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Scotland’s net fiscal deficit widened by almost £5bn to £22.7bn, or 10.4 per cent of GDP, as revenues from North Sea oil and gas halved, highlighting the vulnerability of the country’s finances to moves in the global oil market.
The net fiscal balance — the difference between revenue and public expenditure — increased from £18bn, or 8.4 per cent of GDP, in 2022-23. It leaves Scotland’s notional deficit at more than double the deficit of 4.5 per cent of GDP for the UK as a whole this year.
Declines in global oil prices halved North Sea revenues to £4bn from the £7.9bn in 2022-23 following the surge in costs triggered by Russia’s full-scale invasion of Ukraine, according to the Scottish government’s expenditure and revenue statistics (Gers) annual report.
Excluding these hydrocarbon receipts, Scottish revenues grew by £5.7bn, or 7.2 per cent.
“The notional deficit is not a reflection on the finances or policies of the Scottish government,” said Shona Robison, Scotland’s cabinet secretary for finance and local government. “It is a reflection of UK government choices.”
Spending by the devolved government increased by £6.3bn, or 6 per cent, compared with 5.2 per cent by the UK national government, with more money going on social protections.
The Scottish National party administration attributed this to Scotland’s more progressive tax regime; since April, it has imposed a new tax band on incomes over £75,000 a year and raised taxes on those earning more than £125,140 a year.
The Gers report is central to the debate over an independent Scotland’s fiscal sustainability and its scope to pursue different economic policies to Westminster.
Scotland’s budget is underpinned by a block grant provided by the UK government, which since 1979 has been calculated using the Barnett formula that grants the UK’s nations higher spending per person than in England.
Robison said the latest data reflected current constitutional arrangements, under which the UK government retains control over 40 per cent of expenditure and 70 per cent of revenues in Scotland.
An independent government would be able to adopt a different economic model, she said, including different tax and spending decisions. It could also rejoin the EU, which she said would deliver an extra £2bn in revenues to Scotland.
But Kirsty McNeill, UK government minister for Scotland, said the Gers report underlined “the collective strength of the UK . . . By pooling and sharing resources across the UK, Scots benefit by £2,417 more per head in public spending than the UK average”.
Liz Smith, Scottish Conservative shadow finance and local government secretary, said the figures highlighted “the huge — and growing — union dividend that Scotland derives from being part of a strong United Kingdom”.
The release of the Gers data comes as John Swinney’s government grapples with spending cuts cascading out from Westminster.
On Wednesday it said it had “no alternative” but to replicate the UK government’s decision to restrict winter fuel payments in England and Wales to pensioners.
Robison also said she had told fellow cabinet ministers to impose “emergency controls” on spending after UK chancellor Rachel Reeves last month announced public sector cuts to address a £22bn hole in the public finances.
She said the decisions on any spending restraint in Scotland would be set out in a fiscal statement to parliament when Holyrood returned from recess at the start of September.