Scotland

What do the GERS figures tell us about Scotland's finances?

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As the Scottish government publishes the Government Expenditure and Revenue Scotland (GERS) figures, Douglas Fraser examines the history - and politics - behind this annual set of statistics.

This approach to estimating how much Scots pay in tax, and how much they benefit from spending at all levels of government, goes back to the early 90s.

Conservative ministers in the Scottish Office thought it would help inform the debate on devolution, or at least it would help them make their case against a Scottish parliament.

The numbers would show, they thought, how much more Scotland gained from the Treasury than it sent south in tax revenues.

That was one of those times when the oil price was low.

Seven years earlier, it was very high and oil revenues were like a gusher.

Spending levers

As we have come to learn from the annual battle to interpret the GERS numbers, the profitability of offshore oil and gas makes a big difference to how much Scottish public finances are in the red, or occasionally, in surplus.

One way of looking at them is to measure how big Scotland's deficit would be, if the country were to have been both independent and if its public finances were performing exactly as they did within the UK.

It would probably perform rather differently if Holyrood pulled the tax, spending and borrowing levers in different ways to the Treasury in London.

It could have pulled those levers in a smarter way, or left a bigger deficit.

Everything around this is contested. But what can be said is that this helps illustrate the health or weakness of Scottish public finances.

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The previous figures covering 2014-15 added estimated tax paid in Scotland to an estimate for the revenue that would have flowed from oil and gas profits made from fields in Scottish waters.

The Treasury offshore tax that year was £2.24bn, of which Scotland was allocated 80%. So the total tax revenue for Scotland came to more than £53bn.

The amount spent in Scotland, through Holyrood and through state pensions, benefits and other shared Westminster commitments, was £68bn. The difference - meaning the deficit Scotland would have had under these circumstances - was nearly £15bn.

For most of us, that's too big a number to comprehend.

So let's convert it into a share of Scotland's national output.

That deficit amounted to nearly 10% of all the output from the Scottish economy that year.

That's more than three times more than what is widely seen as a safe level of deficit. (Eurozone rules state the ceiling for deficit should be 3% of output, or Gross Domestic Product.)

The UK also ran a deficit that year, as it does most years.

But since 2010, George Osborne the former Chancellor has been trying, and sometimes struggling, to reduce it.

The year before last, the UK deficit was six times bigger than the Scottish one.

But the comparable share of total UK output was lower than Scotland's, at less than 5%.

In other words, Scotland's notional deficit was nearly double the scale of the UK one.

Rural services

Looked at another way, the amount spent by governments on the average Scottish person was £12,800.

According to GERS, that's £1,400 more than the average for the UK as a whole.

Why? You could argue that it's because Scotland has greater needs, to cope with a higher level of ill-health.

You could say it's because rural services in Scotland require a higher level of spending on roads and ferries and small schools.

But does it? Well, that's less clear. The distribution of spending was shaped at a time when Scotland's needs were greater, relative to the rest of the UK, than they have been in recent years.

And one question that arises from this is whether Scotland gets value for that extra money - £1,400 of extra value per person.

Are the outcomes of that higher spending really that much better?

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What is new this year is the uncertainty over Britain's public finances resulting from the vote to leave the European Union.

That's forecast to lower economic growth and tax revenue, while raising spending through a rise in unemployment.

A day before GERS day, the first minister got her retaliation in early, using some equally big numbers to demonstrate the forecast impact of that Brexit vote.

Nicola Sturgeon's point is to help illustrate that Westminster looks less of a safe haven for public spending than it might have appeared to be in the past.

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