Tax and cuts threat as deficit balloons to £36.3bn
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: ‘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”.
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.”
She said: “Opponents of independence will, as ever, try to exploit today’s GERS figures to support their arguments – the reality is very different.
“Whatever today’s figures show, GERS does not represent the finances of an independent Scotland – it shows the situation now under Westminster control.”
Her comments were denounced as “ludicrous” by Unionist supporter Pamela Nash who said Scotland had benefited from being part of the UK.
Fiona Hyslop: ‘Scotland is being held back’ (pic: Terry Murden)
Ms Nash, chief executive of Scotland in Union, said: “Across the UK, we are able to pool and share both resources and risk.
“Every area, including Scotland, benefits from this every single day and never more so than during the Covid crisis.
“It’s ludicrous to claim that Scotland is being ‘held back’ when being part of the UK has safeguarded so many jobs and livelihoods over the past year.
“Of course, a separate Scotland could have taken steps to support citizens during a pandemic, but this would have been limited and at a much greater cost.
“As part of the UK we have access to a stronger safety net. The only people undermining Scotland’s economy are SNP politicians who are blinded by their obsession with division when they should be focused on recovery.”
Ms Hyslop insisted: “The pandemic has shown that countries around the world have had to adapt swiftly to the economic impact of the Covid crisis.
“Old assumptions have been swept aside, as independent nations large and small have been able to take the interventions needed to protect jobs and their economies – steps not currently available to Scotland, which instead has seen a Tory UK Government withdraw support.
“At the same time, analysis shows that the UK lags at or near the bottom of a whole raft of socioeconomic league tables, comparing issues like pension provision, productivity and social equality.
“Meanwhile, Westminster is actively harming Scotland’s economy through policies like Brexit and the massive hit to our food and drink sector, where EU sales plummeted by around half in the first three months of 2021 to a 10-year low, while earlier this month it was revealed that Brexit is costing the whisky industry £5 million per week.
“And when it comes to our massive renewable energy potential, Westminster is imposing punitive transmission charges which unfairly penalise producers in Scotland.”