Spending outstrips revenue raising in Scotland but gap narrows as taxes rise

The gap between revenue and spending in Scotland slightly narrowed in the last fiscal year but still stands at £25.3bn.

Revenue raised through taxes and other means totalled £98.3bn in 2025-26, but expenditure was £123.6bn, according to official statistics.

The annual Government Expenditure and Revenue Scotland (Gers) publication showed the net fiscal balance has improved by £0.6bn compared to the year before, falling to -10.9 per cent as a percentage of GDP.

The narrowing of the fiscal balance was driven by a 7.6 per cent increase in non-North Sea revenue, compared to expenditure, which rose by 4.8 per cent over the year.

But the deficit stands well above the UK’s, which was -4.2 per cent of GDP in 2025-26.

The biggest increase in revenue was driven by the UK Government’s decision to increase National Insurance contributions, raising £2.4bn, followed by the Scottish Government’s decision to freeze the higher, additional and top rate of income tax, raising £1.5bn.

The biggest annual increase in spending was in social protection (£2.1bn) and health (£1.5bn).

Deputy first minister and finance secretary Jenny Gilruth said the statistics were proof the Scottish Government was “delivering sustainable finances”.

She added: “The significant increase in income tax revenues shows that the decisions which this government has taken are helping to deliver additional funding for measures to ease the cost of living like the Scottish Child Payment, free prescriptions, bus travel for under-22s and free university education.”

Revenue raised in devolved areas totalled £27.8bn, an increase of £2.1bn over the year. That means taxes in the hands of the Scottish Government made up 28 per cent of all revenue raised in Scotland.

North Sea revenue totalled £3.2bn, or 3.2 per cent of all revenue raised. This continues a downward trend in recent years.

Spending per person in Scotland continues to be higher than in the UK, at £22,281 compared to £19,561.

Public spending remains historically high, sitting about nine percentage points above where it did pre-pandemic.

Social protection accounts for almost 30 per cent of total spend from both governments, with state pension and social security payments from the Department of Work and Pensions being the largest elements.

Health spending accounts for just over 17 per cent of total expenditure.

Scottish Secretary Douglas Alexander said: “These statistics clearly demonstrate the value to people in Scotland of being part of a strong United Kingdom.

“By pooling and sharing resources across the country, people living in Scotland benefit from significant additional public spending. That means £2,720 more per person compared to the UK average, which the Scottish Government can spend on vital services like schools, hospitals and transport.”

However, the Institute for Fiscal Studies has warned against using the figures as a straight measure of what an independent Scotland would look like.

Senior research economist João Sousa said: “Scotland’s larger notional deficit largely reflects UK government decisions – most notably, the relatively generous funding provided to the Scottish Government via the block grant – rather than economic or budgetary mismanagement by the Scottish Government.

“Indeed, as it stands, the notional deficit has little if any bearing on the Scottish Government’s finances: it is subsumed within the wider UK fiscal deficit, which the UK government needs to borrow to cover.

“But each year Gers is inevitably interpreted in the context of the debate about Scotland’s constitutional future. If Scotland were to become independent, it would become responsible for managing its own public finances in full.

“The long-run structure of Scotland’s economy and public finances could look very different post-independence, and would depend to a large degree on future policy decisions.

“Nevertheless, Gers is a reasonable starting point for understanding the fiscal issues an independent Scotland would likely face on day one. A deficit on the scale currently implied would be unsustainable and require some combination of higher taxes or lower spending – unless economic growth could be sustainably and significantly increased, which is certainly possible but far from assured.”