NEXT year’s GERS figures may be “fortuitous” for the pro-independence movement, painting a “relatively rosy picture” of Scotland’s finances in the critical months before a second referendum, a leading economics think-tank has said.
In a response to the Government Expenditure and Revenue Scotland figures published on Wednesday, the Institute for Fiscal Studies (IFS) highlighted how they showed “that Scotland’s underlying deficit fell by more than that of the UK as a whole last year, when measured as a percent of GDP”.
GERS estimated that Scotland has raised £73.8 billion in tax revenue in 2021/2022, but also estimated that £97.5bn had been spent on the country’s behalf, either by the UK or Scottish Governments.
This comes out to an estimated deficit of £23.7 billion, which represents 12.3% of gross domestic product (GDP) and is a huge fall from the 2020/21 figure of 22.7% of GDP.
The IFS said this reflected two factors: “A rebound in North Sea oil and gas revenues, which are overwhelmingly generated in Scottish waters; and stronger growth in GDP following a bigger fall in 2020-21 at the height of the Covid-19 pandemic”.
The institute added that Scotland’s “underlying public finances are set to significantly further improve this year, 2022-23, again driven by surging North Sea oil and gas revenues”.
David Phillips, associate director at the IFS, said: “Figures for the current financial year, 2022-23, will come just before the date the Scottish Government hopes to hold a referendum on independence. That timing could be fortuitous for the ‘Yes’ camp as further increases in oil and gas prices, together with the windfall tax on the profits of oil and gas producers, mean Scotland’s headline overall deficit could be at a similar or even lower level than the UK as a whole for the first time in over 10 years.
“But, the long-term decline in North Sea output means that even if these higher prices are sustained, at best they would buy the government of an independent Scotland more time to boost onshore economic growth and revenues. Without this, an independent Scotland would still likely face bigger tax rises or spending cuts in the decades ahead.”
Writing on the IFS’s website, Phillips noted that the 2023 GERS figures – which he said were likely to show a “relatively rosy picture” of Scotland’s finances – could see the semi-traditional annual argument over the figures flipped.
He said: “Come next year then, the traditional annual debate on the GERS figures might be a little different to what we are used to, especially if a second referendum is looming.
“The ‘Yes’ side is likely to emphasise what will be a strong showing for Scotland’s public finances in 2022-23, while the ‘No’ side is likely to emphasise the backwards-looking nature of the figures.”
Nicola Sturgeon's government plans to hold indyref2 on October 19, 2023, less than two months after that year's GERS figures will be published.
This year, as before, pro-independence figures have argued that the GERS figures do not give an accurate idea of how the country could look after a Yes vote.
Deputy First Minister John Swinney said: “Remember GERS describes Scotland’s current fiscal position under current constitutional arrangements, with 74% of revenue and 37% of spending reserved, and Scotland’s economy is already suffering as a result of disastrous Tory policy decisions such as austerity and Brexit.
“Independence is no silver bullet – but surely it would be better for the Scottish Parliament to have the full economic and fiscal levers to enable us to weather the current storms, rather than leaving them in the hands of Westminster and hope for the best.”
However, pro-Union figures have claimed that GERS shows the strength of the UK.
Scottish LibDem leader Alex Cole-Hamilton said: "These figures confirm the importance of the UK economic partnership, especially at times of crisis.
"The gap between tax and spend was humongous. The broad shoulders of the UK economy and a powerful central bank with financial muscle helped make that possible."
