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Can Scotland make it on its own?

10 January 2012

3:15 PM

10 January 2012

3:15 PM

What would an independent Scotland’s public finances look like? ‘Good,
actually,’ says the SNP as they present their ongoing case for independence. They like to claim that,
discounting the rest of the UK, Scotland was in surplus for ‘four out of the last five years’ — it’s Westminster, not Holyrood, that can’t manage the public’s money. 

Which would be a powerful argument were it actually true. You see, the SNP are talking about the ‘current budget balance’, which excludes the £6.4 billion a year that Scotland
spends on capital. When you include that spending — according to the Scottish government’s own figures — there
has been a deficit for every one of the last five years.

The SNP’s ‘surplus’ boast is also based on Scotland receiving a generous share of the North Sea oil and gas revenues. It’s based on a ‘geographical share’, meaning that the
Scottish government gets everything inside the dark blue patch on the map to the right, which happens to generate around 91 per cent of total revenues. But, in truth, even that wouldn’t be enough
for a surplus. The chart below sets out Scotland’s net fiscal balance (that is, total spending minus total revenue) under three different assumptions about how much of that oil and gas revenue it
gets: zero, a per capita share (8.4 per cent of the total, as Scotland has 8.4 per cent of the UK’s population), and the SNP’s dream ‘geographical share’. For comparison, it also shows
the net fiscal balance for the UK as a whole:


So, an independent Scotland would in fact be a long way from surplus. In 2009-10 its deficit, even assuming that it kept 91 per cent of North Sea revenues, would have stood at 11 per cent of GDP
— the same as the figure for the UK as a whole.

What’s more, even if Scotland did get Salmond’s desired slice of the North Sea — which would comprise around one-fifth of its GDP — it would then be slave to oil and gas production,
as well as volatility in their prices. That’s all very well in good years like 2008-09, when North Sea revenues totalled £12.9 billion. But what happens if revenues drop to 1991-92 levels
of just £0.6 billion? As Fraser’s said before, ‘Scotland would swap rule from London for rule
by OPEC’.


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