language, Scotland is treated, for economic matters, like a recalcitrant Colony. The realistic figures for general account show a clear amount available for public expenditure/Scotland that is about 60 billion a year, as opposed to the present 30 billion, plus 20 billion in Pensions and social security funding from london. There is an average shortfall of revenue in Scotland of about 10 billion. Considering that the non-pensions and social security budget for holyrood is barely 30 billion, this is a considerable lump of cash. To this must be added distorted tax base, with widespread tax abuse by large land owners and use of dubious offshore tax havens, just as in the South of the UK. My own rough calculation is that there would be an extra 20 billion available for Public Expenditure, per year, in an independent Scotland. Plus if there was a sovereign currency then the economic policies would free of (What is, effectively) control from london, and run in a practical Scandinavian style way. A sovereign currency would also be a petro-currency, and need to be kept from becoming a hard currency by deficit budgeting. (Thats another 10 billion). Roughly, 20 billion extra for spending, plus sovereign debt from Scottish treasury bonds, secured against the value of the sovereign Offshore oil resources. Scotland would be significantly richer than Norway, and rightly so. These calculations are almost unbelievable, but I would welcome discussion. They are made using orthodox economic assumptions!.

  4. George M Clarkson says:

    Good analysis as far as it goes ,It would be good to see the GERS figures compared to a fair estimate of what we actually get in and pay out , A proper analysis of the vat and duty returns from Uk corporations,as well as a good estimate of expenditure ,based on the white paper projections.As well as some of the more contentious issues ,such as the debt and debt interest repayments ,and the contribution to “UK projects” Then we would be able to see how good or bad the Scottish economy is ,warts and all .This would give some real clarity to the economic argument which is currently being dominated by the” IFS 7 billion black hole ” argument ,We need to take out the contentious issues so that we can argue about the size and whether we need to be paying them or not .
    Currently all we are getting is 7 billion black hole ,with no argument against it .A bit of forensic accountancy would show the real position

    • maria says:

      After reading Michael’s excellent indepth article it is abundantly clear that again ‘England’ is “using Scotland” – – Westminster is doing what Westminster has always done ‘use Scotland for its own ends– with the hope that the Scots are so stupid that they will just keep ‘paying up’..
      Plus Scotland doesn’t even have the defense of its waters that she needs! why on earth is Westminster being allowed to get away with this?
      I have heard the most horrific stories of Glasgow an other parts of Scotland where people are ‘dying’ of hunger.. – people cannot pay utilities – jobs are part/time with no security … — people with cancer are being forced back to work or their benefits are being removed!..- what on earth is happening to Scotland and why is nothing being done?

  5. Lena Fabrizio says:

    I am still confused about the finance side. I have asked the question on other sites but didn’t get a reply. How much money does Scotland ‘send’ to Westminster and how much ‘pocketmoney’ does it get back. Also, is the money for Trident and other expenses, House of Lords etc, taken back from this ‘pocketmoney’ or is it used from what Westminster keep? I think this is information I could use when speaking to NOs or undecideds. Thanks.

    • Angus says:

      No-one is sure for certain but the Treasury. From the figures that are released we send some 56 – 60 Billion in revenue to the Treasury and we get half back. That’s not counting all the Scottish exports that only get counted as revenue for the country that they leave, thus counting as English revenue as many of them have their final ports in England.

  6. Great analysis.

    I did some digging into London’s finances and found that there is a large chunk of UK revenue (17% or about £130BN) which is earmarked as “national” spending, and is predominantly spent by large government departments based in London. The figure you have calculated of £9.4 Billion in service charges to Scotland is nominally, I assume, for Scotland’s hypothetical share of these costs. I am interested in how this pans out more broadly in terms of the assertion that London subsidises the rest of the UK. Clive (above) makes a good point. If other areas of the UK are similar to Scotland, these “national” charges represent a de facto subsidy of London by the rest of the country.

    In my research, I found that some of the most-quoted studies asserting London subsidises everyone else (e.g. from Oxford Economics and Economic Outlook) have serious methodological deficiencies. For example:

    – they do not challenge the UK treasury’s method of measuring regional spending on a “for” rather than an “in” basis, so some expenditure by government departments in the London economy is accounted for as “for” regional spending
    – some expenditure is not regionally allocated at all
    – expenditure earmarked as “national” is a significant amount of £130BN (as noted above), and as is likely to be disproportionately spent in London and the SE
    – even within London and the SE, there is an approx £8BN anomaly caused by people who live in the home counties and work in London. This makes it appear that London’s tax take is artificially higher than if it were measured by residence, due to PAYE receipts being recorded in London.

    In addition to these direct methodological issues, none of the these studies take into account the following factors:

    – businesses headquartered in London which generate profits from the whole UK market declaring and paying business taxes and rates in London
    – the massive training subsidy of the London economy caused by taxpayers in the whole of the UK paying for the health care, education and training of young people, who then move to London and pay taxes and generate economic growth there
    – the invisible “too big to fail” bank subsidy estimated by the New Economic Foundation at £38BN, and which disproportionately favours the London financial sector
    – disproportionate spending in London on transport and infrastructure, and other public services
    – disproportionate spending in London of national lottery money, which is disproportionate raised outside of London

    I wonder, are you aware of any studies which make a comprehensive assessment of factors like these to arrive at a true analysis of how much London is actually subsidised by the rest of the UK? If not, I would be happy to collaborate in digging out the figures.

    • maria says:

      would love to know the answers to your question.. but with a broad brush from where I am standing .. it is more than clear that London is absolutely ‘misusing /Scotland’ and it is ‘the Scots’ who are truly suffering/!

