Scotland's deficit worsened before Covid crisis

Total public spending in Scotland was £81bn, but total tax revenues north of the border, including a geographical share of North Sea oil, were £65.9bn - a shortfall of £15.1bn.

This compares to a deficit of £13.2bn in 2018/19.

Unionists called it a “hammer blow to the SNP and a massive setback for separation”.

The gap between revenue and spending across the UK also widened last year, but on a smaller scale, from 1.9 to 2.5% of GDP.

If a newly independent Scotland were to apply to rejoin the EU after Brexit it would be expected to bring its deficit to below 3%.

The figures, which cover the year to the end of March, include the early weeks of the coronavirus pandemic and lockdown.

GERS also showed that as a result of cross-border transfers, public spending per head in Scotland was was £14,829, or £1,633 higher than the UK average.

In addition, tax revenues per head in Scotland were £308 less than in the UK as whole, meaning the combined “fiscal gap” was £1941 per person to Scotland's advantage.

The Tories said this ‘Union dividend’ was up from £1,805 the previous year.

The SNP said the data showed the need for Holyrood to have more fiscal powers in light of Covid and a looming hard Brexit. 

The GERS report said Scotland’s geographical share of North Sea revenue halved from £1.4bn to £0.7bn in 2019/20, although on-shore revenues grew by £1.1bn to £65.2bn.

Scotland contributed 8% of the UK tax income to the exchequer, but received 9.2% of public sector spending.

The GERS numbers trigger a ritual political row about the economics of independence, with this year’s including the added dimension of the pandemic.

The Institute of Fiscal Studies (IFS) this week said a newly independent Scotland would face a deficit far bigger than the £11.2billion one planned for in the SNP’s economic blueprint because of Covid and associated UK Government borrowing.

Addressing that would effectively mean “austerity”, the thinktank said.

Finance Secretary Kate Forbes said: “The public finances were already facing challenges this year due to the uncertainty caused by Brexit.

"We are now witnessing an unprecedented health and economic crisis.

"Countries across the world, including the UK, have increased borrowing to record levels and, as we emerge from the pandemic, high fiscal deficits will inevitably be one of the consequences.

“That is why the UK Government should prioritise economic stimulus over austerity. I will also continue to press for the Scottish Government to be granted additional financial powers to enable us to tailor a response that meets Scotland’s needs.

“Scotland, unlike most other countries around the world, large and small, does not currently have the full financial powers needed to chart a way to sustainable recovery from the economic impact of the pandemic.

"The current situation, with the looming withdrawal of furlough support by the UK Government, means it is now more urgent than ever that we gain those powers.

“Despite the pandemic, and the economic problems that inevitably will arise at the end of the Brexit transition period, we are determined that Scotland should emerge with a stronger, fairer, greener, and more resilient economy.

"We continue to invest to protect and create jobs, support businesses and strengthen communities, but our ability to do that is constrained by our lack of borrowing powers.

“It is important to stress that 40 per cent of spending and 70 per cent of revenue income in GERS, combined with key powers over the economy, are reserved to the UK Government and outside the control of the Scottish Government.

“An independent Scotland would have the power to make different choices, with different economic budgetary results.”

However Scottish Secretary Alister Jack said: "The Scottish Government’s own figures show clearly how much Scotland benefits from being part of a strong United Kingdom, with the pooling and sharing of resources that brings.

"People in Scotland, year after year, benefit from levels of public spending substantially above the United Kingdom average, with a Union dividend of £1,941 per person in Scotland.

“That has never been more important than it is right now. In the face of a global pandemic, the strength and experience of the UK Treasury is helping people in Scotland and across the rest of the United Kingdom.

“The UK Government is currently supporting more than 930,000 jobs in Scotland – a third of the workforce. This is just one part of a huge package of measures to get our economy back on track, on top of an extra £6.5bn for the Scottish Government to fund public services in Scotland.

"We will continue to back all parts of the UK as we recover from the economic impact of coronavirus.”

