Scotland's £76 billion 'devolution dividend'

SCOTLAND has gained a £76 billion "devolution dividend" since the creation of the Scottish Parliament, as public spending has outstripped tax generated in the country by up to 45 per cent, a controversial new report has found.

• The royal procession to the opening of the Scottish Parliament

Firing the latest salvo of an increasingly bitter war of words between the UK and Scottish governments over whether Scotland could afford to be independent, the report – commissioned by Labour Scottish Secretary Jim Murphy's office – says the country has had a "structural deficit" since 1981 with spending last year 11bn more than taxes raised north of the Border.

Attacking the heart of the SNP's economic argument for independence, the study was immediately branded a "dodgy dossier" by the Scottish Government.

The report dismissed the significance of oil and gas revenues on Scotland's finances, insisting that even if all tax receipts from the North Sea went to Scotland, there would have been a 3.7bn gap between spending and income last year, with the figure totalling 30.26bn since the Holyrood parliament was established.

And in an examination of "real money" government expenditure that excludes capital spending, Scotland Office economists found total expenditure in Scotland currently amounts to 145 per cent of all Scottish tax receipts.

The report is the latest instalment of a dispute between the SNP at Holyrood and Labour at Westminster that critics say is damaging democracy and undermining faith in the integrity of government.

Using the annual Government Expenditure and Revenue Scotland (Gers) figures produced by the Scottish Government, Scotland Office economists examined Scotland's fiscal balance since the onset of devolution in 1999.

Since then, the report said, total spending by the UK and Scottish governments in Scotland was 399.9bn.

That figure included the block grant to the Scottish Parliament, as well as money spent directly by Westminster in areas such as benefits payments and tax credits.

It also includes a proportionate figure for monies spent on behalf of Scotland on things such as defence and the UK Foreign Office.

Over the same period, total tax receipts – excluding oil and gas – generated in Scotland were found to total 324.157bn, leaving a shortfall of 75.78bn.

The latest available statistics for 2007-8 produced by the Scotland Office indicated that total public spending in Scotland was 56.29bn set against a tax collection of 45.19bn, an overspend of 11bn.

Mr Murphy said the findings demonstrated the clear benefits Scotland received by remaining in the union: "You don't need to be an economist to know that Scotland benefits from being part of Britain or that Britain is better because of Scotland.

"It helps, however, to look at the economics of devolution. Scotland has two governments spending billions of pounds of public money and there is a clear and quantifiable 'devolution dividend'. Edinburgh takes decisions on devolved spending priorities, while the UK government continues to invest in priorities like welfare and defence.

"The UK government provides help for many of Scotland's vulnerable when they need it most.

"UK defence spending supports jobs in Scottish shipyards, jobs at RAF bases and jobs at Faslane. Scotland plays a vital part in UK national security and our brave armed forces in Afghanistan are fighting the Taleban alongside their colleagues from the rest of Britain."

But the paper's findings were described as "anti-Scottish propaganda" by an irate Scottish Government – which has already called for the abolition of the Scotland Office and last week issued its own rebuttal report on selected figures released ahead of the latest paper's publication.

Finance secretary John Swinney called the report a "dodgy dossier" that omitted key details.

"The Scotland Office should change its name to the 'ministry of anti-Scottish propaganda', given that its sole purpose these days seems to be issuing fantasy figures that do Scotland down," he said.

"Government Expenditure and Revenue Scotland is the official report, and it contains the real figures for 2007-8 – not this inaccurate dross from Jim Murphy.

"The Gers report demonstrates that Scotland recorded a current budget surplus over the three years to 2007-8 of 2.3bn, while the UK ran up a deficit of 24bn over the same period."

He added: "Scotland's oil and gas industry is the only thing keeping the London Treasury afloat – over the next six years, 50bn worth of North Sea revenues will flow to the London exchequer.

"That alone represents over 20,000 for every household in Scotland."

Mr Swinney, who described the Scotland Office claims as "spurious" said the report also failed to take into account an underspend on defence in Scotland: "The Scotland Office smears about Scotland cannot be allowed to stand."

There was little support for either position among political opponents.

Scottish Liberal Democrat finance spokesman Jeremy Purvis said the debate should not centre on "who can drape themselves in the Saltire the most".

"It should be an objective look at the best interests of the Scottish people and economy," he said. "The way forward is recognising that Scotland benefits hugely from being part of a wider Britain, but we need to address the democratic deficit that exists by the Scottish Parliament simply being a spending parliament."

A spokesman for the Conservatives added: "People know Scotland is better off socially, culturally, financially and politically as part of Britain."

But critics of devolution and the high levels of public spending in Scotland said the figures would concern taxpayers elsewhere in the UK.

David Davies, a Tory MP for Monmouth, and an outspoken critic of devolution said he was "not surprised" by the report. "Both Wales and Scotland are receiving more in government subsidies than they pay in taxation," he said. "If Scotland or Wales decide to leave the union, there will be a price to be paid because England will no longer want to go on subsidising either."

A spokesman for the Taxpayers' Alliance added: "The whole issue of English taxpayers subsidising Scotland is huge, especially now we are in recession. Whichever party wins the next election will have to implement a huge reduction in public spending, so English taxpayers will not be too happy if the devolution dividend and the unfairness of the Barnett Formula continue."

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