Scotland’s notional fiscal deficit hits 22% in blow to independence hopes

Scottish independence updates

Scotland’s notional fiscal deficit ballooned to 22 per cent of total economic output in the year to April 2021, more than 8 percentage points higher than the funding gap for the UK as a whole, according to official data released on Wednesday.

The annual Government Expenditure and Revenue Scotland (Gers) report highlighted the impact on public spending and tax revenues of the coronavirus pandemic, but also made clear the financial challenge an independent Scotland could face outside the UK.

The pro-independence Scottish National party government is expected to resume in the next few months its push for a second referendum on independence after winning the May elections to the devolved parliament in Edinburgh on a pledge to try to hold such a vote by the end of 2023.

The data, compiled by Scottish government statisticians, showed the country’s fiscal deficit for 2020-21, after a geographic share of North Sea oil and gas tax revenues was included, stood at 22.4 per cent of gross domestic product. This compared with a deficit of 14.2 per cent for the UK as a whole.

It also showed a relative fiscal weakening for Scotland. In the year to April 2020, Scotland’s notional deficit was 8.8 per cent of GDP, compared with 2.6 per cent for the UK.

The Gers data, a hotly contested annual fixture of Scottish constitutional debate, will be seized on by opponents of independence as laying bare the difficulties a new Scottish state would face in maintaining current levels of government spending.

The analysis details public spending by both the government in Edinburgh and by the UK government on Scotland’s behalf — in non-devolved areas such as pensions and defence — as well as tax revenues raised there.

Ahead of the 2014 independence referendum, the SNP government described Gers as “the authoritative publication on Scotland’s public finances” that provided the “starting point” for analysis of the fiscal situation it would face as an independent state.

In 2014, voters in Scotland rejected independence by 55 to 45 per cent, but the SNP and Scottish Green party both want a second referendum on the issue and together command a majority in the devolved Scottish parliament.

Wednesday’s data showed the greatly diminished revenues an independent Scotland could expect from North Sea oil and gas compared with 2014. An illustrative Scottish share of North Sea revenues was worth £0.5bn in 2020-21, down from £0.8bn the year before because of the fall in oil prices caused by the coronavirus pandemic.

Including oil and gas taxes, Scotland’s public sector revenue was equivalent to £11,496 per person, £382 less than the UK average. However, public spending per person in Scotland was £18,144 per person, £1,828 greater than the UK average.

The opposition Scottish Conservatives said the Gers data showed the “strength and security” Scotland gained as part of the UK.

“The union dividend has increased and now every man, woman and child in Scotland is £2,210 better off within the United Kingdom,” said Murdo Fraser, Tory shadow cabinet secretary for Covid recovery.

Kate Forbes, Scotland’s finance secretary, said the data reflected “Scotland’s position within the UK”, in which most taxes were still under London’s control.

“The pandemic has clearly demonstrated the need for fiscal reform and that the Scottish government’s financial powers are insufficient to deal with the new economic reality,” Forbes said.

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