In the early part of this decade, Scotland and the UK were facing similar economic challenges. Its budget deficits were roughly equal. The new figures published by the Scottish Government, however, highlight how Scotland’s fiscal position has since dramatically deteriorated compared to the UK as a whole.
Scotland’s budget deficit is now over double the UK average, according to the Scottish Government’s latest analysis. Scotland’s deficit is estimated to be around 9.5% of GDP compared to the UK’s much more modest 4% deficit. This disparity has, in large part, occurred due to the collapse in Scottish North Sea oil and gas revenues. Exploration activity in the North Sea is at its lowest for 45 years, and Scotland’s oil and gas revenues reflect this.
Scottish oil and gas revenues were a meagre £60m in 2015-16. Only three years ago, the Scottish Government was predicting revenues of nearly £8bn for 2015-16, which is over 100 times more revenue than actually materialised. The result is that, compared to the UK, Scotland is not only receiving more spending per head but is also raising less tax revenue per head. In comparison to the UK, Scotland now receives £1,200 per head more in spending while raising £400 per head less in revenues. This current situation can only be sustained due to Scotland pooling economic risk with the rest of the UK.
Scotland’s precarious fiscal position is very damaging to the economic case for independence. An independent Scotland would currently be facing a likely combination of fiscal instability, higher taxes and lower government spending.
The dire fiscal backdrop would also have potential political implications for an independent Scotland. Scotland’s budget deficit is the highest of any EU member state – even exceeding Greece’s budget deficit. New member states to the EU are expected to have a budget deficit of no more than 3%, and an independent Scotland – at the current moment – would be seeking to join the bloc with a budget deficit that is three times this level. There are already major question marks as to whether an independent Scotland would be permitted to join the EU, and this can only add to the uncertainty.
All in all, this latest publication from the Scottish Government is very bad news for Nicola Sturgeon’s push for independence.
- Daniel Mahoney is Head of Economic Research for the Centre for Policy Studies