      Time to get the Clans in action!!

  7. Clive says:

    How much does Westminster Charge WALES and NORTHERN IRLAND for the same SERVICE’S we are CHARGED FOR ??? ,!,.

  8. Barontorc says:

    Great work Michael. Does the GERS report take account of Scottish supermarket and whisky revenue, or does it go direct to their HQ, probably in ‘London-shire’, and then shows as non-Scottish?

    • Duncan MacPhail says:

      Whiskey ind all export monies go to Westminster aprox 1 billion per year and does not have to be classed as taxes paid. ITS ALL ABOUT THE O I L. After the last drop has been stolen then and only then would they allow us to leave and become independent. 1.3 trillion in debt. Borrowing billions per year and bailed out to the tune of 800 billion by the federal bank for the banking debacle. You couldn’t make it up. Begets beleive. Even Middle England and the north detest Westminster and rightly so.

      • Mark Chard says:

        The hatred for Westminster is not restricted to the “North”, we in the West have the same issues.

        Why devolve when we could all club together and evict them!

        London is a “City State” and does not require the rest of the country to operate, it just shares it’s debts with the rest of us!

        Maybe without the rest of the country those bankers would be more careful with their money!

        • tom anderson says:

          good idea, but until the scottish and welsh ‘sheep’ come to their senses we will always be ‘robbed’ by the wastemonsters, even the english would be welcome to join us scots and welsh to dump the wastemonsters and make a new prime minister and government, eligible for reelection only after good ‘results’ for the whole of the uk not just for themselves

  9. Fraser Shaw says:

    a bargain Scotland couldn’t even build a shed for the MSPs for less than £400M – what chance running an actual government

    • Gordon MacIntyre-Kemp says:

      I think you will find that the Parliament project was managed by the Unionists parties and opposed by the SNP. As was the Edinburgh trams project. Your argument is that projects run and budgeted for by those that want to maintain the union and that were opposed by those who want independence are an argument against independence is bizarre to say the least.

      Perhaps you think that projects like the Millennium Dome of the channel tunnel of Hs2 were all well managed? See any of our articles on Hs2 for the truth but here a starter for you. http://www.businessforscotland.co.uk/the-hidden-cost-of-the-union-hs2/

      Why do you spend so much time running your country down when you should be running down the unionist politicians and London centric egotistical thinking that cased these idiotic projects to be built in the first place?

    • Irene Buchan says:

      Fraser Shaw please go do some research before you comment otherwise you risk making yourself look foolish and uninformed. You not only demean yourself but also your intended audience who you assume, wrongly, are as uniformed as you are.

    • Luke Lewis says:

      Fraser has a point. Gordon, it may have been pro-unionists who mis-managed the parliament and tram projects (I’m assuming that’s true from your comment), but they are still Scottish parties who may be elected in in an independent Scotland.

      Also, Gordon Brown was Chancellor of the Exchequer during much of the period of decline in the article.

      Scottish politicians in an independent Scotland may be more biased towards their own country, but they will be just as incompetent as British politicians.

      • Gordon MacIntyre-Kemp says:

        The unionist politicians use “Westminster think” to solve problems, this is a way of thinking that leads to projects and policies that are not suited to the needs of Scotland. I believe that political decision making should be made by those close to the issues, close to the problems and most aware of the opportunities. Independence means that bespoke policies can be created to make Scotland more prosperous, fairer and more successful but only when they are made by the right people in the right place. That place is an independent Scottish Parliament that attracts a new breed of positions – ones that care most about Scotland and put Scotland’s needs first. Your point on Gordon Brown only proves my point often made that it is not about Scottish V English politicians but Scottish focused thinking V City of London focused thinking. The policies that make London rich are the same policies that make scotland poorer.

        Independence gives us the opportunity to get rid of politicians who’s motivations are to have a Westminster centred career and bring in a new breed who’s motivation is to build a better Scotland.

      • Ken Waldron says:

        What point does he have? The Scottish parliament building project was underway before the Scottish parliament even sat for the first time. It was a Scottish office /Westminster project, and where does this idea come from that Labour, the Libdems & the Tories are “Scottish parties” ? They simply aren’t at all: They are mere branch offices of the UK parties. An unsubstantiated claim that Scottish politicians in an Independent country will be “just as incompetent” as our present British incumbents shows just how poor the case is for the status quo.

    • Steve Quinn says:

      I see this sort of comment all of the time and it is an indication of what many no voters have in terms of knowledge. Everything gets blamed on SNP. In the real world, those in the know are voting yes.

    • Colin MacKenzie says:

      ‘An actual government’, like the one Alister Darling belonged to that raided our pensions. The same Alister Darling who multiplied the figure produced by Professor Dunleavey on the start up costs of an independent Scotland by a factor of 12. ‘Couldn’t build a shed’, prior to successive ‘actual’ Westminster governments de industrialisation (Germany did the opposite- worked out for them) of Scotland, Glasgow was known as the workshop of the world. Christopher McLean, Senior Researcher at Ipsos MORI Scotland, said:
      “After six and a half years in power the Scottish Government remains popular, considerably increasing its approval rating over the last three months. This is the highest rating we have recorded for the Scottish Government since we began measuring satisfaction last year and is in stark contrast to the approval rating of the UK Government among the British public.”

    • John Gibb says:

      That was a Labour party that built Holyrood spending money like it was going out of fashion and the same with the trams all doing what there masters in Westminster wanted

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