Swinney: £7.6 billion deficit shows Scotland is in a 'stronger fiscal position'

Finance Secretary John Swinney said it shows Scotland is in a stronger fiscal position.

His political opponents warned that oil remains a volatile resource, pointing out that there is still a multibillion-pound deficit during good times for the offshore industry.

The deficit was recorded in the Scottish Government's expenditure and revenue figures (Gers), published by the chief statistician.

Mr Swinney said: "Over the last year our stronger fiscal position would have seen Scotland better off to the tune of £824 per person, or £4.4 billion in total. And over the last five years, Scotland has been in a stronger financial position relative to the UK as a whole by a total of £12.6 billion.

"If Scotland had full control of our finances we could have invested in jobs and infrastructure, reduced Scotland's share of the deficit, invested in stability fund or directly support households. This underlines the opportunities independence can deliver for the whole of Scotland to pursue a different path to the UK."

Oil and gas resources have a wholesale value of up to £1.5 trillion, he said.

"We know that North Sea revenues remain substantial, with more than half the wholesale value still to be extracted, and a second oil boom under way," said Mr Swinney.

"With responsibility for our own finances and our own vast natural resources, we will be able to make choices in our own best interests. With independence, we would control the fiscal levers we need to suit our own economic circumstances and maximise Scotland's potential to secure new investment and jobs."

The Gers report calculates finances based on having no share of oil and gas, a population-based share or geographic share.

From the widest point, the estimated net fiscal balance in Scotland was either a deficit of £7.6 billion or £18.2 billion.

The 2011-12 figure for total UK North Sea revenue was almost £11.2 billion.

The total was just over £12.9 billion in 2008-09 and dipped to a low of just under £6.5 billion the following year before climbing back up.

Michael Moore, the Scottish Secretary in the UK Government, said: "The rise in oil revenues is welcome and shows that the UK's regulatory and tax regime is supporting the industry to get the most out of North Sea oil and gas. In the last Budget we announced a package of measures which will secure billions of pounds of extra investment in the UK continental shelf.

"While the sector is valuable to our country, the past decade has shown that the price of oil can be extremely volatile from year to year. This underlying volatility can be much better managed inside the larger UK where oil and gas revenues represent a smaller percentage of overall tax revenues. Being part of a broader UK provides the stability and support that allows the industry to flourish.

"The Gers figures are also a reminder of just how important UK Government spending is in Scotland. In this year the UK Government spent more than £25 billion paying the pensions of our elderly, supporting those looking for work and protecting our national security."

In a separate, leaked one-year-old document, warnings were given about the volatile nature of oil resources.

Considering options to an independent government, the paper states: "One approach is to reduce dependence on oil revenues to support annual expenditure budgets, by using oil revenues to accumulate an oil fund. However, this would, on present assumptions about onshore tax revenues, require some downward revision in current spending."

Labour MSP Ken Macintosh said the Gers figures show the benefit of remaining part of the UK.

"The figures reveal the folly of giving up on that shared stability for an uncertain economic future based on the unpredictable and declining resource of oil and gas," he said.

"Over the last decade, the difference in the revenue generated by oil and gas has been greater than the entire NHS budget."

Conservative finance spokesman Gavin Brown said: "Even with a geographical share of North Sea oil revenue, Scotland would be facing a huge deficit of more than £7 billion. This is a substantial gap and the SNP must start to explain how it plans to plug the gap under separation if oil revenues turn out to be lower than this year.

"Money brought in from oil is predicted to decrease from 2016 onwards and, as the SNP admits, is extremely volatile."

Liberal Democrat leader Willie Rennie said: "Even in the good years we're running a deficit of £7.6 billion. What would it be when the oil revenues drop?"

Green Party co-leader Patrick Harvie said people have a right to know how Scotland can reduce over-reliance on fossil fuels.

"By taking control of our finances we have a chance to be bold, directing our resources to tackle inequality, creating stable employment and minimising our environmental impact," he said.

"That control will be lost if we allow the country's prosperity to accumulate in the pockets of the few."

Meanwhile, an economic study has suggested that Chancellor George Osbourne should slow the pace of budget cuts and embark on a massive infrastructure programme to help boost growth.

Osborne should take the "more rational policy", the report from the University of Strathclyde's Fraser of Allander Institute suggested.

It found economic growth in Scotland has been weaker than expected and downgraded forecast growth for gross domestic product (GDP).

Brian Ashcroft, emeritus professor of economics at the university, said: "We expect to see some modest growth in the Scottish economy this year. However, growth should be a lot higher than it is given we are now five years on from the start of the Great Recession.

"Household demand, net trade and investment demand remain weak while fiscal austerity continues with 68% of planned benefit cuts and 78% of current departmental spending cuts still to come after April this year."

Despite signs of growth, the GDP estimate lowered from 1.3% to 0.9% this year and from 2.2% to 1.7% next year, rising to 1.9% in 2015.

Mr Ashcroft said: "Ironically, the UK lost its AAA credit rating not because of fiscal profligacy but because of austerity. The austerity has severely lowered growth and tax revenue prospects as affirmed by the IMF. The only silver lining is that it will, from previous evidence e.g. Japan and the US, have no effect on the low UK long-term borrowing rate.

"The ability of credit agencies to judge sovereign debt default prospects is not highly rated by financial markets. And they are right. The way is still open for a massive boost to infrastructure spending in the UK financed through additional borrowing at exceptionally low rates. If only the Chancellor would take it in his Budget on March 20th."

The study was sponsored by professional services firm PricewaterhouseCoopers.

Senior Edinburgh office partner Paul Brewer said: "Aside from the notable exception of the oil and gas sector, overall investment levels still weak. The Chancellor needs to look at all opportunities to stimulate investment and focus on the drivers of healthy sustainable growth in the Scottish and UK economy."

The study also estimates a slight deterioration in the labour market, with recovery in 2015.