Pulling The Wool - No Credit For Tweed.

Westminster and the Institute for Financial Studies (IFS) say there is, and will continue to be, a financial black hole in Scotland’s budget. They persist in telling us we are Too Poor, our economy is a basket case, and following independence we’d be poorer than a Developing Nation on its uppers, with a financial deficit in the billions. However, the IFS has apparently taken their data from those figures which are available from Westminster; figures that are created under the auspices of London’s government and London’s rules, as such they do not always, nor indeed by all appearances ever reflect the reality of Scotland’s financial standing because of certain “quirks” on how exports etc are recorded. Some of these issues I dealt with here Hidden Wealth.

Essentially, exports are credited to the UK nation that controls the port of departure. That’s right, it’s not about where they’re made, it is from where they are shipped.

The information in the above blog resulted in me being asked on Facebook what this meant for the iconic Harris Tweed Industry. It seemed appropriate to dig a bit.

My first stop was UK Registry of Companies to discover where much of the Harris Tweed industry was registered. This would tell us whether their profits and taxes could be attributed to Scottish income. The results were interesting and varied. Many of the smaller companies associated with the Harris Tweed Industry are indeed registered in Lewis, but the main mills where by far the majority of the textiles are produced brought a mixed bag of results.

I really enjoyed this trip into an iconic Scottish industry, and I learned much, such as the Harris Tweed Authority (HTA) was set up by Act of Parliament in 1993 to help protect and promote the industry, while maintaining standards within it. I was quite surprised to discover there are only three main mills within the industry, all based in the Outer Hebrides.

Shawbost is the largest mill and main producer of tweed. It is owned by Harris Tweed Hebrides Ltd and is registered in the Isle of Lewis. Interestingly, members of their board include one Ian Roper Taylor, of Vitol fame and a certain Brian Wilson, former UK Labour politician. Harris Tweed Hebrides board of directors.

The next and oldest operating mill (since 1909) belongs to the intriguingly named Harris Tweed Scotland Ltd. I say intriguingly from the viewpoint that it is actually registered as a company at Haincliffe Road, Ingrow, Keighly, West Yorkshire, BD21 5BU; Harris Tweed Scotland LTD. The company is owned by Mr Brian Haggas following a buy-out in 2006. It primarily produces tweed to be made into jackets, presumably in garment factories in the North East of England. These are then exported all over the world including sending an apparently small proportion of its finished garments back to the Islands to be sold there.

The third and smallest mill in Lewis involved in tweed production is the Carloway Mill. It’s an independent mill; however, I was unable to find any trace of registration on either of the Companies House or Company Check websites. Perhaps someone can enlighten me as to why this is so. In March of this year, they entered a joint venture with the large Chinese textile company Shandong Ruyi Technological Group Ltd. Companies not registered under their own names are often held by overseas investors through shell corporations. I’m not alleging this is the case here, but would welcome information to the contrary.

There is also a network of independent weavers within the industry who can work as contractors for any of the mills or sell their cloth freelance.

While the HTA would like you to think that the Hebrides are the centre of the exporting world for tweeds, as you will be misled by this HTA World Presence web-page, this is not strictly accurate. Indeed, all the fabric is created, dyed and woven there, but the vast majority of the product, and research indicates a substantial percentage of it, leaves the Islands by road haulage by Woody's Express Parcels and ferry for a depot in Inverness.

From Inverness I am reliably informed other haulage companies, namely DHL, UPS and FED EX take the fabric on the next step of the journey, to destinations such as East Midlands Airport (DHL, UPS), Newcastle Airport (FED EX) and all ports south. Very little of this Scottish iconic fabric actually leaves via a Scottish airport or dock. From this, I can only conclude that it doesn’t count in favour of Scottish exports and adds tonnage and financial gain to English exports, as bales of Harris Tweed exit via English ports.

What we have here is an iconic Scot’s product which has the appearance of being virtually deleted from the Scottish balance of payments ledger, while simultaneously accruing to England’s. To reiterate, as per UK export law, it is the port of exit that counts when it comes to registering overseas shipping, not the country of manufacture.

Under the weirdest of all situations one could actually have the finished garments, marked ‘Harris Tweed’ counted as a Scottish import, and worsening our balance of payments. This is because almost no ‘Harris Tweed’ garments are now manufactured in Scotland, so any sold here effectively have to be re-imported from the country of manufacture.

That you can play with the base fundamentals of an economy in such a fashion is very simple indeed. Especially when almost everyone relies upon the official figures from Westminster to obtain a consensus of agreement that Scotland might just be an economic basket case with a horrible balance of payments deficit, when the reverse may well indeed prove to be a much more accurate statement. The only real way to prove Scotland’s net worth would be to do as the USA apparently does with its states, and count the country of origin or state of origin of goods, but that might not be in vested interests with a referendum in the offing.

