Covid sends Scotland’s notional deficit to £36bn

Kate Forbes

The latest estimates of the controversial and highly contested Government Expenditure & Revenue Scotland (GERS) statistics have revealed the full impact of the pandemic on public finances, with Scotland’s “notional deficit” within the UK system rising 13.6 percentage points to 22.4% of GDP — about £36.9 billion.

The Scottish Government’s finance and Economy Secretary Kate Forbes said the GERS figures reflect “Scotland’s position within the UK” under which 40% of spending and 70% of revenue income is “reserved to the UK Government.”

Forbes said the pandemic “demonstrated the need for fiscal reform and that the Scottish Government’s financial powers are insufficient to deal with the new economic reality.”

Forbes urged the UK Government to devolve additional borrowing powers “which would allow the Scottish Government to work with business and the public sector” to build a recovery that works for Scotland.

She said Scotland’s economy contracted by about 10% last year, in line with the performance of the UK economy.

“Scotland’s net fiscal balance has weakened since last year, reflecting the impact of the coronavirus (COVID-19) pandemic on public finances and economies in Scotland, the UK, and globally …” said the Scottish Government.

“Scotland’s net fiscal balance … including an illustrative geographic share of North Sea revenue, was a deficit of 22.4% of GDP (£36.3 billion) …

“For the UK, (net fiscal balance) was a deficit of 14.2% of GDP …

“Including an illustrative geographical share of North Sea revenue, Scotland’s public sector revenue is equivalent to £11,496 per person, £382 less than the UK average.

“Excluding North Sea revenue, it is £11,395 per person, £477 less than the UK average …”

The contested GERS estimates for 2020-21 show record public spending in Scotland of £99.2 billion, an increase of 21% on 2019-20 amid the significant rise in spending caused by the pandemic.

Revenues totalled £62.8 billion, down from £66.2 billion in 2019-20.

This includes a drop in North Sea receipts of 35% as worldwide demand for oil and gas fell sharply, as well as lower receipts from non-domestic rates and VAT.

Forbes said in a statement: “These statistics clearly highlight the significant economic impact of the pandemic.

“Scotland’s economy contracted by about 10% last year, which is in line with the performance of the UK economy.

“The pandemic has not only changed people’s lives but it has fundamentally shifted our fiscal landscape, with countries and markets around the world reassessing what represents a viable deficit.

“The Scottish Government has worked tirelessly to support businesses and households throughout the pandemic.

“While we face continued challenges, there are welcome signs that the Scottish economy is beginning to recover strongly.

“Business confidence is back above pre-pandemic levels, output is increasing and job vacancies are rising.

“As we rebuild, we are pushing forward with an ambitious 10 year agenda of economic transformation to help seize Scotland’s potential and deliver a more prosperous, fairer and greener economy.

“The GERS figures reflect Scotland’s position within the UK, under which 40 per cent of spending and 70 per cent of revenue income is reserved to the UK Government.

“The pandemic has clearly demonstrated the need for fiscal reform and that the Scottish Government’s financial powers are insufficient to deal with the new economic reality.

“We once again urge the UK Government to engage positively with us to devolve additional borrowing powers which would allow the Scottish Government to work with business and the public sector to build a recovery that works for Scotland.”

The Fraser of Allander Institute at the Universityof Strathclyde said: “GERS estimates the contribution of public sector revenue raised in Scotland toward the public sector goods and services provided for the benefit of Scotland.

“The estimates typically cause significant controversy …

“Unsurprisingly, there have been significant increases in Social Protection spending (due to more people claiming Universal Credit and other social security support) and Health spending.

“There have also been enormous increases in Enterprise and economic development spending (around a 6-fold increase), capturing the business grants that have been given out through various schemes over the past year …

“GERS takes the current structure of UK Government reserved taxation and spending as given.

“If the very purpose of independence is to take different choices (good or bad) about the type of economy and society that we live in, then a set of accounts based upon the current constitutional settlement and policy priorities will look different to the long-term finances of an independent Scotland.

“Having said that, GERS does provide an accurate picture of where Scotland is in 2021.

“So, in doing so, today’s numbers set the starting point for a discussion about the choices and challenges that need to be addressed by those advocating independence or new fiscal arrangements.

“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.

“The UK too faces significant budgetary pressures in the long-run.

“And this will impact upon Scotland inside or outside the Union.

“An honest debate about managing these pressures, including in a post-Brexit world, is needed too.

“With COVID-19 making everyone’s public sector deficits that much bigger, the challenge of building a model of fiscal sustainability just got harder.”

About the Author

Mark McSherry
Dalriada Media LLC sites are edited by veteran news journalist Mark McSherry, a former staff editor and reporter with Reuters, Bloomberg and major newspapers including the South China Morning Post, London's Sunday Times and The Scotsman. McSherry's journalism has also appeared in The Washington Post, The Guardian, The Independent, The New York Times, London's Evening Standard and Forbes. McSherry is also a professor of journalism and communication arts in universities and colleges in New York City. Scottish-born McSherry has an MBA from the University of Edinburgh and a Certificate in Global Affairs from New York University.