Indyref2: What would a separate Scotland’s deficit really be?

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With another referendum on independence on the horizon, it is virtually guaranteed that the debate will focus on the economy.

While issues of identity and the looming spectre of how the UK will look post-Brexit will be important, it is the pound (or other currency) in your pocket that will inform the decision of most Scots.

Picture: John Devlin

Picture: John Devlin

Nicola Sturgeon’s predecessor Alex Salmond was criticised for not properly addressing the issue of Scotland’s public sector deficit during the 2014 campaign.

Many people believe it was a fear of Scotland’s less than advantageous starting position following independence that resulted in the 55 – 45 win for the No campaign.

Two-and-a-half years on, many Scots will still wonder whether the SNP has answered the questions on Scotland’s deficit.

With that in mind, we attempt to make sense of this crucial dividing line.

Picture: PA

Picture: PA

Gers Figures - What and Why?

The Government Expenditure and Revenue Scotland report is an annual look at the headline figures of Scotland’s financial position.

In political and practical terms, this means that we get a yearly figure on exactly what Scotland’s deficit is, relative to the rest of the UK.

GERS measures what the deficit of an independent Scotland would be, taking account of all public spending that is currently made for and on behalf of Scotland (by both UK and Scottish Governments), and taking account of all tax revenues raised from Scottish taxpayers.

Picture: John Devlin

Picture: John Devlin

Normally published in March, the 2015/16 figures were controversially brought forward to August of last year.

At the height of the Holyrood recess, there was perhaps less focus on the figures, though experts say they move was perfectly reasonable and due to improvements in the way stats were collected.

Headline numbers

Scotland’s deficit in the 2015/16 period was £14.8bn including oil revenues, which amounts to 9.5% of our Gross Domestic Product (GDP).

The UK’s deficit in the equivalent period was much better by comparison, at 4% of GDP.

Scotland’s deficit in the most recent period was nearly as bad as it was at the height of the global financial crisis of 2009-10.

The Experts

Strathclyde University’s independent Fraser of Allander Institute concluded at the time that on the whole that the independence picture wasn’t changed on one set of figures.

Though their stark analysis read: “It is simply not possible to operate under independence with a deficit on this scale on a consistent basis – full stop.”

FAI experts also wrote: “In pursuing the case for Scottish Independence, the Scottish Government need to set out the tough choices that it would make alongside a detailed and comprehensive plan for how it would manage the public finances under independence.

“This won’t be easy but is essential.”

They did conclude, however, that the GERS figures currently examine Scotland as a component of the UK, where many important decisions are made, so as such there are unknowns as to how these figures would look within a completely new country making its own decisions.

The Brexit Factor

There are also those who suggest that the GERS figures could in the future be impacted by an economic shock due to Brexit.

The UK’s decision to leave the EU has been met with stark warnings about how trade will flow with some of our biggest partners, and Scotland is no exception.

It is doubtful this would be a massive factor in terms of Scotland’s starting deficit, as even the most strident of independence supporters would concede that Scotland won’t leave the UK until the UK leaves the EU.

The pro-indy response

Only the most ardent, and fringe, SNP politician would go as far as to doubt the facts contained within the GERS report.

That isn’t to say that they simply roll over and accept the theoretically grim picture of an independent Scotland’s finances.

Nicola Sturgeon said that Scotland was not unique in facing difficult economic circumstances, and disputed that GERS blew a significant hole in her independence dream.

Others contend that any poor figures on Scotland’s economy are just another sign of long term trends showing that being part of the UK is what damages Scotland, rather than something that aids the country.