I do not refer solely to the “leaked Swinney document” on the volatility of oil revenues of which the Better Together campaign has made potent use. Concerns over oil price – and oil production – volatility have long been widely recognised as a problem, even though the independence campaign has not been as candid in admitting its implications until now.
We only need to go to the Scottish Government’s own lengthy document unveiled last week – the weighty “Government Expenditure and Revenue Scotland 2011-12”, or GERS for short – to find the moment of truth that the campaign for an independent Scotland has to take on board.
My first impression on reading it – other than its length, its detail and its statistical complexity – was its relentless repetition. I truly lost count of the number of times the reader was reminded that, with our geographic share of North Sea oil revenues, Scotland’s fiscal deficit not only shrinks dramatically, but as a percentage of Gross Domestic Product it falls markedly below that of the UK as a whole.
For the record, Scotland’s estimated net fiscal deficit in 2011-12 – the amount by which Scottish Government spending exceeds its revenue – totalled £18.2 billion or 14.6 per cent of GDP. But add in our geographic share of oil revenues and this tumbles to just £7.6bn or 5 per cent of GDP. The equivalent UK position including 100 per cent of North Sea revenue is a deficit of £121bn or 7.9 per cent of GDP. We’re better off out!
The comparison is so frequently stated, like lettering through a stick of rock, that the word “spin” would be a slighting under-statement. The point is made with all the subtlety of a blowtorch left on at full blast.
But the big worry point for me was not the volatility of those oil revenues – for the record, these have swung from £4.3bn in 2003-04 to £11.25bn in 2011-12, oscillating with vigour in between. The big takeaway for me came on page 43. For it is here we find the fastest growing item of Scottish Government expenditure by a mile. Here’s a clue. It is not education. It is not health. It is not welfare spending.
The figure that’s barrelling up with a force incredible is Scotland’s share of UK debt interest.
In 2011-12 debt interest on the Scottish Government account calculated on a population share basis, came to £4.07bn. To put that figure in some context, it is more than six times the current annual spending by the Scottish Government on enterprise and economic development (£589 million).
And it is the speed of its rise – as much as the total itself – that should feature much more than it does in the independence debate. For Scotland’s share of UK debt interest has already rocketed from £2.6bn in 2007-08, a rise of 53 per cent in four years.
And this total will continue to rise, as the UK debt total rises. As the leaked Swinney memorandum states, Scotland’s share of debt interest payments would rise from £3.7bn in 2010-11 to £5.2bn in 2016-17.
However, these figures are at least a year out of date. On the most recent Office for Budget Responsibility projections Scotland’s share of debt interest would climb to more than £6bn by 2016-17.
Again, to put this in context, our debt interest bill would come close to overtaking the total annual amount Scotland spends on education.
Now all this does not violate the independence case per se. But what it does is to inject a long overdue realism into the assertions and aspirations of the independence case. At the least, it underlines the vulnerability of budget plans in the aftermath of a post-independence vote.
And this matters especially, because Scottish Government ministers have asserted time and again how much better we would be with independence because Scotland would have the freedom to raise more borrowing for its public expenditure needs.
I’m sure that’s true. But how much more freedom would we have – or even want? How much more debt would we wish to take on, given our share of the debt pile that already has to be serviced? Assertions of the virtue of borrowing need to be placed squarely in the context of the debt for which we are already responsible.
It is not just oil revenue volatility that is the problem. It is the pincer movement on any future Scottish chancellor’s spending ambitions of that oil revenue volatility combined with a relentlessly rising debt interest bill that is the killer.
Little wonder Swinney’s “leaked document” talks in detail of the inherent uncertainty that will be a major issue of future budget planning. Those who see in independence a cast-iron ability to maintain, if not increase welfare and social spending, need to take on board the major constraints that a future Scottish chancellor would have to face.
Tempting though it may be for some to argue that this is “London’s debt, not Scotland’s”, the fact is that it was incurred in pursuit of UK spending overall, a spending in which Scotland has not only shared but also benefited to a positive degree. As the GERS figures testify, total public sector expenditure for Scotland was estimated in 2011-12 to be £64.5bn, equivalent to 9.3 per cent of total UK public spending in that year. “Social protection” was the largest item.
We can hardly evade our liabilities on the basis that our share of public spending – and the debt that fuelled it – has nothing to do with us. On the contrary. As the GERS analysis confirms, total expenditure per capita in Scotland is estimated to have been £12,134 in 2011-12, or £1,197 higher than the UK average.
There are, of course, justifiable reasons why this differential in favour of Scotland persists. But a hawkish UK government may argue that the debt apportionment should be on the basis of our higher relative share of per capita spending rather than on head count alone.
As it is, the debt – and debt interest – projections assume that rates will remain at today’s historical ultra low level. In the event of a resumption of interest rate rises, our problems will be truly compounded.
Lest I am accused of drumming up the debt issue beyond its due significance, I invoke John Swinney in my defence. As his memorandum makes starkly clear, “Meeting interest payments on inherited debt will be a significant feature of Scotland’s budget after independence.” I don’t invent it, I only report it.
We owe Swinney gratitude for alerting his Cabinet colleagues to the reality of the debt constraint that would await them on independence. If the facts are good enough for his colleagues, they’re good enough for us. This is a moment of truth that truly needs to be shared.