Scotland’s public spending deficit has fallen from a record peak last year, as oil and gas revenues reached their highest-ever level after a global rise in oil prices.
The government expenditure and revenue Scotland (Gers) report calculated a per-person deficit – the gap between the amount raised through all tax and spending on all public services – as £1,521 in the 2022-23 financial year, down from £2,184 the previous year.
But the Institute for Fiscal Studies said Scotland’s notional deficit remained substantially higher than that of the UK as a whole – 9.0% of GDP versus 5.2% of GDP, equivalent to an extra £1,530 per person, with most of this gap due to higher government spending in Scotland.
The IFS also cautioned that the gap was likely to widen again from next year if oil and gas prices fell as predicted. Excluding the North Sea revenue, the total deficit of £19.1bn grew to £28.5bn.
The annual public spending estimates, which cover all the taxes and spending by the devolved and UK governments in Scotland, found Scotland raised £87.5bn in 2022-23, including income from North Sea oil, which rose by £6.9bn to £9.4bn last year, and spent £106.6bn.
The cabinet secretary for wellbeing economy, fair work and energy, Neil Gray, said while oil and gas receipts contributed “significantly” to the fall in deficit, revenue was also boosted by income tax – which had been devolved to Holyrood since 2016.
He added that oil and gas was “going to be with us for some time to come” but “revenue opportunities that can come from renewables are huge”.
Gray said his government had been clear in its opposition to Rishi Sunak’s “extreme” granting of hundreds of new oil and gas licences last month. “We don’t believe that maximum unlimited extraction is compatible with our net zero ambitions.”
Despite pressure from climate activists, including repeated disruption of first minister’s questions, Gray declined to state a position on the proposed new Rosebank oilfield, saying it was for the UK government to decide.
He said his aim was to accelerate a just transition from North Sea drilling, an issue that has become increasing challenging for the SNP, with those representing north-east coast constituencies at odds with their Scottish Green coalition partners.
Alex Salmond’s Alba party, which has been keen to exploit these tensions, recently had an advert depicting Sunak as an oil-guzzling vampire rejected by billboard companies because it “slandered” the prime minister.
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The Gers figures are habitually employed by both sides of the constitutional debate to bolster their case. While Gray suggested the Westminster government “must be incredibly grateful for the fact that Scotland’s energy sector country continues to contribute so heavily towards the UK public finances”, the Scotland secretary, Alister Jack, said the figures showed “yet again how people in Scotland benefit hugely from being part of a strong United Kingdom”.
He added: “People in Scotland benefit to the tune of £1,521 per person, thanks to higher levels of public spending.”
David Phillips, an associate director at the IFS, said: “As it stands Scotland’s notional fiscal deficit is just that – notional. It is subsumed within wider UK government borrowing on behalf of the whole country. Independence would change that.
“To avoid even bigger spending cuts or tax rises than in the rest of the UK over the coming decades, an independent Scotland would need to see a sustained boost to economic growth.”
