Oil fund and the latest GERS

The Scottish government released the latest Government Expenditure and Revenues Scotland (GERS) for 2010-11 this morning. This provides new estimates for Scotland's current balance and net fiscal balance under various assumptions. The new data allow the table provided in the previous post to be updated to 2010-11. My calculations for the new table are here

Alex Salmond's figure that purportedly shows how much stronger the Scottish budget is compared to the UK budget rises from £7.2 billion to £8.6 billion. Remember what this figure is. It is the difference between Scotland's actual fiscal deficit - from GERS - and the fiscal deficit that Scotland would have had if it had adopted the UK fiscal policy stance during the period in question.

So, Scotland now has more money today for an oil fund than we had yesterday in the First Minister's letter to the Scotsman?

I don't think so.

Over this latest five-year period Scotland would have had to borrow £35.3 billion to balance its books. That is an increase in Scotland's debt to GDP ratio of 25 percentage points over the five years - using 2007-08 GDP including oil as the midpoint year. Borrowing a further £8.6 billion to set up an oil fund, or reduce taxes, or raise spending, would add an additional 6 percentage points to the debt to GDP ratio indicating an increase of 31 percentage points in the debt ratio over the five years.

This might be how an oil fund is set up in the First Minister's dreams but on these figures that's what an oil fund is: a dream. Unless, of course, taxes are raised and/or public spending is cut to finance it.

Comments

[Alan Weir]

There is another way of looking at those figures from GERS (surely more than ever an inappropriate acronym for an organisation dealing in financial statistics!). In 2010-11 Scotland contributed, according to GERS, 9.6% of UK tax revenue, Scotland received 9.3% of UK public expenditure. That 0.3% difference amounts to a £1660.25 billion subsidy from Scotland to rUK. Enough to put £1 billion on the kitty and have enough left over to run a wee bit higher levels of public expenditure, whilst still servicing "our share" of the ever-increasing UK debt. Is that essentially what the £3.7 billion public sector debt interest in GERS amounts to or is UK national debt interest only part of that (the comment on p. 8 suggests the former)?

I scare quote "our share" because it is far from obvious to me that Scotland should be paying any of this debt interest, or that if we became independent we should be saddled with any share of the UK debt at all. We are all familiar now with the concept of mis-sold investments and compensation being paid out when it occurs. Can anyway seriously maintain that the governing UK parties in the late 70s, early 80s- when key decisions were taken by the Scottish electorate- did not seriously misinform that electorate about the likely economic consequences of independence? One need not assume that an independent Scotland (or even a highly fiscally autonomous devolved govt. with access to a substantial oil fund) would perform to anything like Norway's levels to wipe out "our share" of the debt.

Of course a divorce settlement would be settled by hard bargaining not moral merits, but Scotland would not be without chips, notably the question of whether the rUK navy could still use Faslane to host its nuclear-armed subs. At any rate, the economics of independence would surely look somewhat different on those different assumptions about how much debt Scotland would be saddled with.