Scotland’s world class budget deficit: fall in oil price nowhere near the full story

Scotland is used to being routinely assured that everything about it is and will be ‘world class’. Now there is a less welcome addition to that eminence – a genuinely ‘world class’ budget deficit, one of the highest in the developed world.

The figures issued earlier this week by Government Expenditure and Revenue Scotland [GERS] showed Scotland in a near record budgetary deficit of £14.9Bn for 2014-15 – including its geographic share of offshore tax revenues.

This deficit is 9.7% of Scotland’s GDP – twice that of the UK whose deficit of £89Bn is 4.9% of its GDP.

The deficit is 17% of that of the UK – where Scotland’s  GDP is around 8% of the UK’s – something of a negative double whammy.

Were Scotland to have been independent in this performance, it would have been in the red by £2,800 per person in Scotland, raising £10,000 per person in tax revenues and spending £12,800 per person.

This is a deficit per head of 28% between earning and spending.

What Scottish household could fail to understand the impact of such a deficit on their own domestic finances?

Where now is the credibility of  the always obviously irresponsible White Paper on Scotland’s Future, the indy prospectus authored by the current First Minister, Nicola Sturgeon – in which she promised that every Scot would be £500 better off in an independent Scotland?

Were we today thirteen days away from the SNP’s planned Independence Day of 24th March 2016, how would this economic position have felt to those who supported indy?

The spend per person in Scotland was £1,400 per head higher than the UK average. There is no evidence that the economy of an independent Scotland could continue to afford such a high per capita spend – yet Alex Neil, the Social Justice Secretary, has just promised that Scotland will use its new powers coming from the Scotland Bill to spend even more, with ‘additional’ money to come for those whose health makes it impossible for them to work.

It is only the shelter of membership of an uncommonly indulgent United Kingdom that allows Scotland this level of cushion against the consequences of overspending. How long will that tolerance last in the current global downturn and in the context of a fiscal framework for the new powers which allows Scotland’s Finance Secretary to make expensive mistakes with impunity in the exercise of his new and greatly expanded management of Scotland’s taxation and spending?

The Scotland Bill has also not devolved pensions to Holyrood – a matter deserving of some reflection.

With the Scottish Government and the SNP cohort of MPs at Westminster incessantly shrill at anything Scotland does not get in this Bill, it is nevertheless no surprise  that there has been not one single complaint at not being given power over Scottish pensions. This was the last thing they wanted.

During the interminable campaign for indyref 1, it was leaked that Finance Secretary John Swinney had informed his ministerial colleagues that an independent Scotland could not afford its pensions bill. And that was when the SNP were calibrating their future budgets as an independent county on a level of tax revenues from the oil sector that we will not see again.

The clear lack of interest in the SNP Government in taking responsibility for Scotland’s pensions tells that they accept that Scotland could not indeed stand alone. Yet they lack the grace to give credit to the UK government and its taxpayers outside Scotland for accepting a substantial financial burden as the price for a union in which they and the majority in Scotland believe.

It gets worse

On 15th December 2015, Finance Secretary Swinney was revealed by a Guardian investigation to have borrowed billions from pension funds, international banks and the UK Treasury.

The paper’s revelation was of an: ‘SNP government spending spree’ to build schools, roads, railway stations, colleges and hospitals  – under repeated borrowing which could reach £50bn in 2019 – two years before the 2021 Scottish Election.

The Guardian notes that the scale of this quietly acquired debt, whose stress on public finances can be understood by the fact that Holyrood’s annual budget is £30bn –  has never been set out by ministers or investigated by the Scottish parliament.

This essentially secret debt burden is central to the fact that Scotland’s Auditor General, Lorna Gardner, has formally expressed the need for full transparency in public finance, pointing out that this is even more urgent with Holyrood about to get far greater tax-raising powers – and with public spending commitments putting it under significant pressure.

Ms Gardner wants to see Mr Swinney publish what she has described as ‘whole government accounts that would set out in a single document the full details of all Scotland’s devolved public spending, borrowing and assets’.

She said: ‘It is critically important that the Scottish parliament and the people of Scotland have got a very clear picture of what both those assets and those long-term liabilities look like.’

