Spending higher than revenue
Scottish deficit raises more questions over independence claims
Derek Mackay: record tax revenues (pic: Terry Murden)
Scotland’s deficit has narrowed for the third successive year but remains significantly higher than the UK figure, casting continued doubt on the country’s ability to manage its affairs independently.
The difference between total revenue and total public sector expenditure including capital investment – known as the net fiscal balance – stands at £12.6 billion or 7% of GDP, even including a share of oil revenue. It is about £1bn lower than last year but it remains considerably higher than the UK deficit of £23.5bn (1.1% of GDP).
The Scottish Tories pointed out that in European terms the country with the next worst deficit is Cyprus, with 4.8%.
Scotland’s illustrative geographical share of North Sea revenue was £1.4 billion in 2018-19, broadly the same level as 2017-18.
The Government Expenditure and Revenue Scotland (GERS) figures also show Scotland spends £13,854 per person on public services which is £1,661 more than the UK.
Total expenditure in Scotland by the Scottish Government, UK Government, and all other parts of the public sector was £75.3 billion, an increase of 2.4%. This is equivalent to 9.3% of total UK public sector expenditure.
Scottish Finance Secretary Derek Mackay said the data showed Scotland benefitted from a £3 billion increase in onshore revenues in the last year – the fastest growth since 2010-11.
The reduction in the notional deficit (including a share of oil revenue) is the result of revenues growing at a faster rate than expenditure, he said.
“With record tax revenues, strong economic growth and near record low unemployment, Scotland’s economy and public finances are strong. Today’s figures show overall revenue in Scotland reached £62.7bn – exceeding £60bn for the first time – reflecting the strength of our economy.
“Our notional deficit has fallen while public spending has increased thanks to our efforts to grow the onshore economy and the strong performance of taxes in Scotland. The Scottish Government’s choices on taxation are helping to create a more progressive tax system.”
However, Scottish Secretary Alister Jack took a different view, saying the figures once again showed the benefits of Scotland remaining in the union.
“Today’s GERS figures show clearly how Scotland benefits from being part of a strong UK with every man, woman and child in Scotland receiving a ‘Union dividend’ of nearly £2,000 a year,” he said.
“These Scottish Government figures also show there would be a £12.6 billion black hole at the centre of an independent Scotland’s finances. Real questions need to be asked about the First Minister’s stewardship of the country’s economy.
“With Scotland’s deficit now more than six times greater than the UK average, the Scottish Government needs to take action.
“Scotland remains the highest taxed part of the UK. This is harming our economy and should be a huge concern to us all.
“The UK Government is investing in Scotland to deliver jobs, opportunities and sustainable growth, including £1.4 billion for city and growth deals. We are working hard to support businesses and bring further opportunities as we leave the EU on 31 October.”
Scottish Conservatives spokesman on finance Murdo Fraser said: ‘We can have much higher spending in Scotland on public services thanks only to fiscal transfers from the rest of the UK, now worth £2000 for every man, woman and child in Scotland.’
Scottish Labour leader Richard Leonard said: “These figures underline the importance to Scotland’s vital public services like our NHS of remaining part of the UK.
“A stand-alone Scotland would have one of the biggest fiscal deficits in the developed world, and the SNP’s shock treatment plan to close it is by dumping the pound and imposing unprecedented levels of austerity.
“It’s time for Nicola Sturgeon to admit that her independence plans would mean unprecedented cuts for Scotland’s schools and hospitals.
“Only Labour in government will end austerity and invest in our communities to grow the economy and build our lifeline public services.”
Pamela Nash, chief executive of Scotland in Union, said: “These official SNP Government figures show that all of us in Scotland benefit from our place in the UK. The SNP’s economic blueprint is in tatters.
“It is beyond doubt that we are stronger in the UK, with the UK dividend worth nearly £2,000 to every person in Scotland. In an independent Scotland, the SNP would take that money out of families’ pockets.
“Our deficit is over six times higher than the entire UK, but our public services in Scotland are protected thanks to the pooling and sharing of resources across the UK.
“If a separate Scotland joins the EU it would need to dramatically reduce its deficit, which would require deeper spending cuts or steeper tax rises.
“Whatever you think of Brexit, it’s clear that independence is not the answer. Nicola Sturgeon should drop her reckless threat of a divisive second independence referendum and her plan to ditch the pound and put our economy at risk.”
Struan Stevenson, chief executive of the pro-union Scottish Business UK said: “Year after year the GERS figures provide a reality check on the financial case for Scottish independence while underlining the continued value of the Union dividend that sustains the health of our economy.
“If she really plans to hold another referendum in the near future, the First Minister must explain how she hopes to tackle a vast net fiscal deficit after independence without resorting either to huge tax rises or commensurate public spending cuts in year one. Having read the proposals of her much-vaunted Growth Commission last year, we suspect she simply can’t and won’t bother to try.
“And while we note and welcome the continued positive performance in the public finances, thanks in part to increased North Sea activity, it’s too little too late to provide the kind of consistent boon to revenues that supporters of independence will have hoped for.
“Before we hear any more talk of timetables for a second independence referendum with Brexit as a flimsy pretext, Scottish businesses are owed a full and convincing explanation of how adding future chaos to the present confusion can be anything more than a political gamble that our economy can’t afford the First Minister to make.”