Michael Banks’ View – Scotland’s public finances are in dire straits

Monday April 26th 2021

Scottish-Parliament


Midlothian View Holyrood Challenge: This View has been written by Michael Banks, the Vanguard Party's candidate in the Midlothian South, Tweeddale & Lauderdale constituency for the Scottish Elections on Thursday May 6th 2021

Scotland’s public finances are in dire straits. The longer the country goes on living above its means, the harder it is to fix. If not fixed, the burden will be a millstone around the necks of the children. Vanguard Party will not make imprudent promises to spend ever more money on public services, putting the country deeper in debt.

In 2019-20 Public Sector Revenue was £66bn, while Public Sector Expenditure, including Capital Investment, was £81bn, resulting in a Fiscal Deficit of £15bn. Accordingly, Scotland ran a Fiscal Deficit of minus 8.6% of Scotland’s GDP. For comparison, the UK as a whole ran a Fiscal Deficit of minus 2.6% of UK’s GDP.

The main source of funding is the Barnett block grant. For 2019-20, the last year not to include funding for Coronavirus, that was £33.2bn (approx. £28.5bn resource spending; £4.5bn capital spending), before adjustments. There was an upwards adjustment of £289m for welfare expenditure and a downwards adjustment of £12.2bn for Scottish income tax, stamp duty and landfill tax, to reflect that devolved administrations are responsible for devolved welfare spending and retain revenues from devolved taxes. Accordingly, the adjusted block grant was £21.3bn.

The figures for 2019-20 expose the fallacy that Scotland would prosper as an independent country. While it would retain 100% of Public Sector Revenue, it would have to deal with the deficit, either by reduced spending, increased taxes or increased borrowing. The deficit is currently made up through the block grant that would end with independence. Scotland would also become responsible for all welfare payments currently paid by the Treasury and have to assume its share of the UK’s national debt.

The figures for 2019-20 expose the fallacy that Scotland would be admitted to the EU. To qualify for EU membership Scotland must have a deficit of minus 3% or better, otherwise it will be subject to the EU’s Excessive Deficit Procedure that will impose higher taxes and/or lower public spending and potentially sanctions. As noted above, in 2019-20 Scotland ran a Fiscal Deficit of minus 8.6% of Scotland’s GDP .

 

 

Scotland: Revenue, Expenditure & Deficit 2019-20
Public Sector Revenue (taxes raised in Scotland), incl. North Sea (geographical share) £65.878bn
Public Sector Expenditure

incl. capital investment

£81.015bn
Net Fiscal Balance

incl. North Sea (geographical share)

incl. capital investment

-£15.136bn
Net Fiscal Balance as % of GDP

incl. North Sea (geographical share)

incl. capital investment

-8.6%
UK Net Fiscal Balance as % of GDP

incl. capital investment

-2.6%
Source: Government Expenditure & Revenue Scotland

August 2020

 

 

Scotland: Barnett Block Grant 2019-20
Block grant before tax/welfare adjustments £33.202bn
Total block grant adjustment -£11.903bn
Of which tax deductions -£12.193bn
Of which welfare additions £0.289bn
Total block grant after adjustments £21.298bn
Source: H.M. Treasury Block Grant Transparency

July 2020

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