This is obviously something that happens with startling consistency where Scotland’s exports are concerned. It is agreed by those who have actually researched the figures that Scotland is nominally responsible for somewhere around 9% of UK GDP, this does not include oil which is treated separately, yet based upon air freight, with a similar number being expected across the board, Scotland is credited only for about 2% of UK export, by weight. Air Freight tonnage. The fact that the system is set up in such a way that practically all of Scotland’s manufacturing ends up exiting the British Isles not via a local airport or freight terminal, but one which, in Stornoway’s case, may be almost 700 miles away (Stornoway-London) is both detrimental to our economy and destructive to our environment. It is also a bit of an eye-opener when you discover Kent International Airport (where?) moved more tonnage in air freight (12,744 tonnes) than Edinburgh (8,933 tonnes) in the first half of 2013. In fact Manchester Airport shifted over twice (45,831) the cargo that the whole of Scotland moved (22,731).

The reality of this situation is that if Scotland produced exports of 9 billion pounds per year, then she would be being credited for 2 billion pounds per year, while the other 7 billion pounds per year will accrue to Westminster’s ledger, and no, they’re not hard numbers, they’re example figures.

This is a dreadful under-use of Scotland’s facilities and resources from all sorts of angles, including Green Issues, but that’s another blog for another time. Far more could and should be moved through these airports from an economical point of view. Local economies and employment would benefit enormously from this.

The important aspect I got from all of this is from London’s perspective, when you spread this “port of exit” requirement across all of Scotland’s exporting industries, whether it’s tweed, electronics or shortbread, they have created a wonderful statistical tool that ‘anyone’ can use to perpetuate the ‘too poor” case for the Scots’ economy and produce ‘believable’ statistical data that might encourage a ‘NO’ vote when perpetuated by the MSM in Scotland without proper back up research.

Hidden Wealth.

It gets you that way. You find yourself in a long Facebook natter and suddenly you realise there is a fact which doesn't often get highlighted in this “debate” about Scotland’s constitutional future. Oh yes, the Unionists aren't slow to drag the “oil is volatile and will cause you no end of confusion” card, and sadly many, many people pick this one up and run with it. It defines and confines the financial deliberation within heavily bordered limits. And this is precisely where Westminster wants this discussion to be kept.

Yet, there is not so much an elephant in the room but a small herd of elephants in the room. These are all of the companies currently manufacturing and exporting from Scotland and/or selling goods to the people in Scotland, but are head-quartered in England.

Currently, the majority of goods manufactured, grown, distilled or created in Scotland are exported via ports and airports in England. All taxation receipts from the following items such as airport fees, freight charges, fuel sales, VAT, applicable export levies and associated profits from these goods are then allocated as English income at the Treasury. The exact figures are hard to break down as they appear to be intentionally difficult to search or find in any of the Westminster governmental sites. For an example of a typically Scottish product regularly exported, in 2012 Whisky exports topped £4 billion. Approximately seventy-five percent of this is exported via English ports and allocated to the Treasury as English exports and income. This is also true of beef and other farm produce grown in Scotland, yet exported via ports down south. This can only be viewed as profits and tax receipts which should be credited to Scotland lost in a system set up to confuse and obfuscate.

Then we have the interesting situation of companies that sell goods and services in Scotland, but are head-quartered south of the border. With very few exceptions, it is only chains and stores with head offices in Scotland that record profits and VAT as being income from Scotland. The majority of companies which operate central offices in England pay their taxes and are shown as making profit in England – despite it being hard earned wages which gave them those profits and VAT receipts at tills in Aberdeen or Kilbirnie or Haddington.

We all need to eat, furnish our homes and wear clothes (well most folks do!). And many of us enjoy our electronic goods or buy home improvement items – you get the picture. We go to our local supermarket, DIY store, favourite clothes shops or electrical store and pay for all those things that make our lives viable and comfortable. Except, very few of these stores have a head office in Scotland.

As a way of explanation, allow me use one chain to give a small example.

Sainsbury: They have 1,016 stores throughout mainland UK, 60 of those are in Scotland – according to 2012 figures. This is roughly 6%. Until March of this year they took £2,329 Million in VAT. Roughly 6% of that or £140 Million was taken in Scottish stores. Under the current arrangement, ALL of that money is allocated as English income to reflect where Sainsbury have their HQ.

Now, imagine in an independent Scotland, that portion of VAT generated by us busily getting on with our daily lives, equipping our bellies, families and homes, going directly to Holyrood to be spent as needed on those things that we have deemed as important to us and our society – whether it’s infrastructure or social care. Sounds great doesn't it, but it’s “only” £140 Million, I hear someone mumble. However, you need to extrapolate this small amount over every company presently operating in Scotland under the current set-up.

What we have is a pile of money heading to Westminster and not really finding its way back to help those who spent it in the first place. Not only that, because it isn’t shown as being generated within Scotland, it helps to reinforce the “Too Poor” aspect of the Unionists argument. They can throw the volatility of North Sea Oil in our faces every other day, but they deliberately miss the point of other important, yet hidden aspects of the Scottish economy (e.g. £500 million in road taxes with associated fuel duties) which isn’t being allowed to show up for us in the “Books”.

How easily they can transform Scotland’s vibrant economy, created and supported by her hard working population, from energetic to appear poor and perhaps slightly quaint and backward.