GERS report: Scotland’s deficit twice UK level despite jump in tax revenues

GERS report:

SCOTLAND has recorded a double-digit deficit for the second year in a row despite a sharp rebound in tax receipts as the economy emerged from lockdown.

The annual Government Expenditure and Revenue Scotland (GERS) report showed the difference between public spending and tax revenue last year was £23.7 billion, equivalent to roughly an eighth of the economy, and double the UK deficit in percentage terms.

The main driver of Scotland’s improved position was higher North Sea oil and gas revenue, which jumped by £2.7bn to reach its highest level since 2013/14.

Including a geographical share of North Sea revenue, Scottish tax revenue was 8% of the UK total, its highest level since 2014/15.

Scotland’s notional deficit fell by 46 per cent last year, while the UK’s fell by 58%.

However the Scottish Government claimed Scotland’s fiscal position has recovered “faster” than the UK’s, based on the relative fall in the respective deficits in absoliute terms, a 10.3 point drop for Scotland and an 8.4 point one for the UK.

Deputy First Minister and acting finance secretary John Swinney said: “This is before the full impact of the rise in oil prices that we’ve seen more recently, which is likely to see Scotland’s deficit fall faster than the UK’s again next year, with oil and gas revenue set to grow to £13bn this year.

“The figures also highlight how the UK’s response to the cost crisis is being built on Scotland’s natural resources, not least with its windfall tax on the North Sea.

“But even without North Sea receipts, the record revenue generated was sufficient to cover all day-to-day devolved spending as well as all social security spending in Scotland, including the state pension.

“GERS describes Scotland’s current fiscal position under current constitutional arrangements, with 74% of revenue and 37% of spending reserved to the UK Government – and we know Scotland’s economy is already suffering as a result of austerity and Brexit.

“In the first full financial year since Brexit, the GERS figures show the economic harm of leaving the EU is driving up borrowing in the UK and contributing to the UK deficit being one of the largest in Europe.

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“Even in the midst of an energy crisis, the UK as a whole is benefiting from Scotland’s natural wealth – which is why Scotland can expect its deficit to fall further in the future.”

Nicola Sturgeon has promised to hold a second independence referendum in October next year if it is legally possible.

Unionist parties say the gulf between public spending and tax receipts north of the border show an independent Scotland would need to slash services and hike taxes to bring down its deficit and establish its credibility with the financial markets.

Independence supporters argue GERS is of limited value as it shows Scotland’s constrained position within the Union, not its true potential outside it.

Scotland’s notional deficit was 12.3 per cent of its gross domestic product (GDP) in 2021/22, compared to a record 22.7% of GDP in 2020/21, which was a direct result of the pandemic.

The average deficit in EU countries last year was 4.7% of GDP.

The UK deficit had been 14.2% in 2020/21, but fell last year back to 6.1% of GDP.

Total public spending in Scotland last year, covering both Scottish and UK Government spending and the rest of the public sector, was £97.5billion, down from £98.5bn in 2020/1.

This was equivalent to 9.2% of total UK public expenditure, or £17,793 per person – £1,963 per capita more than the UK average, up from £1,530 more in 2020/21.

With per capita tax revenues in Scotland £221 less than in the UK as a whole, the combined “fiscal gap” was £2,184 to Scotland’s advantage, a new record.

Sometimes called the “union dividend”, this was up from £1,925 in 2020/21.

On-shore revenues rose from £62.7bn to £73.8bn, an increase of 17.6% as the economy improved after lockdown, while Scotland’s share of North Sea oil and gas revenue grew massively from £765m to £3.5bn.

Scottish Conservative Shadow Cabinet Secretary for Finance and Economy, Liz Smith said: “These new figures underline the huge benefits we all gain from being part of a strong United Kingdom.

“Every single person in Scotland is £2,184 better off because we are part of the United Kingdom.

“The strength and stability of the Union helped us to weather the pandemic, saving thousands of jobs, livelihoods and businesses that would otherwise have been lost – but we are not out of the woods.

“As we head into a global cost-of-living crisis, it is more important than ever that both of Scotland’s governments are 100% focused on our recovery.

“Scotland is £12bn better off as part of the United Kingdom. Instead of using time and resources to divide us, SNP should take these figures as a wake-up call and start working with the UK Government to deliver for the real priorities of Scotland.

“These figures demonstrate clearly that pushing for another referendum is the wrong priority when we need the whole United Kingdom working together to get through the current economic crisis. They are a devastating blow to Nicola Sturgeon’s indyref2 bid.”

Scottish Labour finance spokesperson Daniel Johnson said: “The focus of every politician in Scotland must be on tackling the cost of living crisis and today’s GERS statistics plainly show how the people of Scotland benefit financially from our United Kingdom.

“The figures confirm, yet again, that Scotland has an increased level of public spend relative to its tax base. That gives fiscal room that is vitally needed as we tackle the cost of living crisis. Independence would require tax increases or spending cuts at a time when these actions would shatter households as their bills spiral.

“The devolution benefit of £2,184 per person in Scotland compared to the rest of the UK is vital in maintaining the public services upon which we all rely.

“For the SNP to put its constitutional obsession with tearing Scotland out of the U.K. before the economic security of the people of Scotland is reckless and dangerous.

“The last thing that Scots facing a cost of living crisis need is to shoulder the cost of separating from the UK.

“It’s time for all of Scotland’s politicians to put the interests of the people of Scotland before their own constitutional obsessions.”

Scottish Liberal Democrat leader Alex Cole-Hamilton said: “These figures confirm the importance of the UK economic partnership, especially at times of crisis.

“Protecting lives and livelihoods necessitated unprecedented levels of spending. The gap between tax and spend was humungous. The broad shoulders of the UK economy and a powerful central bank with financial muscle helped make that possible.

“We now need a Scottish Government that will put every penny to work helping people with the cost of living crisis and reducing the longest NHS waiting lists in history.  Instead, ministers are fixated on breaking up the UK and repeating the mistakes of Brexit. They are taking people for granted.”

Scottish Secretary Alister Jack said: “Today’s Scottish Government figures show how people and their families benefit massively from being part of a strong, resilient UK.

“Scotland’s deficit – the shortfall between taxes raised here, including oil, and public spending – stands at £23.7bn. But as part of the UK, we can rely on the Treasury to step up to support us in plugging the gap.

“At a time of unprecedented challenges, sharing resources around the UK has never been more important.

“As we continue to recover from the pandemic and confront global pressures on prices and the cost of living, it is clear we need a shared and a relentless focus on boosting the economy.”

Pamela Nash, chief executive of Scotland in Union, said: “In a time of crisis, every penny of public money counts.

“We put our trust in governments to spend it wisely, not waste it on an unwanted second referendum or divide the people of Scotland once again.

“The Scottish Government’s official figures show that as part of the UK we can spend more than £2,000 per person extra on vital public services such as our NHS and spend more supporting the most vulnerable in society.

“And that’s even taking account of rising oil and gas revenues, which we know from recent years are extremely volatile.

“In tough times, we get through this by bringing communities together, not pulling them apart.”

The Bank of England has forecast that the UK will enter a 15-month recession at the end of the year, as GDP contracts.

The SNP’s Growth Commission, its economic blueprint for an independent Scotland, assumed a deficit of around 6% after a Yes vote, saying it would take up to a decade to halve it to a manageable 3%.

It said to do so, public spending should be 1 per cent less that GDP growth, forecasting spending would increase by 0.5% a year while GDP was 1.5%.

However if Scotland were in recession, with GDP contracting, the Growth Commission formula implies public spending would shrink by an additional 1%, meaning austerity.