Scotland better off than UK with ‘only’ £10.7bn overdraft

SCOTLAND’s finances are in a better shape than the UK as a whole, the annual publication of the country’s bank balance has revealed, triggering fresh political sparring on the viability of Scotland as an independent nation.

Healthy tax revenues from North Sea oil helped to limit Scotland’s overdraft for 2010-11 to £10.7 billion, the statistics showed, when counting all government spending north of the Border.

That sum – equivalent to 7.4 per cent of Scotland’s Gross Domestic Product – is still way up on pre-recession levels, showing how tumbling tax revenues are continuing to plunge all nations deep into the red.

But as the political fighting over the numbers began, the SNP highlighted how the figure for the UK – at 9.2 per cent of GDP – was higher, to argue that Scotland was in “a stronger financial position relative to the UK”.

First Minister Alex Salmond claimed that, over the past five years, the gap between the two deficits amounted to “a subsidy to London of over £8,000 million” – or, in the past year, £500 per head.

UK ministers demanded to know how a future SNP government in an independent Scotland would set up its promised oil fund, given the fact that there is currently no surplus money to help it do so.

Meanwhile, economic forecasters said that, while Scotland would remain less poor than the UK for two years, it could see its overdraft climb after that, if oil funds falter.

The Government and Expenditure Revenue Scotland report (GERS) is published every year offering an assessment of the tax revenues and public spending.

On spending, it shows every person in Scotland cost £11,785 in 2010-11, up £359 on the previous year.

This sum is £1,122 higher than the UK average per head spend, although that gap between Scotland and the whole of the UK has now fallen by £100 per head since 2006.

That bonus has been used by Conservative MPs in England to complain that Scotland receives a subsidy from the UK taxpayer, helping to fund policies such as free prescriptions and free tuition costs.

Turning to the tax revenue side of the balance sheet, the GERS report shows that Scotland contributes more to the UK pot than its population share – with 9.6 per cent of UK revenue coming from Scotland, where only 8.4 per cent of the population is based. The figures show the country receives back 9.3 per cent of total UK expenditure.

In 2010-11, this sum, amounting to £63.8bn, was far in excess of the estimated tax revenues accumulated in Scotland, which came in at £53.1bn – including North Sea oil taxes.

The £10.7bn gap is down from £14.1bn in recession-hit 2009-10, but still far more than the £3bn figure pre-crash.

A report by the Centre for Public Policy and the Regions (CPPR) last night provided new projections on both Scottish and UK overdraft over the coming years.

While deficits will fall for both, it predicts that both Scotland and the UK will remain in the red until 2017.

The CPPR also expects the UK’s revenues to recover more quickly than Scotland’s, so that by 2015 the UK deficit will be lower than Scotland’s.

The group warned last night this effectively meant the Scottish Government would need all its oil money for current spending, ruling out an oil fund for the immediate future.

Richard Harris, director of CPPR, said last night: “GERS 2012 shows the overall similarity, currently, between Scotland’s and the UK’s fiscal positions, with both hugely in deficit. This position improves over time, but even by 2016-17 they remain in deficit. In such circumstances, while discussion of a potential oil fund is valid, we need to be realistic about its viability.”

Another leading economist, Professor Brian Ashcroft of Strathclyde University, said that if an independent Scotland funded an oil fund through more borrowing, it would be “Scotland as Greece at its worst”.

However, on the difference between Scotland and the UK’s deficits, Mr Salmond said: “In straight terms, it means in the last five years we have sent a subsidy to London of over £8,000 million. That’s £16,000 for every man, woman and child in Scotland.

“In the last year it was £500 for every man, woman and child in Scotland. So if we want to be £500 better off, then we should vote for Scotland being in control of its own finances.”

However, Scottish Secretary Michael Moore said claims of Scotland’s relative strength failed to “take account of the interwoven nature of the UK’s spending”..

He added: “The SNP must also explain what Scotland’s net fiscal deficit, even including the oil and gas revenues, would mean for much-vaunted policies, such as an oil fund. It seems obvious to say that you cannot create an oil fund from money which does not exist.”

Opposition parties said the figures showed how Scotland’s finance would be heavily reliant on volatile oil money.

Labour’s finance spokesman, Ken MacIntosh, added: “Oil revenues have fallen dramatically from their peak three years ago.”

Scottish Lib Dem leader Willie Rennie added: “The figures also show that oil revenues have varied by £6bn in just the last three years, raising serious questions about public finances that would rely on keeping oil tax receipts high.”

Scots Tory finance spokesman Gavin Brown said: “When you include investment in infrastructure, it brings Scotland’s loss for the year to more than £10bn.

“This is currently sustainable only due to our links with the rest of the United Kingdom.”