As usual, the a new publication of the Government Expenditure and Revenues in Scotland (GERS) generates more political heat than light. This year’s data tells essentially the same story as every other for the last decade, except that due to the Ukraine war, there’s been a bit of an uptick in oil revenues. But the underlying message is the same.
Here are the key points about the numbers:
- Scotland continues to run a very large deficit, proportionately much bigger than the UK’s. This year it’s £19 billion, or £28 billion if you leave oil revenues out. That’s either 9% or 15% of Scotland’s GDP.
- It’s painfully obvious that no new independent country could sustain that, especially as oil was a windfall in this year’s data (it includes the chancellor’s windfall tax on energy companies) and vanishes in the medium term, either because it runs out or we stop extracting it.
- This has been the picture for the last decade, and it shows Scotland runs a structural deficit about £15 billion a year higher than the UK average. About £4 billion of that is because our onshore tax revenue is lower, but 11 billion pounds of it is due to higher levels of Scottish public spending for the stop that’s almost all concentrated in the public services run by Holyrood, and it’s the result of the Barnett formula.
- Everything else said about the figures is essentially noise.
And here are what the figures really mean for the Scottish economy and politics:
- No plan for independence can wish these numbers away, a no plausible plan for dealing with them in a separate state has ever been produced. Humza Yousaf is said to be contemplating a new fiscal approach. It could only mean extraordinarily painful spending and tax adjustments. That structural additional deficit is nearly as much as the whole budget of the NHS in Scotland. Don’t hold your breath for a plan.
- But independence isn’t on the agenda anytime soon, if at all. So the real lessons from GERS are about Scotland inside the UK.
- Of course the figures do show that Scotland gets a remarkably good deal out of the sharing of tax across the UK, and the long run figures published demonstrate that although Scotland contributed substantially to the UK budget during the 1980’s it has had as much or more back in additional public spending since.
- Scotland has 8.2% of the UK’s population, but only 7.7% the ordinary tax revenues. A successful economic development plan which even took Scotland up to UK average levels would generate an extra £4 billion a year for public spending. Such a plan would require cooperation between the UK and Scottish governments, and is desperately needed.
- But Scotland already spends at least 25% per head more on devolved public services than in England. It is very hard to see what benefits this buys. Quite a bit goes on making things free that we used to pay for and, so politicians hope, make them more popular. Some, sadly, is simply wasted, such as £500 million on two ferries that have yet to carry a single passenger. But we also badly need an audit of where the money goes, what benefits are gained from this extra spending, and how it can be better used over the next few years when public expenditure will be severely constrained, whoever is in government in London or in Edinburgh. That’s the big lesson from today’s numbers.