Scotland’s public spending deficit has hit a record of nearly £2,200 a head, despite a massive increase in tax revenues driven by the global surge in oil prices.
The annual public spending estimates, which cover all the taxes and spending by the devolved and UK governments in Scotland, found Scotland raised £73.8bn in taxes last year, including income from North Sea oil, and spent £97.5bn.
The Government Expenditure and Revenue Scotland (GERS) report calculated a per-person deficit of £2,184 for the 2021-22 financial year, the highest yet recorded. This compared with £1,925 in the previous year and £2,091 in 2019-20.
If revenue from North Sea oil taxes were excluded, Scotland would have raised an estimated £70.3bn. That would have meant an overall spending gap of £27.2bn, or £2,768 a head, more than £500 higher than the previous largest gap.
John Swinney, Scotland’s deputy first minister, said the GERS data also showed that, in percentage terms, Scotland’s deficit as a measure of economic output fell by far more (10.3%) year on year than the UK’s (8.4%).
“Today’s figures show Scotland’s fiscal position is recovering faster than the UK’s, with a huge fall in the annual deficit thanks to the largest increases on revenue on record,” he said.
However, that calculation overlooked the fact that proportionally the UK’s deficit fell more significantly, by 58% year on year compared with 46% in Scotland.
This year’s GERS data, and the comparisons with the 2020-21 figures, are heavily influenced by the dramatic impacts of the pandemic, which heavily suppressed the economy and led to record levels of government spending, distorting the overall picture.
Gary Gillespie, the Scottish government’s chief economist, was unable to say how much of Scotland’s record tax revenues were driven by UK government Covid spending, but said Scotland spent more per head on relief policies.
The UK government said the GERS data was proof that Scotland was far better off within the UK, which shared its resources. Alister Jack, the Scottish secretary, said the figures showed “how people and their families benefit massively from being part of a strong, resilient UK”.
He said: “[At] a time of unprecedented challenges, sharing resources around the UK has never been more important.”
The 18% increase in tax receipts was largely due to a surge in oil and gas revenues, based on Scotland’s geographical share of the North Sea and the north-east Atlantic.
This increase in oil revenues poses significant political challenges for Nicola Sturgeon’s government as it seeks to make the case for independence and presses for the right to stage a fresh referendum in October 2023.
After setting tough net zero targets for Scotland, the first minister accepted the world needed to cut oil consumption heavily in the face of the climate emergency, and agreed with the conclusion of the Scottish National party’s own growth commission that oil revenues were too volatile to form part of the central case for independence.
That is largely because oil revenues fell to zero immediately after Sturgeon’s predecessor, Alex Salmond, had built the case for independence in 2014 on booming oil receipts.
On Wednesday, Swinney’s forecast on next year’s oil and gas receipts suggested they would top £13bn – a record high. He said Wednesday’s GERS figures “highlight how the UK’s response to the [cost of living] crisis is being built on Scotland’s natural resources, not least with its windfall tax on the North Sea”.
Swinney refused to say whether Sturgeon’s forthcoming paper on the economics of independence would accept the growth commission’s advice on ignoring oil receipts.
His argument about the value of oil taxes will fuel intense pressure from nationalist activists for Sturgeon to use a booming oil and gas sector to prop up the economic case for leaving the UK, despite her pro-climate rhetoric. It will also exposes deep tensions within the independence movement with the Scottish Greens, who want Scotland’s oilfields to be closed down.