Thanks to the GERS figures on the depth of the Scottish deficit and the Guardian’s revelation of publicly unacknowledged heavy borrowing, Scotland has no excuse for remaining ignorant of this picture and these long term liabilities.

 Irresponsible financial management

The fall in the price of oil is a convenient scapegoat for Scotland’s serious budgetary deficit in 2014-2015, but this is a handy spin.

This external event would have been serious in any case but what is worrying is the way in which its impact was aggravated by irresponsibility in the financial management of Scotland over the period. Specifically:

  • calibrating spending on the basis of tax revenues dependent upon the price of a commodity [oil] known to be fickle and easily affected by global events – and during a period of increasing global instability in which the UK played a not insignificant part;
  • continuing to spend throughout 2014-2015 in the face of the marked fluctuation in the price of that same commodity – from the summer of 2013 onwards – and with a progressively clear downward trend. From 1st January 2014 to 18 December 2014, the price of a barrel of Bent fell by 40%.

The pressure to keep on spending regardless was heavily political in that year and in its immediate aftermath.

Over the approaches to the Scottish Independence Referendum on 18th September the Scottish Government spent heavily on all sorts of measures, supports and new initiatives, some markedly expensive, designed to create a ‘feel good bubble’ to try to swing a positive vote for indy.

One example is the fact revealed in the GERS figures – that spending on benefits rose to a record £17.5 Billion, a hike of £253Mn – or over £600,000 per day.

After the failure of the referendum, Mr Swinney then deployed as a buttress to morale the second phase war chest he had intended to use to reinforce the wisdom of the anticipated pro-indy decision.

At no point in this entire period was there any focus on what was happening to Scotland’s earnings, then and to come; or on the obvious need for prudent retrenchment against unavoidable hard times.

What we had instead was the reckless funding of the fiction that a world class Scotland could afford pretty well anything.

No one outside the very small inner clique in government can know whether this behaviour was born of dangerously limited economic intelligence, knowing deception deployed in cynical political manipulation – or the bunker mentality of the self-deluded who grow to believe their own romances.

What is certain is that everything to do with the financial management of Scotland in the last few years give no reason to conceive of a country capable of standing on its own two feet at the level of spending promised – and at the level of taxation achievable against market forces and from political imperatives.

The next chapter

It is likely that the grimmer shock will come in the 2015-16 GERS figures:

  • with the greatest weight of impact of the fall in oil prices to be felt then;
  • with the costs of ‘feel good bubbles’ to support no fewer than two major elections and one major referendum in that period;
  • and with disappointing returns expected from Mr Swinney’s first foray in setting his own taxes – in the Land and Buildings Transactions Tax which appears to have done more damage to the housing market than produce success in revenue raising.

In the light of the EU Membership Referendum on 23rd June 2016 and the hypothetical possibility of a majority exit vote with a Scottish vote to remain – followed by Nicola Sturgeon giving way to the pressue of SNP calls for indeyef 2 [and yes, that was a brace of Landraces flying past your window], Scotland might care to note that the eurozone [which wojld be a condition of Eu membeship]requires member states to have a maximum deficit of 3% of GDP. 9.7%, inclusing a geograohic shate pf offshore evenues, is rather alg wsay form that ceikng.

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Related Articles & Comments

  • Thank you For Argyll on behalf of the Labour Party and our Tory friends.The SNP have been left with the mess us unionists have made and the stupid electorate will blame them for the almighty mess we have made of the economy.
    Wee John Swinney will be having pups as we have the BBC spouting lies now on our behalf.Did you see my pal Dimbiby lying about the EU on Question time last night. BBC Scotland will put the SNP to the sword,once and for all.
    SNP bad,bad bad.
    Jackie Good,good,good.

    Hot debate. What do you think? Thumb up 7 Thumb down 19

    Jackie Bayleaf March 11, 2016 7:15 pm Reply
  • Oh,good readers of For Argyll. I forgot to mention. Don’t write anything about Iceland.Yooooo Nooooo the country that was burst in 2008,jailed the bankers,bailed out the people instead of banks and is now outstripping the glorious UK economy. If you let the Cat out of the bag,the pesky Nats will use this against our incompetence.

