Scottish independence: Warning of ‘stark’ financial challenge

An influential economic think-tank has urged caution over the latest set of Scottish finance statistics.

The annual Government Expenditure and Revenue Scotland (GERS) figures show that revenue rose by £73.8bn in the 2021-22 financial year.

The £11.1bn year-on-year jump came as public spending fell by £0.9bn to £97.5bn.

Deputy First Minister John Swinney said that, outwith North Sea receipts, the "record revenue generated was sufficient to cover all day-to-day devolved spending as well as all social security spending in Scotland, including the state pension".

Publishing its headline analysis of the results, the Fraser of Allander think-tank has said that while this is true, the sum generated does not include any capital investment, including £8bn of devolved capital expenditure.

It went on to say that "more significantly, there are a number of reserved functions that are also funded outwith these two categories", including £2.2bn on economic development, £4.5bn in public sector debt interest payments, £988m on reserved transport spending, £1.4bn on HMRC and other public and common services, £3.9bn on defence and £659m on international services including foreign aid.

In a blog post, the think-tank said that, when considering the "huge" year-on-year fall in Scotland's net fiscal balance, or deficit, the 2020-21 figure covers the first year of Covid-related spending, which "hugely inflated both the UK and Scottish deficit".

At -12.3 per cent of GDP, Scotland's figures compares with a UK total of -6.1 per cent of GDP.

Describing the figures as "the backdrop to a key battleground in the constitutional debate", the institution said: "GERS does provide an accurate picture of where Scotland is in 2022. In doing so it sets the starting point for a discussion about the immediate choices, opportunities and challenges that need to be addressed by those advocating new fiscal arrangements. And here the challenge is stark, with a likely deficit far in excess of the UK as a whole, other comparable countries or that which is deemed to be sustainable in the long-term. 

"It is not enough to say 'everything will be fine' or 'look at this country, they can run a sensible fiscal balance so why can’t Scotland?'. Concrete proposals and ideas are needed."