What GERS 2013-14 tells us

The latest Government Expenditure and Revenue Scotland (GERS) published today with data for 2013-14 is hardly a revelation. Scotland is shown to have a net fiscal deficit of -8.1% of GDP - when a geographical share of oil revenues is assigned to Scotland - while the UK deficit is -5.6%.

It is true that the data show that Scotland pays £400 more per head in tax revenues than the UK as a whole but it also enjoys greater public spending of £1,200 per head than the UK as a whole.

The absolute size of Scotland's estimated net fiscal deficit in 2013-14, at a time when oil prices - the principal driver of oil revenues - were almost twice as high as they are now, was £12.4 billion. This means that if Scotland had 'enjoyed' full-fiscal autonomy (FFA) in 2013-14 the Scottish Government would have had to fund that deficit by a mix of borrowing, higher taxes and lower public spending.

If we assume that under FFA Scotland could have been able to borrow to fund a deficit the equivalent of the UK's 5.6% - which would have been a tall order for a sub-state government, or an independent Scotland, at the same borrowing rate as the UK -  then a further £3.8 billion would have had to be funded by higher taxes and lower public spending.

Now we need to be clear about the significance of that.

£3.8 billion amounts to:

• half the cost of the Education & Training budget;
  
• one third of the Scottish Government health budget;
• one sixth of the £22 billion Social Protection Budget in Scotland;
• is 25% greater than the Scottish Government's Transport Budget;
• is 135% more than the Scottish Government's Housing and community amenities budget; and
• is 262% greater than the Scottish Government's Enterprise and Economic Development Budget.

So, it is not a trivial sum, to say the least.

And this greater Scottish deficit in 2013-14 is not a one-off phenomenon. The tables that can be downloaded from the Scottish Government's website to accompany the GERS publication provide runs of data back to 1998-99. The reason for doing this is that a new system of economic and government accounting has been adopted in the UK first and now in Scotland. This system, known as ESA 2010, along with some other revisions, have resulted in, quoting GERS 2013-14

"public revenue, expenditure, and GDP are higher than previously estimated. This has led to revisions to Scotland‟s fiscal aggregates in all years."

The graph below charts the new estimates of net fiscal balance from GERS from 1998-99 to 2013-14.

What is evident from the chart is that in only 4 of the 16 years was the net fiscal balance in Scotland better than in the UK. (I have included data labels only for the largest deficit, Scotland or UK in each of the years.)

What that means is that in 12 of the 16 years if Scotland had 'enjoyed' FFA it would have had to have higher taxes, lower public spending or both than the UK, assuming it was able to borrow to fund the same scale of deficit as the UK - a big ask as noted above.

Of course, the situation will almost certainly deteriorate further in the next fiscal year due to the halving of oil prices in 2014 and the possibility that oil prices may stay considerably lower than the Scottish Government's expected price of $110 per barrel for some time. 

Add declining oil production into the mix and we can reasonably ask: What price fiscal autonomy and what price independence?

 

 

Comments

[Ron Sturrock]

Indeed, I would also consider the effect of the possible tax regime changes on revenues.

[Dick Winchester]

What would seem extremely clear is that whilst Westminster maintains control over the so called fiscal levers and all the other levers that influence the economy - including things like financial sector regulation - then the chances of growing the Scottish economy and achieving anything like its real potential are extremely poor.

[Ron Sturrock]

As a layperson I view this from the aspect that our revenues are £54bn (with geographic oil) as per GERS 14.
I would therefore assume that this £54bn represents the base criteria of Full Fiscal Autonomy pre any borrowing intention. A further assumption is that Barnett would cease.

SG have said they will have liabilities towards the MOD and FCO.
However imo, this appears to neglect all other potential and real liabilities towards Westminster:
Debt repayment
National Security
Immigration
DFiD - are SG proposing creating a separate department in Edinburgh?
Will borrowing rates under FFA be the same present.
Any borrowing under an FFA umbrella, who will be the LOLR?
As Dick mentions, continuation of the BoE and Treasury requirements.
I am certain that there are other areas of UK wide policy to which Scotland will have to contribute.

FFA was contained within the recent "Economic Strategy" document with the impresssion that these objectives will be pursued vigorously during the next Westminster parliament.

It is therefore essential in my view that the SG produces a detailed fiscal (with numbers) plan covering the next 5 years at least.