    Hot debate. What do you think? Thumb up 5 Thumb down 18

    Jackie Bayleaf March 11, 2016 7:22 pm Reply
    • Oh,I forgot to mention. Vote Jackie. Yoooo nooooo it makes sense.
      I need more cake.

      Hot debate. What do you think? Thumb up 2 Thumb down 19

      Jackie Bayleaf March 11, 2016 7:24 pm Reply
  • Hi Jackie
    Economics is not your strong point

    Hot debate. What do you think? Thumb up 12 Thumb down 5

    Plugit March 12, 2016 9:59 am Reply
  • Is this the reality that Full Fiscal Freedom will bring us? Yes, lot of upsides and freedoms, but matched by much more downside exposure and risk. This is how it is supposed to be, and it is a choice the voter should be allowed to make. There’s nothing wrong with Scotland feeling confident and willing to develop this way, so long as in making this choice the electorate is presented in depth the full picture of both potential positives and potential negatives.
    I would feel much more comfortable about supporting a more independent vision if we heard the more balanced argument but we only ever hear of the positives.

    Hot debate. What do you think? Thumb up 13 Thumb down 3

    Jerry McIver March 12, 2016 10:26 am Reply
    • Jerry, that’s certainly Not how the audience in Dundee see things as Mr Swinney found out.
      The SNP Independence manifesto was described as ‘Bog Roll’

      Hot debate. What do you think? Thumb up 21 Thumb down 3

      richard March 12, 2016 11:08 am Reply
      • Too ar totily stupid man. France dos not ave the resource thit Scotland as.
        Too are jist sily.

        Like or Dislike: Thumb up 0 Thumb down 2

        Sacha Distillery March 12, 2016 9:57 pm Reply
      • Just because you heard a “Dick” on the tele from a minority group mention bog you get excited?

        Dick you are beginning to s… yourself. You need a air freshener!

        SNP win.

        Like or Dislike: Thumb up 1 Thumb down 8

        No Cheese Here March 13, 2016 12:27 am Reply
  • Richard.
    It is very surprising that there have not been any posts from the usual pro-independence supporters such as NCH on this topic.
    A year ago there were a couple prominent pro-independence supporters on Islay who were continually writing letters to the Ileach stating that Full Fiscal Autonomy (FFA) was the way forward for the residents of Scotland.
    In recent months there has not been a cheep from either of them about the benefits of FFA.
    Perhaps the penny has dropped and they have realised the error of their ways. However I doubt it.

    Like or Dislike: Thumb up 8 Thumb down 5

    Treble T March 12, 2016 6:49 pm Reply
    • Maybe they reckon the battle on Islay has already been won which leaves clowns like you flexing their lack of muscles on crap blogs like “for argyll”
      “Forargyll” remember, pure crash TV. enjoy.

      Like or Dislike: Thumb up 2 Thumb down 9

      Keitho March 12, 2016 10:16 pm Reply
    • 3xT

      Independence in my lifetime. I always look at the bigger picture and the longer term. I suppose yooniists have short term memory, if any.
      Scotland has more than 1 resource. Try working them out for yourself. The yooniiists run Scotland down and yet will claim “I am a patriotic….! Of course if your not Scots and maybe a migrant most want to see Scotland work to benefit for all and we all welcome that. Only the right wing yooniists want Scotland to fail.
      They are beginning to panic.

      Like or Dislike: Thumb up 2 Thumb down 8

      No Cheese Here March 13, 2016 12:22 am Reply
  • In2009/2010 the UK budget deficit was 11% a bit worse than Scotland’s.

    Does that mean the UK could not afford to be an independent country and did you raise it at the time?

