The annual publication of the Government Expenditure and Revenue in Scotland (Gers) figures is always a focal point for a lively debate around Scotland’s future.
This year’s figures, due out this morning, will be no exception, playing into the seemingly endless discussions around our constitutional future.
Some years ago, the SNP Government took the decision to move publication of the figures into what was then Parliament’s summer recess, hoping that there would be less attention on them as a result. It will not help their cause that Holyrood is now sitting when the figures are published, and with the SNP pushing for another independence referendum it is hard to see how these new statistics will be anything other than the subject of heated debate.
In recent times, the Gers figures have proved deeply uncomfortable for the Nationalist cause. Last year Gers showed the Scottish tax take was £307 per person lower than the UK average, taking into account a geographical share of North Sea Oil. Much more significant was the gap in public spending: in Scotland it is £1,661 higher per capita than the UK average.
This means that the “Union Dividend” – the fiscal transfer from the rest of the UK to Scotland – increased to a record £1,968 for every man, woman and child in Scotland. That is the sum – £8,000 for a family of four in each year – that Scotland stands to lose in the event of separation from the rest of the UK.
It is important to stress that the great bulk of the fiscal transfer is represented by higher per capita public spending in Scotland, not by lower tax revenues. So even if the Scottish economy performed in line with the UK average, and the tax take here was equivalent, there would still be a fiscal transfer required of over £1,600 for every person. This gives the lie to the Nationalist response to Gers, which is that, with independence, the Scottish economy could grow more rapidly and match at least UK expansion rates (although what policies would be introduced to deliver this outcome are never spelled out). Even with Scottish growth matching the UK average, there is still a massive fiscal gap to fill.
SNP faces a widening financial black hole
That Gers has become an inconvenience for the Nationalist cause is something of an understatement. Some Nationalists resort to trying to discredit the figures entirely, claiming they are a ‘Westminster’ product, and conveniently forgetting that they are prepared by Scottish Government statisticians. The former SNP Finance Secretary Derek Mackay suggested last year he was producing his own set of “alternative Gers” figures, demonstrating how an independent Scotland might perform. Whether this is a policy that has survived Mr Mackay’s demise is something we will find out today.
The figures being published this morning will relate to the period 2019-20, and will therefore only cover a very short period where there was an impact from the Covid-19 pandemic. Nevertheless, it can be expected that these will show a widening of the fiscal gap between Scotland and the UK as a whole, and accordingly an even greater Union Dividend – and a greater black hole that the SNP would have to fill in the event of independence. With the Covid response coming mostly in the current financial year, the figures for next year will be even more dramatic.
Writing at the weekend, Professor Jim Gallacher, former Director General for Devolution in the UK Government, said that he expected the Scottish deficit as a result of the coronavirus pandemic, and the economic slump that we are now experiencing, to be relatively higher than the UK average, probably well over 25 per cent of GDP. In his words, “that’s like borrowing the whole budget of the Scottish Parliament in one year. No small country on its own could sustain that”.
A deeply uncomfortable position
We do know that unemployment in Scotland is now higher than the UK average, and the recession here is already deeper. Whatever the historic Gers figures tell us, looking forward the Scottish economy, and public finances, will be even more reliant upon fiscal transfers from the rest of the UK. If you want to maintain spending on the health service, on education, on police, and on roads, you will only be able to do that if the Union Dividend is maintained.
Much of this has to be funded by UK borrowing, with a deficit of less than two per cent likely to grow as high as 20 per cent of GDP. Fortunately, with the strength of the Bank of England, and an AAA credit rating, money can be borrowed cheaply by the UK: a newly independent Scotland, with no certainty as to what currency it might use, would be in a very different financial position.
It is significant that since 2014 we have heard much less from the SNP about the demand for full fiscal autonomy for Scotland. The Gers figures demonstrate just how reliant Scotland is upon fiscal transfers from other parts of the UK. There is, of course, nothing unusual about this in large countries: stronger parts always support those that are less well-performing, or have higher public spending demands. It only becomes an issue where there is an argument for one part to break away and stand on its own two feet, but the evidence shows that would put Scotland in a deeply uncomfortable position.
Whatever today’s Gers figures tell us, they will not make happy reading for the SNP. It is little wonder that more and more Nationalist voices are calling for a fundamental rewriting of the economic case for independence. The one that exists today is simply not credible.
Murdo Fraser is a Scottish Conservative MSP for Mid Scotland and Fife
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