Scotland’s notional fiscal deficit narrowed slightly in the fiscal year to April 2019 but, at a hefty 7 per cent of total economic output, it still suggests a huge funding challenge if the country was to become an independent state.
Wednesday’s release of the annual Government Expenditure and Revenue Scotland report, a closely watched indicator of the fiscal starting point for independence, comes amid growing constitutional uncertainty caused by the UK’s looming exit from the EU.
UK Labour party leader Jeremy Corbyn and his shadow chancellor John McDonnell announced this month that Westminster should not seek to block a second independence referendum if requested by the Scottish parliament.
Wednesday’s Gers figures showed government spending in or on behalf of Scotland was £12.63bn greater than income from taxes, including a geographic share of North Sea oil and gas revenues.
That was equivalent to 7.0 per cent of Scottish gross domestic product, down slightly from the 8.1 per cent recorded for 2017-18, but still far larger than the deficit of the UK as a whole. The UK deficit was 1.1 per cent last year, down from 2.0 per cent in 2017-18.
The data showed that as part of the UK, Scottish government revenues per person are £307 less than in the UK as whole when North Sea income is included, while total government expenditure is £1,660 more.
“Today’s Gers figures show clearly how Scotland benefits from being part of a strong UK with every man, woman and child in Scotland receiving a ‘Union dividend’ of nearly £2,000 a year,” said Alister Jack, the UK government’s Scottish secretary.
Such a large notional fiscal deficit suggests that an independent Scotland would have to sharply cut government spending and borrow heavily. But Derek Mackay, Scotland’s finance secretary, insisted leaving the UK would also allow different policy decisions that would promote economic growth.
He highlighted interest payments on the UK national debt as an area where independence would bring savings. A “growth commission” set up by the ruling Scottish National party said last year that Scotland would not take on a share of the UK debt at independence, instead making an annual “solidarity” payment towards the interest on it.
Asked why he thought the remainder of the UK would accept such a settlement for debts built up while Scotland was a part of the union, Mr Mackay, a member of the commission, said it would be in the UK’s interest to “engage positively”.
“What negotiations actually happen with the UK government would be a matter for the future,” he said.
Mr Mackay said he was encouraged by increasing revenues from Scotland’s onshore economy. Scotland’s share of revenues from North Sea oil and gas was almost unchanged at £1.43bn in 2018-19 after growing sharply in 2016-17.