Home > Bit of politics, Financial arcana > On that ‘who subsidises whom’ thing

On that ‘who subsidises whom’ thing

There’s a great deal of controversy and bitterness over whether the parasitical Scots steal money from the hard-working English to spend on whisky and deep-fried Mars bars, or whether in fact the evil colonial masters are stealing the Scots’ money to fritter away on Pimms and linen suits.

The problem is, despite the statistical data on where tax revenues are generated and where they end up, there’s no answer to the question of who’s right.

If you believe North Sea oil belongs to the Scots [*], then it’s clear that the Scots are subsidising the English, as annual North Sea oil tax revenues of £9bn for 2006/07 are way in excess of the Barnett payments of £7.5bn. If you believe North Sea oil is a shared resource between all citizens of the UK,
then it’s equally clear the English are subsidising the Scots.

Since the answer to that question is dependent on one’s beliefs about political philosophy, equity and the nature of nation states, and also on unresolved questions about the UK’s constitutional status, it’s hardly bloody surprising that the controversy exists…

[*] i.e. if you believe that oil reserves should be allocated between England and Scotland based on the Law of the Sea, which under most estimates would give the vast majority of oil to Scotland.

  1. June 17, 2008 at 12:12 am | #1

    "[*] i.e. if you believe that oil reserves should be allocated between England and Scotland based on the Law of the Sea, which under most estimates would give the vast majority of oil to Scotland."

    But the vast majority of the natural gas to England…

    DK

  2. June 17, 2008 at 2:43 am | #2

    Further, on the one hand, Scotland is a major security-importer from the UK (how much would it cost Scotland to provide its own air defence?), but on the other it's a big provider of recruits and infrastructure to the UK military establishment.

    Does all this pseudo-accounting include UK-wide contributions to infrastructure? – for example, Scotland certainly benefits from WCML and ECML electrification, the funds for which came out of the all-UK Department of Transport budget and that of *British* Rail, the National Grid supergrid links, funded from UK-wide budgets (although I think they export power). Similarly, the telecoms Layer Zero infrastructure was the work of the all-UK GPO/BT budget.

    Perhaps it would be simpler just to stay together.

  3. Matthew
    June 17, 2008 at 2:50 am | #3

    How much does Ireland spend on air defence? Would it be any more than that?

    I guess they'd still get nuclear defence, presumably the English government wouldn't stand by whilst Ediburgh and Glasgow were nuked, unless it was doing it.

  4. June 17, 2008 at 3:00 am | #4

    "Does all this pseudo-accounting include UK-wide contributions to infrastructure?"

    The pseudoaccounting is income statement rather than balance sheet based, because trying to account for historic contributions would drive everyone mad.

    However, Network Rail's current budget – including infrastructure investment – is done separately in Scotland from the budget in Englandwales, as are roads, schoolsandhospitals, etc, so anything spent from 2005ish onwards should be traceable.

  5. dsquared
    June 17, 2008 at 11:24 pm | #5

    There are also some pretty strange head-office effects which most regional studies ignore; RBS plc is the biggest payer of corporation tax in the UK at c£3bn and generates most of its profits in London, but would presumably be part of the Scottish rather than English tax base.

  6. June 18, 2008 at 12:18 am | #6

    I believe the Irish air defence works on the principle that the Brits'll do it, like enough. Alex Salmond gets special extra hypocrisy points for wanting a security agreement with the Brits whilst also demanding the closure of Faslane (because those evil nukes are teh evil and unnecessary, except when we want them and they're based in Devonport rather than Faslane, see?)

  7. June 18, 2008 at 2:48 am | #7

    @ d^2, wouldn't RBS's London business be taxed by the Englishwelsh government? Or am I missing how multinational City firms work? I'd expect that DB's London operations are paying UK corporation tax, for example…

  8. PreachyPreach
    June 18, 2008 at 6:39 am | #8

    For unsurprising reasons, HMRC is quite familiar with the concept of overseas banks operating in London through a branch. Even if RBS had its head operations in Edinburgh, most of its London profits would stay firmly within the charge to the (rump) UK corporation tax…

    (s11 TA 1988, fact fans, together with the interaction in the transfer pricing provisions in Sch 28AA TA 1988.)

  9. June 18, 2008 at 9:36 pm | #9

    I believe the Irish air defence works on the principle that the Brits’ll do it, like enough.

    Untrue. Irish air defence works on the principle that as a neutral, largely demilitarised nation with a total population less than half that of Greater London alone, effective air defence against any likely agressor isn't affordable (assuming we wish to keep things like hospitals and schools up and running).

    A further illustration of the incorrectness of your supposition would then be to examine that phrase "any likely agressor". For a huge chunk of the history of the Irish Free State, and latterly the Irish Republic, the most likely aggressor would have been Britain.

  10. June 20, 2008 at 7:54 pm | #10

    Possibly for the Irish Free State (definitely pre-1922) – but hardly to the Republic (can't think of any time post-1949 where relations were even particularly strained).

    To the extent that the USSR posed a threat to the UK (ie not very much but enough to scare people at the time), it posed a threat to Ireland too: if it had carried out a land invasion of Western Europe it wouldn't have respected Ireland's neutrality, and if it had carried out a nuclear carpet-bombing campaign it wouldn't have respected the borders between the six counties and the other 26…

  11. June 20, 2008 at 11:14 pm | #11

    That's a fair analysis John, but it's from a specific point of view. Things can look very different when you shift perspective. Eamon de Valera was still president of Ireland up until the early 70s (granted that's a constitutional position, but his influence ran very deep indeed) and de Valera's Ireland was a place that viewed Britain with deep suspicion and unease. It was a larger and far more powerful neighbour who had conquered and occupied ireland for hundreds of years, with whom a significant territorial dispute still existed (it wasn't until the 1990s that the Irish constitution formally recognised Northern Ireland and ceased classifying Britain as an illegal occupier of Irish territory).

    So yes, formal relations between the two countries have been pretty good since the 50s, but at a deeper level — a level that certainly had a hand in shaping Irish national policy — Britain has been seen as the most likely aggressor until really quite recently.

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