David Bell: Scotland’s spending binge is just a fantasy

Publication of new public spending figures by HM Treasury has re-ignited the controversy about UK government largesse to Scotland.

While these are planned figures rather than outcomes, they do suggest a 15.3 per cent increase in the difference between English and Scottish public spending per head between 2009-10 and 2010-11.

In 2010-11, social welfare payments in Scotland were £3,965 per head compared with £3,587 per head in England. The difference of £378 per head reflects variations in income and deprivation, as well as Scotland’s slightly older population. The difference in spend-per-head on social welfare is also larger than the combined differences in spend between Scotland and England on health and education. A further issue is that defence accounts for £39 billion of public spending, but only £97 million of this total is allocated by the Treasury to the constituent parts of the UK. The Treasury argument is that all UK citizens benefit from defence expenditure equally and therefore there is no need to allocate defence spending to where it actually occurs. There is a theoretical case for this approach, but it would make sense also to publish data on how much is spent on defence by region.

The headline figures may be somewhat misleading for yet another reason. The Treasury does publish estimates of real differences in spending on a year-to-year basis, taking account of inflation. These data show that the real difference in identifiable public spending per head between Scotland and England in 2010-11 was lower than in 2005-6, 2006-7 or 2007-8. The notion that Scotland is on an upward public spending path that will leave other parts of the UK behind is fantasy. Crucial negotiations will begin soon on how much to remove from Scotland’s Barnett allocation to allow for the new income tax powers that form part of the Scotland Bill. If corporation tax powers are also ceded, Scotland will become responsible for a larger proportion of its own revenues and there will be a further reduction in the Barnett block grant. Although it reaches into the most esoteric byways of public finance, the results will influence public services for the foreseeable future.

l David Bell is professor of economics at Stirling University