23 Aug 2017
Each year, the publication of the annual Government Expenditure & Revenue Scotland (GERS) figures is accompanied by an unprecedented social media storm. The figures, which are compiled by Scottish Government statisticians, are often misunderstood, misrepresented and misused. Let us therefore look at what the latest publication tells us about the state of Scotland’s finances.
Before I get to this year’s data, however, it is worth highlighting why “GERS Day” has become such a high profile date in the Scottish political calendar. After all, the vast majority of statistics are released to little interest from the general public and only the most committed politicos eagerly refresh government websites at 9:30am each day.
GERS data offer an overview of what state Scotland’s finances are in. They show revenue (tax intake) from across all levels of government and they show the other side of the balance sheet too – expenditure by all levels of government. The revenue side includes tax income from oil and gas activity in the North Sea, which has (in the past certainly) been the source of considerable government income.
It is for this reason that the Scottish Government started emphasising GERS figures in the run up to the Scottish independence referendum. With the oil price hitting record highs, North Sea revenue topped £10bn in 2011/12 – figures released in March 2013. This led the Scottish Government to conclude that Scots were richer to the tune of £824 per head, or £4.4 billion. After all, Scotland, with its 8.4% of the UK’s population raised 9.9% of all UK taxes, and only received 9.3% of spending back.
Opposition parties were quick to point out that one cannot use a single year’s figures to claim that an independent Scotland would be better off than as part of the UK – in fact these often get significantly revised, as they subsequently did. We warned that a drop in oil price (traditionally volatile) could quickly reverse the situation. And we were clear that this volatility of oil revenues meant that our finances are more secure as part of the United Kingdom – it is self-evidently easier to absorb the loss of £10bn in a budget of £600bn rather than £60bn.
The following year (2012/13) North Sea revenues pretty much halved. Unsurprisingly, the Scottish Government switched their focus to five-year averages and the central claim across the whole independence campaign became “Scotland would have been relatively better off by £8 billion, or almost £1,600 per head over the last five years.” This was the battle cry of independence campaigners the length and breadth of Scotland. It was official independent statistics, they said, and these clearly show that Scotland is being short-changed: £1,600 extra cash is not something to baulk at after all.
We all know what happened to the price of oil after the referendum. The infamous White Paper predicted tax revenue from North Sea oil and gas to be between £6.8 billion and £7.9 billion for 2016/17. Today’s figures have shown these to be, well, optimistic. The real figure was £208 million – 3 percent of the lower estimate. The difference between the White Paper promises and reality is approximately half of the entire NHS budget in Scotland.
Using the same indicators as the Scottish Government did in the past, this huge drop in the oil price means that Scotland generated just 8% of all of the UK’s revenue (£57.9bn), but still received 9.2% of all spending (£71.2bn). In fact, despite all the talk of austerity, public spending in Scotland has hit record highs and topped £13,000 per person for the first time.
Scotland’s notional deficit therefore stands at a staggering £13.3bn or 8.3% of GDP. The UK-wide deficit, meanwhile, stands at 2.4%. The gap between the two deficits is the highest it has been since GERS started being compiled in 1998/99 – be it nominally, per capita or as a percentage of GDP.
This gap is plugged by the broad shoulders of the United Kingdom. £9.5bn for this year equates to around £1,750 for each man, woman and child in Scotland – that’s £7,000 for a family of four. This is the true Union dividend – when times are tough we can rely on the weight of the whole UK to ensure that our schools, hospitals and other public services remain funded.
The Scottish Government’s reaction to today’s (and last year’s) numbers was as predictable as it was dishonest. Despite relying on single year figures when they suited their narrative, they now emphasise that these only offer a snapshot and no conclusions can be drawn from them. They mention levers we don’t have without specifying what exactly could be done differently. Suddenly, conspiracy theories about missing revenue, massaged numbers, and export duties, spread like wildfire online.
The truth is today’s figures confirm just how wrong the SNP got it during the referendum campaign. In 2014, Alex Salmond and Nicola Sturgeon looked Scottish families in the eye and insisted we’d be better off. In fact, in the first year of independence, Scotland would have been staring at the biggest deficit in Europe. Spain, the second biggest, has a deficit around half of ours – 4.5%
Rather than banging on and on about independence, Nicola Sturgeon must focus on using the huge powers at her disposal to try and build up Scotland’s economy, so we close the gap between the amount we spend and the amount we earn. And she should have the humility to accept where she got it wrong.
Today’s figures confirm that her independence day – set for March 2016 – would have been our insolvency day.
That is the bullet we dodged by voting No.
Murdo Fraser MSP – Shadow Cabinet Secretary for Finance