UK subsidy to Scotland soars after oil price slump

Spending was £1200 more per head in Scotland than in the rest of the UK in 2015-16, while taxes raised per head were £400 lower, a gap of £1600.

Read more: Scotland's deficit almost £15bn as North Sea oil revenues fall 97% in one year

Five years ago, Scots were net contributors to the exchequer, at £200 per head, however the oil price halving reversed that, and the gap is now the widest since devolution began.

The Government Expenditure & Revenue Scotland (GERS) report showed Scotland’s share of North Sea revenue fell 97 per cent last year, from £1.8bn to just £60m.

On the upside, the onshore economy grew £1.9bn last year, offsetting the drop in oil revenue, however spending rose by £700m, meaning a deterioration in the overall picture.

The total difference between Scottish tax income and public spending, assuming a geographical share of North Sea oil and gas revenue, was £14.8bn, a deficit of 9.5 per cent of Scottish GDP, compared to £14.3bn and 9.1 per cent in the previous year.

The UK deficit in 2015-16 was less than half that, at 4 per cent of GDP, a figure that has improved for three years while Scotland’s deficit has worsened for three years.

Ms Sturgeon said GERS presented a “challenging picture” and underlined the need to grow and diversify Scotland’s onshore economy - a problem “compounded” by Brexit.

She said: “I’m not going to try to deny the challenge posed by the oil price. The Scottish economy… has suffered an economic shock that has had an impact on our fiscal position.

“But the underlying message from these figures is of an economy with strong foundations.

“You don’t judge the fundamental economic health of a country on one or two years fiscal position, you judge it overall.

Read more: Scotland's deficit almost £15bn as North Sea oil revenues fall 97% in one year

"However, Scotland's long-term economic success is now being directly threatened by the likely impact of Brexit. If we’re going to be successful [at growing revenue], we need the best possible environment, and being taken out the EU is the worst possible environment.”

She denied Scotland’s deficit was being subsidised by the rest of the UK’s taxpayers.

“Almost every year what the UK has been delivering are cuts to the Scottish budget.

“Scotland over the last five years has contributed more per head of population in tax terms than the whole of the UK, so the idea that Scotland is somehow subsidised by taxpayers elsewhere in the UK is, no, I don’t accept that case.”

Despite the GERS numbers, she said she “wished” she had won the 2014 referendum.

“If you’re asking me, if you’re facing a challenging situation, is it better to be in control of all the levers that allow you to address that, or not, then I’m always going to say that I think it is.”

The SNP White Paper on independence predicted oil revenues would be at least £6.8bn in 2016-17, a figure that would require current revenues to grow more than 100-fold in a year.

The GERS report also showed £1bn of the £53.7bn raised in taxes in Scotland last year came from alcohol duties and £1bn of the £68.5bn in spending went on PPP/PFI charges, with a net contribution to the EU of £528m.

Read more: Scotland's deficit almost £15bn as North Sea oil revenues fall 97% in one year

Scottish Secretary David Mundell said the UK had protected Scottish living standards: “Scotland weathered a dramatic slump in oil revenues last year because we are part of a United Kingdom that has at its heart a system for pooling and sharing resources. The UK, not the EU, is the vital union for Scotland’s prosperity.”

Daniel Mahoney of the Centre for Policy Studies said Scotland’s finances were “precarious”.

He said: “This should concern those pushing for independence. With independence, the Scottish Government would have the burden of a high budget deficit, which would inevitably lead to a combination of fiscal instability, higher taxes and a cut in government spending.

“Scotland’s high budget deficit would also make entry into the EU even less likely – given new member states are expected to have a budget deficit of just 3 per cent of GDP.”

Liz Cameron, Chief Executive of Scottish Chambers of Commerce, said: “The Scottish economy can and should be performing so much better. We need governments in Holyrood and at Westminster to focus on the basics our businesses need: a fair deal on taxation, investment in skills for our future and in our transport and digital infrastructure and services.

"The GERS report is a wake up call that must be heeded."

The Scottish Conservatives said GERS showed a “Union dividend” of £1600 for every man, woman and child in Scotland, and urged the SNP to permit fracking to raise extra cash.

Finance spokesman Murdo Fraser said: “In recent days we have seen the First Minister fear-mongering over the UK’s decision to leave the EU in the hope she can hide the flaws in her own separation plan.

“It would be better if she faced up to the truth – you don’t meet the challenges of leaving one union by quitting one of far more importance to Scotland’s prosperity.”

Scottish Labour leader Kezia Dugdale said: “During the independence referendum Nicola Sturgeon personally promised a second oil boom. Her own government’s figures show she misled people and that is unforgivable.”

Scottish LibDem leader Willie Rennie said the case for independence had been “swallowed up by £14bn black hole”, adding: “The oil shock and the Brexit shock should not be compounded with an independence shock.”

Green finance spokesman Patrick Harvie said the figures showed Scotland needed to end its reliance on oil and gas and invest in a far more diverse economy.

He said: "If we’re serious about building up alternative viable industries, and ending our over-reliance on unburnable oil and gas, we must see a joined up plan from the Scottish Government instead of a myopic obsession with getting back to 'business as usual'."

Alastair Cameron, Director of Scotland in Union, added: “We were told an oil boom would fund independence but this has been exposed as fantasy. The First Minister has spent the summer desperately trying to exploit the Brexit vote and is now threatening to bring forward new referendum legislation. She shouldn’t bother.”