Scotland’s sticky finances

Scotland is running at a loss. And you’d be forgiven for also being at a loss about the conflicting use of statistics over just how much it’s in the red, or how badly.

You can emphasise that tax paid in Scotland, and from its offshore oil and gas, was £400 per head more than the UK figure, during the last financial year, 2013-14.

Or you could choose to highlight the figure showing that spending was £1,200 per head higher. Or you could pick a fight over the deficit’s share of Gross Domestic Product.

The £400 extra tax revenue is the one that puts Scotland in a better position than the UK.

The others don’t look so good for those arguing for full autonomy over taxation and spending, or independence.

Whichever way you read it, it’s worth remembering that running government at a loss isn’t as bad as it sounds. It’s not a business. The overspend can be to help growth, if it’s well managed.

And while Scotland runs at a loss, the UK government continues to run at a similar scale of loss, with a huge debt, and nothing to show in the bank for 40 years of oil and gas tax revenue.

So those from the three main Westminster parties, who wish to pick holes in the case for Scotland having more tax powers, might also bear in mind that their own record of running deficits, failing to control deficits and building up debt is hardly an inspiring example for others.

Offshore share
This year’s dose of GERS figures (government expenditure and revenue Scotland) show that the reduced level of public spending, due to the squeeze coming from the UK Treasury, would be reducing the deficit were it not for the falling take from offshore oil and gas.

A Scotland-only deficit reduction plan would have to cope with a deficit that is unsustainable beyond the short-term. The eurozone rules set a 3% maximum (though widely ignored of late), whereas the latest figures put Scotland on 8.1%.

It would also have to counter the prospect of offshore tax take falling quite fast, with much more impact than on UK finances, as a result of the oil price fall and lower production levels.

There has been much dispute about the future trajectory of offshore revenue. The Scottish government has been pressed to update last year’s figures, which appeared to be optimistic, in the light of the halving in the oil price.

In turn, it has been critical of the Office for Budget Responsibility, which has taken a particularly gloomy view of that revenue source.

A further complication is that the share of oil and gas revenue coming from Scottish waters is now contested. HM Revenue and Customs is trialling its own figures.

They look less favourable than those drawn from Prof Alex Kemp’s long-running work at Aberdeen University, from which GERS draws its reckoning.

This year, it assumes that although 75% of the energy value is drawn from Scottish waters, that is mainly oil rather than gas, and oil is more profitable. So Scotland gets allocated an 84% share.