Gap widens

Tax and cuts threat as deficit balloons to £36.3bn

Scottish Parliament Holyrood

Holyrood: facing big deficit

Scotland is facing tax rises or cuts to public spending after the deficit over the past year ballooned to a record £36.3 billion, representing 22.4% of GDP.

The widening gap, which compares to a UK deficit of 14.2%, emerged in the latest Government Expenditure and Revenue Scotland (GERS) data and had already sparked a blame game between Holyrood and Westminster.

The figure, which shows the difference between revenue raised, mainly through taxation, and public spending was inflated by the pandemic and the need to inject billions to support a slowing economy.

Public spending rose 21% on the previous year to £99.2bn, while revenues fell to £62.8bn from £66.2bn in 2019-20.

The Scottish Government’s statisticians say the figures show the impact of the ongoing COVID-19 pandemic on the public finances.

“The full impact of the pandemic is not yet known, and the estimates will continue to be improved in future publications.,” it said in a statement.

The net fiscal balance: Including an illustrative geographic share of North Sea revenue, was a deficit of 22.4% of GDP (£36.3 billion).

Excluding North Sea revenue, was a deficit of 23.8% of GDP (£36.9 billion). For the UK, was a deficit of 14.2% of GDP.

The figures have raised serious questions over how the deficit will be reduced, with implications for both taxation and public spending.

The Institute for Fiscal Studies said the deficit would “need to be tackled by some combination of spending cuts and/or tax rises, in the absence of much stronger economic performance, which is unlikely.”

Finance and Economy Secretary Kate Forbes said: “The Scottish Government has worked tirelessly to support businesses and households throughout the pandemic. While we face continued challenges, there are welcome signs that the Scottish economy is beginning to recover strongly.”

In a media briefing she repeated the call for Scotland to be given greater borrowing powers and that the figures “advanced” the case for independence.

Kate Forbes new

Kate Forbes: ‘powers significantly restricted’

“We simply cannot afford not to have the powers of a small independent country,” she said. “The difficulty we have is that the powers at our disposal are significantly restricted.”

But the IFS said: “There is a difference between a temporary surge in borrowing like the UK’s – especially at a time when the household sector is massively boosting its saving – and the large structural deficit that an independent Scotland would start life with.”

It admitted the figures do not mean “Scotland cannot afford to be independent”, but it argued that there should be no disagreement over Scotland’s “weaker fiscal position than the UK as a whole”.

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The Tories claimed the ‘Union dividend’, the combined value of higher spending and lower revenue, has increased to £2,210 per person from £2,043 the previous year. Public spending per person was £1,828 higher in Scotland than the UK average, against £1,754 previously.

Scottish Conservative Shadow Cabinet Secretary for Covid Recovery, Murdo Fraser, said: “These new figures demonstrate the strength and security that we gain as part of the United Kingdom.

“In times of crisis, when a pandemic hits, Scottish jobs and public services are safer because we act together.”

Before the data was published, former Economy Secretary Fiona Hyslop, now the deputy convener of the Economy and Fair Work committee, argued that Scotland has a fundamentally strong economy that is “being held back by a Westminster system that treats Scotland as an afterthought.”

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