    Like or Dislike: Thumb up 4 Thumb down 4

    GraemeMcCormick March 12, 2016 8:13 pm Reply
    • 2010 is pre-history in economic terms.
      As a much larger unit – of which Scotland is fortunate to be a part – the UK has far greater traction in recovery than has Scotland on its own.
      The Scottish Government has also carried on spending – and covertly borrowing at significant levels – while it must have been aware of the downward momentum in oil prices, the reason for that momentum [continuing oversupply in a market with falling demand] which made it a stayer in terms of its ongoing economic impact.
      That was wholly irresponsible financial management.
      The current £15Bn deficit is 9.7% of Scotland’s GDP.
      The Finance Secretary’s projected borrowing level of £50 billion by 2019 is an additional 32% of our current GDP.
      This is very far from being an acceptable position for the country to be in.
      We noted that, in his remarks this morning to the SNP Conference, Mr Swinney boasted of the SNP government having rebuilt or refurbished 600 schools.
      He made no mention of the fact that he has borrowed to the hilt from pension funds, international banks and the UK Treasury to do this; and that this unacknowledged debt burden will lie long upon Scotland’s financial obligations.
      Then there are the pensions that Mr Swinney himself discovered that Scotland could not afford – and for which the routinely maligned UK has agreed to retain responsibility.
      Of course Scotland can be a perfectly sustainable independent country, if we want to play by ourselves in our own sandpit and if we are happy to pull in our horns on spending; but in the current – and daily increasing [with a flotilla of uncosted spending promises made at the conference this morning], there is no discernible way in which Scotland could possibly earn from taxation at the levels to pay those bills.
      Fracking could make all the difference and it is obvious that the SNP Scottish Government is well aware of this.
      You know as well as we do what the brake on doing that is in political terms.
      The incestuous self-congratulatory mode of Scotland today is tedious and dengerous in many ways – as well as being well adrift from the economic realities the GERS figures [with 2015-16 to come] – and the revelations of the extent of the covert borrowing that has been going on.

      Hot debate. What do you think? Thumb up 15 Thumb down 4

      newsroom March 12, 2016 9:30 pm Reply
      • One of the most odious,political without basis,posts I have ever witnessed in my lifespan.Have you got Stockholm syndrome?

        Like or Dislike: Thumb up 0 Thumb down 13

        A.Salmon March 12, 2016 9:47 pm Reply
      • I ate too be the beerer of bid neus but the uk is bust. Bust beyind beleaf!
        Yoo stupid tri to con thee greet Scots with yo bull!
        France weelcomes Scots.

        Like or Dislike: Thumb up 0 Thumb down 6

        Sacha Distillery March 12, 2016 9:54 pm Reply
      • More car crash lies from “new squat”
        The Scottish Government cannot borrow, thats her first error then the rest gets worse.
        Less gin more tonic might help………no probably not.
        beyond help?

        Like or Dislike: Thumb up 3 Thumb down 9

        Keitho March 12, 2016 10:48 pm Reply
  • Oh,I nother tin ,the BBC is Bint!!

    Like or Dislike: Thumb up 0 Thumb down 1

    Sacha Distillery March 12, 2016 9:59 pm Reply
  • Announcement
    John M still thinks Y FRONTS are IN VOGUE
    says it all about John M

    Like or Dislike: Thumb up 1 Thumb down 5

    Keitho March 13, 2016 1:29 am Reply
    • Gok Wan has got nothing on you Keitho.

      Like or Dislike: Thumb up 1 Thumb down 0

      John M March 13, 2016 9:26 pm Reply
  • Newsie. U are really struggling.

    If 2010 is pre history in economic terms then u clearly only live for today.

    Like the OBR your forecasting is clearly not of this world.

    Like or Dislike: Thumb up 2 Thumb down 7

    GraemeMcCormick March 13, 2016 7:01 am Reply
  • Now I remember why I stopped reading “ForArgyll”. It’s full of blinkered nonsense, mostly written by Newsroom.

    Like or Dislike: Thumb up 1 Thumb down 6

    Dougie March 13, 2016 4:13 pm Reply
  • The self denial and rationalisations of SNP loyalists to the GERS report is akin to a seriel failed alchoholic attending AA meeting!!

    More importantly, read NS’ speach to the spring SNP meeting and what does she NOT offer/pledge? Yep … NO offer/pledge forIndyref(2)

    Like or Dislike: Thumb up 0 Thumb down 0

    Scotnat March 15, 2016 10:24 am Reply
  • Aye the nationalist executive of Scotland can do no wrong, world class bunch of moaners that they are…its high time that the current SNP and up and coming SNP executive got their act together, cut the blame game rhetoric, use the powers that they have and got on with what we pay them for ie; governing Scotland…

    Like or Dislike: Thumb up 0 Thumb down 0

    Karl Hughes March 16, 2016 4:55 am Reply

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