The real numbers behind the Indy Ref argument

money

The  Government Expenditure and Revenue Scotland (GERS) accounts have just been released, so ALEX JOHNSTONE takes a cold, hard look at what this really means for the Indy Ref.

Only is Scotland can you have both sides of the same argument arguing the same point. Oil is both a tremendous benefit to the independence cause, used as proof that Scotland will be a cash rich country with a strong fundamental champion industry that can fulfil government obligations and a curse that will see Scotland become crippled by the reduction of this industry in 20 to 50 years time. Like all arguments that boil down to economics, they can be both true. 

In the recent Government Expenditure and Revenue Scotland (GERS) accounts released on Tuesday 5th March for the year 2011-12 £64.5 billion was spend in Scotland- around 34 billion by the Scottish government, the rest by Westminster- this was 9.3% of the total expenditure by the UK government. For a region that has only 8.4% of the population it means that Scotland receives 9.3% of the UK’s spending for only 8.4% of the population- thus putting Scotland high up the league of spending per capita per regions of the UK, which is a commonly cited reason as to why Scotland is described by the tabloid press as a “subsidy junkie” reliant on the finances from Westminster for the services and welfare provided in the country. 

The only problem with that argument is that when you take a geographical allocation of oil revenues plus all the other revenues of Scotland send to the exchequer Scotland pays £56.8 billion which is 9.9% of the total UK public sector revenue. So Scotland loses 0.6% of our revenue to the rest of the UK- we are a net contributor to Westminster and have been for the 5 out of 6 years.

But £64.5 billion is bigger than £56.8 billion. It means that Scotland receives £7.6 billion more than we give to the UK. This is only achieved by the UK running up a large deficit- a bloody great big deficit at that currently at 120.9 billion. So the UK receives 9.9% of its revenue from Scotland but only returns 9.3% of its expenditure to Scotland- but the expenditure in Scotland is 12% higher than otherwise would be the case- leaving Scotland with a net fiscal balance deficit of £7.6 billion; which is about 5% of our total GDP  which is roughly at £145 billion.

The equivalent UK net fiscal deficit though, with a geographical share of oil revenues, (i.e the 9% North Sea revenue that is in rUk waters) is 7.9% of GDP. This is described in the accounts as the UK’s net borrowing. Thus Scotland is in a (relatively) stronger fiscal position than the rest of the UK, 5% is smaller than 7.4%, but we would be heavily reliant on the oil revenues (around 15% of our total revenue coming from one source) to allow us to sustain a government budget deficit, and both entities, the rest of the UK (rUK) and Scotland are hardly paragons of economic best practice.

If we became independent tomorrow, using the most recent GERS figures from this piece, not much would change, the government would still be running a deficit but a smaller one; but we would be heavily reliant on the£ 10.5 billion we received from oil. Variability in oil price would impact on an independent Scotland’s ability to continue it’s service and welfare provision; but the UK itself cannot keep on continuing with the same level of provision either. John Swinney remarked yesterday that welfare may be cut to secure an oil fund- welfare and benefit provision are likely to come under threat in an independent Scotland- but they are also under threat right now under the UK apparatus.

Services and welfare may need to be cut but if we get independence and the oil price strengthens (which is likely) then we would have to cut less; if the price collapses after some initial slack we would have to cut more, but these are the same problems pretty much every country in Europe is facing- the retreat of the public sector due to large deficits. Scotland wouldn’t be a basket case if independent; it would be pretty much exactly the same as every other country and, slightly, statistically better off than rUK. The worry is that over the last 5 years Scotland without oil has contributed revenues fairly constantly to the UK purse of around 8.2 to 8.4% of the UK’s revenues- which is roughly our population percentage of the UK. So Scotland without oil contributes what you would expect to the UK exchequer but if the oil was to go, we would be left with an 28% difference in expenditure spend over revenue raised rather than the 12% it currently is. When you consider oil though, and if it lasts at the same roughly the same level for the next decades, we contribute considerably more, in the last 5 years 44.295 billion alone went from our oil to the UK exchequer.

Source http://www.scotland.gov.uk/Resource/0041/00415871.pdf

 

GERS Accounts 2011-12
£ million
Scottish Public Sector Revenue 2007-08 2008-09 2009-10 2010-11 2011-12
Excluding North Sea revenue 44,815 43,502 41,664 44,287 46,297
Including North Sea revenue (geographical share) 51,927 55,254 47,573 52,330 56,871
(% of Total UK Revenue)
Excluding North Sea revenue 8.3 8.4 8.2 8.2 8.2
Including North Sea revenue (geographical share) 9.5 10.4 9.3 9.5 9.9
Public Sector Expenditure for Scotland
Total Public Sector Expenditure for Scotland (£ millions) 55,925 58,953 62,049 64,030 64,457
Total Public Sector Expenditure for Scotland (% of UK Total) 9.6 9.3 9.2 9.2 9.3
Difference in Expenditure over Revenue raised
With Oil 11.8%
Without Oil 28.2%
Current Budget Balance
Scotland – Excluding North Sea revenue -7,565 -10,718 -15,558 -15,726 -13,972
Scotland – Including North Sea revenue (geographical share) 453 1,034 -9,649 -7,684 -3,398
UK -7,630 -51,290 -110,328 -102,504 -92,297
rUK minus geographical share of Oil -15,648 -63,042 -116,237 -110,546 -102,871
Contribution of North Sea Oil by geographical share -8,018 -11,752 -5,909 -8,042 -10,574
Contribution of North Sea Oil by geographical share to UK from Scotland over last 5 years -44,295
(% of GDP)
Scotland – Excluding North Sea revenue -6.6% -9.3% -13.8% -13.1% -11.2%
Scotland – Including North Sea revenue (geographical share) -0.3% 0.7% -7.2% -5.3% -2.3%
UK -0.5% -3.6% -7.8% -6.9% -6.0%
Net Fiscal Balance (if in deficit described as net borrowing)
Scotland – Excluding North Sea revenue -11,110 -15,450 -20,385 -19,743 -18,159
Scotland – Including North Sea revenue (geographical share) -3,998 -3,699 -14,475 -11,700 -7,586
UK -36,719 -97,539 -158,922 -140,967 -120,963
(% of GDP)
Scotland – Excluding North Sea revenue -9.7% -13.4% -18.1% -16.5% -14.6%
Scotland – Including North Sea revenue (geographical share) -2.9% -2.6% -10.7% -8.1% -5.0%
UK -2.6% -6.9% -11.2% -9.5% -7.9%
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  • Alex Johnstone

    Alex Johnstone

    Alex Johnstone is member of the SNP who is increasingly questioning its direction as a party. With a background in Economics he has attempted to try and justify and rationalise his support for independence above his strong nationalistic urgings. 18 Posts
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