'Encouraging' GERS figures show Scottish deficit cut by £1.3 billion as economy bounces back

The annual release detailing how much Scotland raises in taxes, and how much public cash is spent, showed the deficit was down to £13.3 billion, a drop of £1.3bn.

This was still significantly higher as a percentage of GDP than the deficit for the UK as a whole.

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According to the figures, the deficit represented an 8.3 per cent share of Scotland’s GDP, compared to the UK’s deficit of 2.4 per cent.

That gap of just under six points is the largest between Scotland and the UK since 1998-99.

It is, however, the first time since 2011 that the deficit has come down, Back then Scotland outperformed the UK, but the collapse of the oil industry saw the gap between what Scotland raises in taxes and what was spent by local, Scottish and UK governments, increase massively.

There was some, relatively, good news for the North Sea in the GERS figures, with receipts for Scotland’s geographical share of oil revenues up for the first time in six years, albeit from a meagre £56 million to £208m, far short of the £4.8bn predicted by the Office for Budget Responsibility in 2013, and the £4.2bn and £10.7bn predicted by the Scottish Government back in 2013.

With 8.2 per cent of the UK’s population, Scotland raises around 8 per cent of the UK’s taxes, but the figures show Scots paying around £300 less per head than the average for British taxpayers.

Yesterday, the government were keen to point out that it’s not that Scottish taxpayers raise significantly less revenue than most other parts of the UK, but that HMRC’s take from London and the South East “hugely skews” the average.

However, at £13,175 per person, Scotland’s public spending is higher than the rest of the UK by £1,437 per person.

At £71.2bn in total, it represents around 9.2 per cent of total UK public sector expenditure.

Only Northern Ireland has higher per head spending.

The Scottish Government has previously said the higher spending is a result of lower population density, a larger public sector, and a greater need for health and housing.

Social protection, spending on pensions and benefits, was the biggest spend, at over £23bn, almost double the £12bn spent on health.

READ MORE: Annual ‘war of words’ over country's future as both sides spin GERS statistics

In their analysis, the Fraser of Allander Institute said the statistics gave a “pretty accurate picture” of the state of Scotland in 2016/17.

“All countries face big fiscal challenges in terms of what will replace declining revenues in the face of rising spending pressures over the next few years.

“Changing the constitutional set-up doesn’t alter the fact that these fiscal challenges need to be addressed by all governments in all countries. These figures show that a more autonomous Scotland will be forced to meet such challenges sooner rather than later.”

Finance Secretary Derek Mackay said the drop in the deficit was a nearly 10 per cent reduction, but warned of dangers still to come.

“It is encouraging that our fiscal balance improved by nearly 10 per cent last year. It is important to also recognise that ONS analysis shows that Scotland performs ahead of Wales, Northern Ireland and several English regions, and in line with the UK average outside of London and the South East.

“Meanwhile, evidence also points to signs that confidence is increasing among North Sea operators, with the sector set to remain an important part of Scotland’s economy for years to come.

“An extreme Brexit outcome would do significant damage to Scotland’s public finances and would cost our economy up to £11 billion a year from 2030, and 80,000 jobs over a decade. We will continue to do all that we can with the powers available to us to grow our economy, protecting and creating jobs.”

Scottish Secretary David Mundell described the figures as a “cause for concern”, and added: “They also highlight the value of pooling and sharing resources around the UK. Being part of a strong UK has protected our living standards, and that’s one reason the people of Scotland clearly rejected Nicola Sturgeon’s plan for a second independence referendum at the election.

“Scotland’s deficit is falling at a slower rate than the UK as a whole and economic growth is lagging behind.

“It is vital we grow the economy and we want to work with the Scottish Government to achieve that.”

Robin McAlpine, director of the pro-independence think tank Common Weal, said: “If we want to have a serious discussion about the progress in growing Scotland’s economy and thereby creating the tax revenues to support public services, we need to have an honest debate about how much of the UK’s growth is captured by London and how little is shared among all the other regions combined.

“Devolution must involve the devolution of prosperity, not just of administration.”