Scottish Labour leader Richard Leonard said: “The coronavirus pandemic is a public health emergency but it has also plunged the Scottish and UK economies into the biggest freefall for three hundred years.

"The Scottish and UK governments need to co-operate to restart the economy and to retain, guarantee and create jobs, and to remobilise our public services.

“These statistics show that Scotland’s deficit has increased in size even before the impact of the economic ramifications of the pandemic are felt.

“With billions draining from the Scottish economy in the event of separation, Scotland would be thrust into years of savage and unrelenting austerity.

“We cannot let a generation be lost to austerity caused by the pandemic or the creation of a separate Scottish state. Scottish Labour will continue to fight for the investment and jobs that Scotland so badly needs.”

The Scottish Greens said the report showed why the post-Covid economic recovery must not "make the mistakes of the failed old economic system". 

Co-leader Patrick Harvie said: “Both sides of the constitutional debate try to seize on the annual GERS figures, but this is an unhelpful fixation on figures that don’t mean very much.

“GERS tells us little about what an independent Scotland’s finances would be like, or even about the finances of the devolved Scottish Government we have today. They are also wildly out of date because they do not reflect the impact of the COVID crisis

“In fact, we now face a triple economic crisis of COVID, Brexit and the Climate Emergency, and it is dangerous to keep a narrow focus on reducing the deficit, especially when this approach has already led to rising child poverty and record levels of hunger and homelessness in the guise of austerity.

“Now more than ever we need to ditch the failed old economics that has forced people into poverty and done such profound damage to our planet.

"Unlike the SNP’s Growth Commission, which would continue this austerity-driven race to the bottom with the rest of the UK, the Scottish Greens believe independence must come with a determination to build a future for all in a new greener Scotland.”

Scottish Conservative finance spokesman Murdo Fraser said: “The SNP and Nicola Sturgeon herself used to hail GERS figures as all the evidence Scotland needed to separate from the UK.

“Now, nationalists will spend the day denying facts from their own government.

“Today’s GERS official statistics show that the UK Union is more valuable than ever. It is worth nearly £2,000 a year for every man, woman and child in Scotland.

“And this doesn’t even take into account the blockbuster support from the UK Government throughout the pandemic, including one of the largest and most generous job-saving schemes in the world.

“This is a hammer blow to the SNP and a massive setback for separation. 

“Nicola Sturgeon would have to throw away Scotland’s entire NHS, every nurse and doctor, just to come close to balancing the budget in her separate state.

“It’s beyond dispute that the economic case for independence has never been weaker. Separating would cost Scotland £15 billion a year that we need for our schools and hospitals.

“Instead of debating the merits of slashing £15bn from Scottish public services, we should be debating how we put that £15bn to better use in our schools, hospitals and high streets.”

The Scottish Liberal Democrats called the deficit "eye-watering”.

MP Wendy Chamberlain said: “The human cost of the coronavirus has been heart breaking and the financial cost has been eye watering.  

“It has wreaked havoc on economies across the world, stifled productivity and caused unemployment to skyrocket. What we’ve seen in the UK is we’re stronger when we pull together.   

“Protecting people’s jobs and keeping the nation safe has come at an unrivalled cost. The broad shoulders of the UK economy and our central bank have helped us do that.  

“It’s the warm jacket of the United Kingdom that has kept, and will continue to keep, public service spending going through the bitter economic chill of this crisis.  

“These numbers from before the crisis really drive home just how economically valuable the partnership across these isles is.”  

Critics of GERS often claim it is politically biased and aimed at undermining the case for independence.

However the Scottish Government website states it is "methodologically sound, explained well and produced free of political interference".

Pamela Nash, chief executive of the anti-independence Scotland in Union group, said: “These latest figures confirm that Scotland is better off in the UK.

“We benefit from a UK dividend that ensures we can spend more on our NHS, schools and other public services.

“It’s time for some honesty from the SNP about how a separate Scotland would address the huge gap between spending and revenue – how much would taxes rise by and how much would be cut from schools and hospitals?

“As our economy recovers from Covid-19, the last thing we need is deeper austerity."