THE TRUTH ABOUT SCOTLAND’S FINANCES…TRY PRAYING

BY BILL JAMIESON

It’s GERS week. And in case you thought this was yet another round in the endless row at Ibrox, it’s worse, much worse. It’s the annual horrible reckoning: the definitive publication of our finances: Government Expenditure and Revenue Scotland – the full account of money in, money out, money roundabout – and one of the biggest numbers of all – money we don’t have.

Sounds straightforward – until you start to plough through its pages – all 117 of them. Seldom in the history of Scottish finance have figures been presented with such a litany of caveats, qualifications, exemptions, revisions, adjustments and re-statements.

None of this, of course, has proved a barrier to instant comment and opinion. First Minister Nicola Sturgeon insisted the document proved the fundamentals of the economy were strong.

Critics have seized on the document as evidence that we are heading straight for a financial black hole. Labour says the SNP will be forced into austerity cuts. The Conservatives say it’s the economics of the madhouse and that SNP plans to cut financial ties with the UK would require the equivalent of an 8p income tax hike.

And the independent Institute for Fiscal Studies? It’s crunched the numbers in the wake of the oil price slump and come up with forecasts showing something bad, really bad: a spiralling deficit that, under fiscal autonomy, would require a 15p rise in income tax.

Who are we to believe?

The key numbers are set out here. And it doesn’t take long to see how we could be heading for a major problem, and with no evident solution. Or all but one solution: try praying.

According to the figures, the Scottish government enjoyed a total revenue in 2013-14 of £53.9 billion– well up from £48.9 billion in 2009-10. But we spent far more – £66.4 billion in 2013-14, up from £63.5 billion in 2009-10.

That left us £12.4 billion in the red.

The good news is that this is down from a deficit of £14.3 billion the previous year. And as a percentage of GDP – the measure favoured by economists that enables comparison with other countries – the deficit has come down from 10.4 per cent to 8.1 per cent.

But that’s about as sound as it gets.

That 8.1 per cent compares with 5.6 per cent for the UK as a whole. And remember, these figures are for a year before the oil price slump and the related hit on tax revenues.

Even then, such figures didn’t matter too much before the advent of “more powers”. But now they signal, at best, a big constraint on what an “empowered” Scottish government could actually do without raising taxes, cutting spending – or resorting to more debt.

It means that, if Scotland had either independence or full fiscal autonomy, there would be a further deficit of £3.8 billion, relative to the UK, that we would have to deal with.

Hence the Scottish Conservatives’ calculation that were Scotland alone challenged with plugging this black hole, it could result in an 8p increase in income tax for every worker. Other options would involve significant spending cuts or sharply higher borrowing.

But it gets worse. Much worse. Economists warned that Scotland’s financial position would deteriorate further this year, as the figures predate collapse in the oil price, and would remain worse than the UK’s until at least the start of the next decade.

Using the most up-to-date projections for the oil price, the IFS predicted that in 2015/16 Scotland would be £6.6 billion worse off if it had to rely only on taxpayers north of the Border to fund public services. Put another way, the deficit would be more than twice as high per person in Scotland (£2,600) than in the UK as a whole (£1,200).

Cutting that deficit, it warned, would require the equivalent of a 15p hike in income tax if the Scottish government were to rely on Scottish taxpayers to bridge the gap.

It says that demands for “full fiscal autonomy”, or devolution max, if the SNP holds the balance of power after the general election, would “likely involve substantial spending cuts or tax rises”.

All this is a far cry from the soaring expectations of higher welfare spending, higher infrastructure spending, more money for health and education – and the maintenance of all the universal benefits we currently enjoy.

It’s not impossible, if spending is cut elsewhere, taxes are raised or the oil price rallies – miracles can happen.

David Phillips, an IFS senior research economist, said the figures “illustrate that full fiscal autonomy would likely involve substantial spending cuts or tax rises in Scotland – unless oil revenues rebound and remain at consistently high levels, or credible policies to boost the growth of Scotland’s onshore economies and revenues can be developed.”

And the IFS is not alone. The think tank Fiscal Affairs Scotland published forecasts in the wake of the GERS report showing that Scotland’s overall fiscal balance is projected to worsen in 2014-15, from £12.4 billion to £13.9 billion. – due largely to a decline in oil revenues.

And while the UK, on current plans, returns to surplus by 2018-19, Scotland remains in deficit up to the end of the forecast period – that is, to 2019-20.

What searching questions these numbers pose whatever the outcome of the election and indeed for the victors of the Scottish parliamentary election in 2016. How is this worsening deficit to be fixed? Where is the money to come from? What’s the plan?
And if no clear answer is forthcoming, you know what to do. When all else fails, try praying.

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