THE annual report on Scotland’s public finances is expected to show a dramatic increase in North Sea revenue tomorrow, intensifying the debate in the SNP about oil and gas.

It means the Government Expenditure and Revenue Scotland (GERS) report 2022/23 will show a fall in the country’s notional deficit, according to a leading economic thinktank.

The Fraser of Allander Institute at Strathclyde University said that after a decade of decline, North Sea revenues would be at their highest relative to the overall economy since 2011/12.

The income includes offshore corporation tax, petroleum revenue tax and the recent energy profits levy, or windfall tax”, which increased dramatically as energy prices rose.

The GERS report invariably generates a political row over the economic foundations of an independent Scotland, but this year the debate is likely to have a green edge.

Last month, Rishi Sunak announced more than 100 new oil and gas exploration licences in the North Sea despite the contribution of fossil fuels to climate change.

The SNP and their joint government partners the Scottish Greens condemned the move.

However some in the SNP, notably MPs and MSPs in the north east of the country, are concerned about job losses in oil and gas if the sector is denied potential new fields.

The GERS report for 2021/22 public spending in Scotland exceeded tax revenues by £23.7bn or 12.3% of GDP, twice the UK deficit of 6.1% of GDP that year.

The Scottish deficit was markedly smaller than the record gulf between income and spending the year before caused by the pandemic and the economic shock of lockdown.

The main driver of Scotland's improved position was higher North Sea oil and gas revenue, which jumped by £2.7bn to £3.5bn, 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.

In a preview of the GERS 2022/23 report, the Fraser of Allander said it expected Scotland’s notional deficit to be smaller still, again due to increased oil and gas revenues.

However this would be partially offset by stronger spending on energy support schemes for both households and businesses and on debt interest. 

Deputy director Joao Sousa said: “Because of these offsetting effects, we can’t be sure how Scotland’s net fiscal balance will compare with that of the UK as a whole for 2022/23 (5.2% of GDP), but we expect it to be relatively close - and certainly closer the 2021/22 GERS.”