Scotland’s annual ‘balance sheet’ showed the black hole in the public finances remaining high, despite a boost from oil taxes
A report showed a slight improvement in Scotland’s finances, with revenue increasing and the deficit falling, although the UK as a whole is improving at a greater rate, meaning the gap between the two is widening.
The Government Expenditure and Revenue Scotland (GERS) report for 2017/18 provided some encouragement for the government as the current net fiscal deficit narrowed to £13.4 billion (2016-17: £14.5bn).
However, it remains well above target, representing 7.9% of GDP (2016-17: 8.9%), against a figure of just 1.9% for the UK as a whole (2016-17: 2.3%). Scotland contributed 8% of UK tax and received 9.3% of UK spending.
The level of public spending in Scotland compared to the UK average soared to a record difference of £1,576 per head.
Scotland’s total public sector revenue rose by about £3bn to £60bn in 2017/18, of which £1.3bn was from the North Sea oil and gas industry.
This was higher than the £266m of revenue from the North Sea in the previous year – but well below the £8bn the offshore industry generated in 2011/12.
First Minister Nicola Sturgeon said the figures provided further evidence that the country’s economy was “on the right trajectory” despite the “limited powers” at the Scottish government’s disposal.
But Scottish Secretary David Mundell said thefigures show that Scotland’s deficit at 7.9% as a share of GDP is four times that of the UK’s 1.9% as a whole. “This is concerning,” he said.
Conservative finance spokesman Murdo Fraser said it was time for the First Minister to set out a clear plan on how she would find the billions of pounds required to fill Scotland’s economic black hole should it break away from Britain.
If she can’t, he added, then the threat of a referendum re-run must be removed for good.
Mr Fraser said: “If Nicola Sturgeon wants to continue her threat of second referendum, she has to come out and explain where she would find £13 billion to fill this deficit.
“Assuming that can’t be done, the prospect of another divisive and unwelcome vote must be removed for good so Scotland can focus on what really matters.”
Scottish Labour leader Richard Leonard, said: “These figures show that the real change Scotland needs isn’t to leave the UK – it’s a Labour government willing to end austerity and invest instead.
“People across Scotland are sick and tired of austerity – and these figures show that the SNP’s plans for independence would mean unprecedented levels of austerity for Scotland.
Richard Leonard: ‘people are sick and tired of austerity’ (pic: Terry Murden)
Scottish Liberal Democrat Leader Willie Rennie said: “These numbers are another cruel blow to the Nationalists, coming from their own government. “It adds to the misery set out in the SNP’s Growth Commission.”
Struan Stevenson, chief executive of the anti-independence referendum group Scottish Business UK said: “The release of the GERS figures are our yearly reminder, if one were required, that the financial implications of Scottish independence would be devastating to businesses and families across Scotland.
“If the First Minister can’t outline how an independent Scotland would address the net fiscal deficit that we have here in Scotland, then she needs to come clean with Scottish business and remove the spectre of another independence referendum which looms over our economy. Only tax rises or vast reductions in public spending can plug this gap – both are unpalatable to the Scottish people.
“While the figures do show some improvement in Scotland’s finances thanks to a small recovery in North Sea oil, it’s increasingly clear this one commodity cannot be relied upon to deliver stable returns each year.
“Scottish business needs a level of certainty and these figures are a stark reminder of the uncertain future which lies ahead if the proponents of independence continue to gamble with the Scottish economy.”
The UK government has reduced its deficit to £39.4bn, the lowest since 2007 and below the 3% international threshold. Westminster is hoping to move into a surplus.
Scotland has been hit by the 2014 collapse in the oil price. Of the £58bn raised in total in 2016/17, only £208m was from North Sea oil and gas revenue – against nearly £8bn in 2011/12.
Economists at Strathclyde University’s Fraser of Allander Institute said the gap between the Scottish and UK deficits in last year’s GERS report was the largest since the annual figures were published on a consistent basis nearly 20 years ago.
Commenting on the latest report, Graeme Roy, director of the institute, said: “The key reason why Scotland has a larger estimated fiscal deficit than the UK as a whole is because of higher public spending per head – equivalent to around £1,576 per head.
“What does GERS say about constitutional change? GERS takes the current constitutional settlement as given.
“If the very purpose of independence is to take different choices about the type of economy and society that we live in, then a set of accounts based upon the world today will tell us little about the long-term finances of an independent Scotland.
“But GERS does provide a pretty accurate picture of where Scotland is in 2018. So in doing so, today’s numbers set the starting point for a discussion about the immediate choices and challenges that need to be addressed by those advocating new fiscal arrangements.”