Scottish budget deficit falls but still triple UK gap

Scotland’s budget deficit narrowed in the year to March but the gap is still more than triple the size of that for the United Kingdom as whole, official data showed yesterday, potentially hampering arguments for Scottish independence. Scotland’s heavily oil-dependent economy is struggling to cope with an oil sector downturn following a peak in prices in 2014, tax cuts for the industry and lower production, as well as a longer legacy of high government spending.

Scotland’s budget deficit, including a share of North Sea oil revenues, was 8.3 percent of GDP in the 2016/17 tax year or 13.3 billion pounds ($17.0 billion), down from 9.3 percent in 2015/16, Scottish government data showed. That compares with a deficit of 2.3 percent of GDP in the UK as a whole.

“We are seeing an improving picture in Scotland’s economy, although there are still big challenges to be overcome,” pro-independence First Minister Nicola Sturgeon told reporters.

The Scottish data included the first rise in North Sea revenue since 2011, proof of partial recovery for the sector as oil prices rose from an 11-year low struck in early 2016.

Clouding the horizon, however, is the uncertainty of Britain’s decision to leave the European Union and what it will do to Scotland’s economy, which represents about 8 percent of the UK as a whole.

“The big risk we face for the medium to long term, in common with the rest of the UK, is the challenge that Brexit poses to that picture of recovery,” Sturgeon said. Scotland voted to keep Britain in the EU, increasing tensions with the UK government over the deal it must negotiate with the EU and putting the UK’s fournation union under strain.

Spending per head for Scotland is higher than for the UK as a whole - by around 1,400 pounds per person - pushed up by more spending on health, education and economic development, among others.

On the revenues side, Scotland raises slightly less than the UK per head in tax, by about 300 pounds per person. “I make no apology for spending decisions we make, you don’t have to look very far to see the damage that is being done to lives because of the austerity agenda,” Sturgeon told reporters. — Reuters