What's £8bn Between Friends?

£8bn - Eight billion pounds - £8,000,000,000

It's meaningless isn't it? Just a big scary number that's bandied about among other big scary numbers. Except this particular big scary number (allowing for a bit of rounding here and there) is central to the ongoing Scottish constitutional debate.

Let's start with some historical actual figures. This blog has shown that - using the Scottish Government's own GERS figures and applying a range of possible methodologies - the onshore deficit gap between Scotland and the UK has historically consistently been between £8bn and £9bn.

It's worth being clear about what this number means: it's a measure (pro-rata on either population or GDP) showing how much worse Scotland's deficit would have been than that we share with the rest of the UK if we hadn't had North Sea oil.

This onshore deficit gap matters because it is revealed - it becomes real - as oil revenues decline. This is not to say that were Scotland to be independent this gap would remain; it might narrow, it might widen. It merely gives us an idea of the run-rate relative disadvantage we would be starting with if we sacrificed the benefits of UK-wide pooling and sharing (assuming the days of significant oil revenues are indeed behind us). If you like, it's the head-start we'd be giving to the rest of the UK.

For the avoidance of doubt: this is not Scotland's deficit without oil & gas; it is how much worse than our shared UK deficit Scotland's deficit would be without oil and gas.

So GERS figures show we've historically run an onshore deficit gap versus the UK of over £8bn pa.


When the IFS analysed the projected fiscal gap between Scotland and the UK they concluded that there would be a gap of £7.6bn in 2015-16. At that time they were assuming £0.6bn of oil revenue, so without oil revenue that shows an onshore deficit gap of £8.2bn.

So the IFS projected our onshore deficit gap versus the UK for 2015-16 would remain around £8bn pa.


The NIESR recently analysed the difference between the Scottish and UK economies using the generational accounting method (which among other factors models the net fiscal implications of different population age profiles over time). The NIESR used the latest OBR assumptions for oil & gas revenues, which in this context are effectively zero (£0.1 - 0.3bn pa. in coming years). Their conclusion was that in the long-term a fiscal gap exists of £9.5bn to £10.7bn pa.

So the NIESR highlighted structural reasons why the deficit gap between Scotland and the UK would widen over time to well over £8bn pa.


The Barnett Formula is the mechanism that currently allows Scotland to benefit from higher public spending per capita than the UK as a whole. It involves notoriously complex calculations and is increasingly complicated by increased devolution of revenue raising powers ... but if we want a simple indication of "what's Barnett worth to Scotland" we need only look at how much greater public public spending per capita Scotland receives than the rest of the UK. In the most recent available GERS figures Scotland received 11.6% higher expenditure per capita than the rest of the UK (table 5.7); in cash terms that works out at £7.7bn.

So the Barnett formula currently benefits Scotland to the tune of about £8bn pa.

The fact that this £8bn figure keeps recurring is not coincidental. The Barnett formula predates the 80's oil boom which is why it protects our public spending when oil revenues decline. It's worth c.£8bn to us because it fills the onshore deficit gap; that onshore deficit gap is largely caused by the higher spending that Barnett enables.

So hopefully it's becoming clear that this £8bn figure is central to the debate around independence (or indeed Full Fiscal Autonomy). Again: it's not how big our deficit would be; it's how much bigger our deficit would be (than the one we currently share with the rest of the UK) if oil revenues go and if we lose the Barnett formula delivered benefits of UK-wide pooling & sharing.

But of course it's only how much worse off we'd be if all else remained the same - if all else remained the same, what would be the point of independence?

I don't want to retread the well-worn path of why independence might in fact make things relatively worse (minor issues like what currency we'd use and within what fiscal constraints, business and capital flight etc.) or why some of the claims for why things might get better are - how can I put this? - somewhat less than logically compelling.

Instead let's simply look at the White Paper: "Scotland's Future: your guide to an independent Scotland" and consider how that dealt with the £8bn problem.

This 649 page document found room for just the one page of financial projections: an estimate of Scotland's financial position in 2016/17 "under current constitutional arrangements" (page 75). The figures used were basically a merging of GERS figures and OBR projections with a few choice adjustments.

Imagine putting this page together and having to defend these numbers. You want to be able to say "oil is just a bonus" but without admitting that without oil you've got an £8bn gap to fill.

The best you can cobble together through assumptions about "savings or increases in revenues" is £0.6bn a year (p.78). To get to this figure you've played your defence and security spending joker (the Trident card), you've had to accept that GERS figures already exclude expenditure that the Scottish Government judges we don't get any benefit from (Olympics, Crossrail, London Sewers etc.) and you've made some heroically optimistic assumptions about the costs that will be required to replace the administrative functions currently shared with the rest of the UK. And yet you've hardly dented the £8bn.

So you're back looking at oil. You've largely relied on the OBR for forecast figures (see White Paper notes 42 and 43) but they're forecasting only around £3bn for offshore receipts. So what do you do? You ignore the OBR oil forecasts and bung in assumptions for offshore revenue that range from £6.8bn to £7.9bn pa.

So the White Paper solved the £8bn problem by assuming oil revenues of up to c.£8bn.

Who'd have thunk it?

Anybody who doubts that the "oil is just a bonus" claims were rhetorical nonsense need look no further than the White Paper itself: if oil was just a bonus, why did the economic case for independence rely on it?

Of course some will argue that the existence of the £8bn onshore gap is somehow proof of the fact the the UK is failing Scotland. This overlooks the blindingly obvious fact that this gap is a result of higher public spending in Scotland far more than it is lower onshore tax generation (a topic covered in depth in the blog post FFA for Dummies).

So this £8bn figure really matters - and with the OBR now expecting oil revenues to be around £0.1bn - £0.3bn pa. it's a number that isn't going away anytime soon.

So £8bn isn't just another number being thrown around in the debate; it is in fact the crucial number in the debate. So it's worth getting our heads around what £8bn actually means;

• We have a population of 5.3 million: so £8bn is £1,500 every year for every man, woman & child in Scotland


• There are 2.7 million Scottish tax payers: so £8bn is £3,000 every year for every tax payer in Scotland


• Scottish Tax Payers pay £11bn income tax on £68.7bn of income: so to raise £8bn through income tax alone would require an additional 11.6% on everybody's income tax rates (or for those who prefer to present it this way: a 73% increase in our total national income tax bill).


• Our onshore GDP in 2013-14 was £135bn (£153bn including oil): so if we wanted to just carry that £8bn as higher deficit this alone would account for an additional deficit of 5.9% of GDP (that's in addition to any underlying deficit we would have by tracking the rest of the UK). To put that figure in context, the EU stability and growth pact sets a total deficit target of less than 3% of GDP.

Given the attacks of the vapors suffered by SNP MSPS's at Labour's suggestion that we might offset "Tory cuts" by raising a mere £0.5bn through income tax, you have to wonder how on earth they would have coped with the prospect of plugging the £8bn fiscal gap a Yes vote vote would have left us facing.

Fortunately we voted No and can reasonably argue that £8bn pa. isn't that much between friends ... when our friends are 10 times our size and we shared "our" oil revenues with them in the boom years. But if we continue to indulge in the politics of unjustified grievance, we might end up losing our friends and finding out the hard way quite how big a deal £8bn is.