Why we should be glad we voted No

On Tuesday the Scottish Government published the Government Expenditure and Revenue Scotland (GERS) figures that show how our economy performed in 2014-15. The numbers make sobering reading when you consider that, if Scotland had voted Yes, the SNP’s proposed “Independence Day” would be just two weeks away.

The figures show Scotland ran a deficit of £14.9bn in 2014-15. This means that the taxes we raised in Scotland fell £14.9bn short of covering the public spending we received.

Of course these numbers only show us where an independent Scotland would have started from, what our deficit would have been if we’d kept paying taxes and receiving public spending at the rates we’re used to. In fact they show us that this simply wouldn’t have been possible.

It’s true that most countries run deficits, but the scale of an independent Scotland’s deficit relative to its economy would be a problem. We measure this by looking at deficit as a percentage of Gross Domestic Product (GDP). On this measure, in 2014-15 the UK’s deficit was 4.9% but Scotland’s was 9.7%. This would be unsustainable. There isn’t a single country in the EU with a deficit as high as this. In fact the EU sets an “excessive deficit threshold” of 3.0% beyond which member countries have to be seen to be taking corrective action. Since 2001, only Greece and Ireland have reported deficits of greater than 9.7% in consecutive years and they had to adopt extreme austerity measures as a result.

These figures are not an unrepresentative snap-shot. If we take oil revenues out of the picture, the GERS figures show that Scotland’s deficit would have exceeded 10% of GDP in every single one of the last 13 years. Oil revenues have obscured a consistent underlying onshore deficit, their decline simply reveals it.

This is why the SNP’s independence referendum claim that “oil is just a bonus” was always ridiculous. It’s why the independence White Paper had to assume annual oil revenues of £7.9bn. The truth is now out. Our oil revenues in 2014-15 were just £1.8bn and we know that in 2015-16 they will be nearer £0.1bn. It’s clear that without past levels of oil revenue Scotland simply wouldn’t be able to support the public spending we’ve become used to.

Some see the fact that Scotland’s 2014-15 deficit per head of £2,800 was twice as bad as the UK’s £1,400 as evidence that the UK has somehow failed Scotland’s economy. Dig a little deeper though and we see that Scotland generated the same tax revenue per head as the rest of the UK but enjoyed £1,400 more in public spending. So Scotland’s economy was as tax productive as the rest of the UK but we got to spend £1,400 more per person on public services. This higher per person spend in Scotland is a long-term trend and largely due to of our lower population density and older average population. It’s hard to see how that means the UK is failing Scotland.

This does of course mean that the rest of the UK is currently supporting Scotland by about £1,400 per person, but we shouldn’t forget that during the oil boom of the 1980’s the money flowed the other way. We’re simply experiencing the upside of pooling & sharing resources over time.

If we’d voted yes, an independent Scotland would be using these latest GERS figures as the basis for our negotiations with the EU about membership, the UK about possible currency sharing and international debt markets about borrowing. It’s inconceivable that any of these negotiations could succeed without a credible plan being in place to rapidly reduce Scotland’s deficit. It’s pretty clear we couldn’t have afforded to simply assume we’d grow our way out of it or hoped for another oil boom, we’d have needed to take action by dramatically reducing public spending and/or raising taxes.

In the aftermath of the financial crisis which saw the UK deficit peak at 10.2% in 2009-10, the UK adopted an austerity strategy that’s reduced that deficit to 4.9%. Unfortunately Scotland’s deficit of 9.7% is after taking our share of those austerity measures, so we’d need more. A lot more.

For an independent Scotland to share sterling we’d likely be required to run a similar level of deficit to the UK. This would mean finding about £8bn a year through some combination of higher taxes or lower spending. The White Paper assumed that we’d save £0.5bn a year mainly though Trident and other defence cuts. Scottish Labour’s proposal to raise income tax by 1p would have raised £0.5bn a year. This year’s draft Scottish Budget includes £0.5bn of cuts. In this context we can see that saving £8bn a year would lead to economic hardship far beyond anything currently being contemplated while we remain in the UK.

We should probably be glad we voted No.

This article appeared in the Daily Record on March 11, 2016

For detailed analysis underpinning the figures quoted please see 2014-15 GERS: Reasons to be Cheerful