Widening deficit lays bare difficulties of Scottish independence

The response to the Covid crisis has inflicted severe damage on Scotland’s public finances, according to official figures released today.

Scotland’s fiscal deficit swelled to 22.4 per cent of GDP in the year to April 2021, more than eight percentage points higher than the same ratio for the UK as a whole.

In 2019/20, Scotland’s deficit sat at 8.8 per cent, 13 percentage points lower than this year’s figure.

Excluding revenue generated by Scotland’s North Sea oil industry, the deficit sat at £39.9bn, or 23.8 per cent of GDP.

The widening deficit has been mainly driven by tax revenues plummeting caused by restrictions on economic activity to curb the spread of the virus.

The scale of the fiscal response the Scottish government enacted to dampen the impact of the Covid crisis contributed to expanding the gap between spending and revenues, the figures show.

“Covid-19 has seen an unprecedented increase in public sector borrowing, reflecting both
lower tax revenue as economic activity fell and higher spending both on public health
response and support packages,” the report said.

The difference between the Scottish and UK-wide deficit indicates that an independent Scotland could struggle to generate enough revenues to ensure the country’s public finances are sustainable in the long term.

The country’s North Sea oil industry has often been cited to as a key source of income for an independent Scotland.

However, the report reveals the scale of decline in revenues generated by the industry.

“UK North Sea revenue was £36m in 2016/17, primarily due to licence fees, as
refunds of petroleum revenue tax exceeded corporation tax receipts. Receipts recovered in
2017-18, but have fallen again since, to be £414m in 2020-21,” the report said.

The pro-independence Scottish National Party is expected to ramp up campaigning soon to push for a second referendum after securing a landslide victory in this year’s May elections.

The statistics were provided in the Government Expenditure and Revenue Scotland report, which is widely regarded are the most accurate statement of Scotland’s public finances.

Scotland contributed 7.9 per cent of the UK’s total public sector revenue in 2020/21, a slight fall from eight per cent last year, largely caused by a fall in income tax receipts as a result of weaker employment in the country.