GERS report: Record Scottish deficit hits case for independence

The notional deficit was 22.4 per cent of Scottish gross domestic product, compared to 8.8% of GDP in 2019/20, or £15.8bn, when lockdown had barely begun.

This includes Scotland's geographical share of North Sea oil and gas revenue.

In a statement which conspicuously failed to mention independence, SNP Finance Secretary Kate Forbes admitted the pandemic had "fundamentally shifted our fiscal landscape".

The Scottish Tories said the data underlined the "strength and security" of the Union.

Across the UK as a whole, the deficit was 14.2% of GDP last year, up from 2.5% in 2019/20, the worst since World War II.

Until now, the worst deficit of the devolution era was 10.4% of Scottish GDP in 2009/10, or £14.3bn, after the global crash, when the UK deficit was a similar 10.2% of UK GDP.

Produced by the Scottish Government, the GERS figures describe the country’s finances as they are under the current constitutional arrangements.

However experts - including the SNP’s own Growth Commission - regard them as an accurate picture of the starting point for an independent Scotland.

Nicola Sturgeon has said she wants to hold a second independence referendum by the end of 2023, Covid permitting, with independence in 2026 if there is a Yes vote.

The Growth Commission recommended keeping a tight rein on public spending for a decade after independence to halve a projected deficit to a sustainable 3% of GDP.

However the Institute for Fiscal Studies has estimated the lasting impact of the pandemic means Scotland’s deficit will still be around 9% in 2025/26, three times that of the UK.

It said structural deficits the size of Scotland's“would not be sustainable on an ongoing basis”, and noted it was easier to promise policies to boost the economy than deliver them.

The Fraser of Allander Institute attached to Strathclyde University warned yesterday the challenge of such a deficit would be “stark”. 

Ms Sturgeon has yet to update the economic prospectus for independence, saying she will do so nearer Indyref2.

Ms Forbes said: “These statistics clearly highlight the significant economic impact of the pandemic. Scotland’s economy contracted by about 10% last year, which is in line with the performance of the UK economy.

“The pandemic has not only changed people’s lives but it has fundamentally shifted our fiscal landscape, with countries and markets around the world reassessing what represents a viable deficit.

“The Scottish Government has worked tirelessly to support businesses and households throughout the pandemic.

"While we face continued challenges, there are welcome signs that the Scottish economy is beginning to recover strongly. Business confidence is back above pre-pandemic levels, output is increasing and job vacancies are rising.  

"As we rebuild, we are pushing forward with an ambitious 10 year agenda of economic transformation to help seize Scotland’s potential and deliver a more prosperous, fairer and greener economy.

“The GERS figures reflect Scotland’s position within the UK, under which 40% of spending and 70% of revenue income is reserved to the UK Government.

"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.

“We once again urge the UK Government to engage positively with us to devolve additional borrowing powers which would allow the Scottish Government to work with business and the public sector to build a recovery that works for Scotland.”

The data also showed that, because of cross-border transfers, public spending per head in Scotland was £18,144, or £1,828 higher than the UK average.

In addition, per capita tax revenues in Scotland were £382 less than in the UK as whole, meaning the combined “fiscal gap” was £2210 To Scotland’s advantage.

Dubbed the “union dividend” by the opposition parties, this was up from £2044 in 2019/20.

The GERS report said Scotland’s geographical share of North Sea revenue fell from £724m in 2019/20 to £550m last year.

On-shore receipts also fell, from from £65.3bn to £62.3bn as a result of the pandemic, a record fall of 4.6% in the economy.

Overall, Scotland contributed 7.9% of UK tax revenues in return for a 9.1% share of UK public spending.

Spending increased by 21%, reflecting the costs of the health and wider economic interventions in response to the pandemic. 

This was equivalent to 9.1% of total UK public sector expenditure, or £18,144 per person, which is £1,828 per person greater than the UK average.

Tory MSP Murdo Fraser said: “These new figures demonstrate the strength and security that we gain as part of the United Kingdom.

“In times of crisis, when a pandemic hits, Scottish jobs and public services are safer because we act together.

“The UK Government has delivered a war chest to fight Covid, back our NHS, and support Scotland’s economic recovery.  

“The Union dividend has increased and now every man, woman and child in Scotland is £2,210 better off within the United Kingdom.

“We are back on the road to recovery faster than anticipated because of the world-leading vaccine scheme and thousands of jobs have been protected by Rishi Sunak’s furlough scheme.

“As we start to move on from Covid, it’s vital that both of Scotland’s governments now focus 100% on rebuilding Scotland and delivering our economic recovery.”

Scottish Liberal Democrat Treasury spokesperson Christine Jardine MP said: "Spending big to protect lives and livelihoods was the only option but the cost to government has been enormous.

"What we've seen in the UK is we're stronger when we pull together. The broad shoulders of the UK economy and a strong central bank have provided the financial muscle to rapidly expand public spending and keep it going.

"These blistering figures drive home just how economically valuable the partnership across these isles is.”