A sharp reminder of how UK works for us all
Every year, the hard realities about public spending and tax are set out by the Scottish Government’s statisticians in the Government expenditure and revenues in Scotland (GerS) report.
Scotland gets a lot more public services than its tax income pays for, but that means we run a very big government deficit.
Last year it was £15billion, around 8.5 per cent of GDP, compared with 2.5 per cent for the United Kingdom as a whole.
The comparison with the rest of the UK worsened, mainly because oil revenues dropped again.
This year’s deficit numbers will be staggering, given the costs of Covid. If the UK ends up borrowing 20 per cent of GDP, as seems quite likely, Scotland’s deficit will be more than 25 per cent.
A bigger deficit isn’t a worry while Scotland is part of the UK.
The UK shares its tax resources across its countries. In Scotland this supports much higher public spending – Holyrood spends 25 per cent more than comparable budgets in england.
Now that oil revenues are marginal, that support really matters: GerS tells us it was equal to a quarter of the Holyrood Budget. This year, with Covid, it could equal most of it.
The big deficit doesn’t worry Nationalist zealots. Some say the Treasury hides whole oilfields or secret whisky taxes in its books.
Others wish it all away – ignore inherited debt, abolish Trident and print new Scottish pounds to fill the gap.
But it does worry Nationalist leaders. They never admit it, but their officials explain the fiscal realities. That’s why the 2014 independence White Paper was based on GerS figures.
They said oil would fill the gap, but it never did – GerS tells us oil is now worth only 10 per cent of what was claimed then.
Their next try was the so-called Growth Commission. It used GerS, too, and instead proposed borrowing until something turned up. No wonder Nationalist veterans such as Alex Neil want a new economic plan for independence. None of the old ones added up.
Public spending and borrowing are inextricably linked to the other big unanswered economic question: currency.
The SNP’s position is that Scotland would use the UK pound, outside a monetary union.
Scotland’s ‘central bank’, such as it was, would have no control over monetary policy, and couldn’t create money. It would just have to assemble the cash to keep the economy turning over.
Scotland’s Government would have to tax, spend, borrow and then repay in a foreign currency.
But we know that the Scottish economy as a whole runs an external current deficit – mostly a trade deficit that would be hugely worsened by border restrictions with england.
Cash would be flowing out of the country. This would quickly result in a currency crisis, and public spending would suffer.
Other Nationalists want a new Scottish pound immediately. It’s hard to do – no one ever did figure out how Greece was going to leave the euro.
And as Professor ronald MacDonald has pointed out, a new currency is liable to immediate devaluation of 20 or 30 per cent, affecting living standards as the price of imports went up.
The Nationalists’ answer to this is to claim we are saying that Scotland is ‘too wee and too poor’ to become independent.
Don’t fall for that jibe. Scotland is a successful part of the UK, though our economy has been struggling under SNP management. But GerS tells us just how much additional benefit Scotland gets from shared UK resources, including a single currency. The benefits are clearer in the present epidemic. To be clear, neither the UK nor the Scottish Government has managed this crisis well.
But the UK Government is still able to borrow unprecedented amounts to support the wages of 900,000 Scots on furlough. Businesses are on life support from UK Government-backed loans.
MUCH more government money will be needed to get the economy going again. But it depends on a government which can borrow large sums at low interest rates. The UK Government can do this.
The harsh reality for supporters of independence, which GerS tells us again this year, is how much harder that would be for an independent Scotland.
The UK and Scotland face our most difficult peacetime economic crisis. GerS is once again an object lesson in the benefits of a united approach.