Scotland’s deficit remains high despite oil surge
Scotland’s deficit remains at almost twice the UK level despite record revenue from North Sea oil and gas.
The contribution from the sector to government revenues reopened the debate over the future of the industry, with Scotland’s Wellbeing Economy Secretary Neil Gray admitting that it will be with us “for some time to come.”
New data shows spending exceeded revenue by £19.1 billion in 2022-23, down from £24.9bn in the previous financial year.
However, this is 9% of Scotland’s entire economy and compares to a 5.2% deficit for the UK. Without North Sea revenues this deficit increases to £28.5bn or 15.1% as a share of Scotland’s GDP.
The Government Expenditure and Revenue Scotland (GERS) report shows that public spending continued to increase, driven by debt interest payments, and business and household support to deal with the rising cost of living. Overall, Scotland benefited from at least an additional £4.5 billion in reserved spending in 2022-23.
The data includes a £1.9bn increase in revenue from Scottish income tax and £6.9bn increase in North Sea revenue.
Public expenditure per person in Scotland in 2022-23 was £2,217 higher than the UK average. This was nearly unchanged from £2,222 in 2021-22.
David Phillips, an associate director at the Institute for Fiscal Studies, said: “Scotland’s notional fiscal deficit remained substantially higher than that of the UK as a whole – 9% of GDP, compared to 5.2%. And the gap is set to widen again from next year if oil and gas prices fall back as forecast.
“To avoid even bigger spending cuts or tax rises than in the rest of the UK over the coming decades, an independent Scotland would need to see a sustained boost to economic growth. That’s certainly possible – indeed, during the 2000s, Scotland’s employment, earnings and economic growth outpaced that of the UK as a whole.
“But the decline in oil and gas output in the North Sea and associated onshore economic activity – already noticeable since the referendum in 2014 – would present some tricky headwinds.”
Ryan Crighton, policy & marketing director at Aberdeen and Grampian Chamber of Commerce, seized on the importance of North Sea oil and gas in propping up the Scottish economy.
“To any Scottish resident who thinks that shutting down the North Sea is a good idea, please take a look at today’s GERS figures,” he said.
“For every £3 raised in corporation tax in this country, £2 of it is coming from our oil and gas sector. It generated a record £9.4bn tax take in 2022/23.
“Not only is it funding our public services, it’s giving us a cleaner source of the oil and gas we need right now, rather than leaving us further reliant on more carbon-intensive imports.
“The North-east’s world class industry should have the full backing of the Scottish Government. It certainly deserves better than what it has heard so far in 2023.”
Struan Stevenson, chief executive of pro-union Scottish Business UK, said: “Despite higher oil and gas revenues, which the SNP/Greens now disown, Scotland still relies on a massive fiscal transfer from London to balance the budget. Where the SNP and Greens think this money could come from in an independent Scotland strains credulity.”
Mr Gray admitted that oil and gas must continue to have a future. He told the PA news agency: “We recognise that oil and gas is going to be with us for some time to come.
“But we want to see much more stringent climate compatibility checks to ensure oil and gas continues to be compatible with our net-zero objectives.”
Commenting further on the GERS figures he said: “I am pleased that Scotland’s finances are improving at a faster rate than the UK as a whole, with revenue driven by Scotland’s progressive approach to income tax and our vibrant energy sector.
“While the record revenues from the North Sea show the extent that the UK continues to benefit from Scotland’s natural wealth, these statistics do not reflect the full benefits of the green economy, with hundreds of millions of pounds in revenue not yet captured.
“It is important to remember that GERS reflects the current constitutional position, with 41% of public expenditure and 64% of tax revenue the responsibility of the UK Government. Indeed, a full £1 billion of our deficit is the direct result of the UK Government’s mismanagement of the public finances.
“An independent Scotland would have the powers to make different choices, with different budgetary results, to best serve Scotland’s interests.”
Scottish Secretary Alister Jack said: “The Scottish Government’s own figures show yet again how people in Scotland benefit hugely from being part of a strong United Kingdom.
“Scotland’s deficit is more than £19bn – even in a year of exceptional North Sea Revenues. Without oil and gas, that figure soars to more than £28bn.
“People in Scotland benefit to the tune of £1,521 per person thanks to higher levels of public spending.
“As we face cost of living pressures and unprecedented global challenges it is clear Scotland is better off as part of a strong United Kingdom.”
Alex Salmond’s Alba Party claimed the figures show the underlying strength of an independent Scotland.
Its Westminster leader Neale Hanvey said that the past year’s oil revenues, and those projected in coming years, should act as the “engine room of the early years of an independent Scotland”.