GERS: Scotland's finances in first year of independence would have been worse than previously thought

The UK deficit was 1.9 per cent of GDP in the same year.

Public spending in Scotland was a record £1576 higher per head than in the rest of the UK thanks to a cross-border subsidy from the Treasury.

The Scottish Tories said the ‘black hole’ in the nation’s finances showed why the SNP should drop any plans for another independence referendum.

The GERS figures showed Scotland’s finances would have been in an even worse state than previously thought in the first year of independence had there been a Yes vote in 2014.

Last year, GERS said the deficit had been £13.3bn, or 8.3 per cent of GDP, in 2016/17.

However these have now been revised to £14.5bn and 8.9 per cent of GDP.

• READ MORE: Sturgeon urged to apologise over inaccurate independence forecasts

The White Paper on independence launched by Nicola Sturgeon and Alex Salmond forecast a manageable deficit of between £2.7bn to £5.5bn, or 1.6 to 3.2 per cent of GDP.

The difference was due to the oil price slump after the 2014 referendum.

The GERS figures also showed a record ‘Union dividend’ of £1982 in 2016/17 after revisions compared to £1882 in 2017/18 and £952 in 2013/14.

This is the difference between how much Scotland contributed per head to the Exchequer and received back in public spending.

In 2017/18, Scotland’s per capita tax revenue was £306 lower than the UK level and spending was £1576 higher.

Just seven years ago, Scotland was a net contributor to the Treasury, at £200 per head.

The new data did however show a marked upturn in Scotland’s geographical share of revenue from the North Sea, which was up from £266m in 2016/17 to £1.3bn.

Overall, Scotland generated 8 per cent of UK revenue last year, had 9.3 per cent of public spending, and accounted for 34 per cent of the UK’s £39.3bn deficit.

Ms Sturgeon said the figures showed the Scottish economy was in a “state of recovery”, but Brexit remained a “real and present danger”.

She highlighted growth in the onshore economy in Scotland had been faster than in the UK.

• READ MORE: Scottish economic growth outstrips that of UK in 2018

The SNP’s recent Growth Commission, its revised economic blueprint for independence, envisaged a year one deficit of around 8.3 per cent, more than in 2017/18.

“That would suggest the trajectory in more positive in reality than the Growth Commission assumed,” Ms Sturgeon said.

To the dismay of many on the left of the independence movement, the Commission proposed keeping a tight rein on public spending to halve the deficit over 10 years.

Ms Sturgeon said cutting the deficit was important, but not if it meant austerity.

She said: “Fiscal rules should not become counter-productive. So if actually what the economy needs is stimulus to get the economy growing faster, that’s what should take priority. The Growth Commission was an explicit rejection of the kind of austerity economics we have seen in recent years.”

She said the 3 per cent deficit target in the Commission was “a reasonable one”, but added it was important not to become “so fixated on that that it becomes counterproductive”.

Asked if the £1576 extra public spending per head would look fair to voters south of the border, she said it was “more than fair” given the history of North Sea oil receipts.

• READ MORE: Sturgeon denies SNP tried to "con" voters over independent economy

Ms Sturgeon refused to apologise for the even wider gap between the official figures for the putative first year of independence and those in the White Paper.

She said: “I would defy anybody to say that they foresaw what happened in the North Sea and oil revenues. That’s what changed the projections.

“What we see here today is an improving position, as oil improves and as our onshore [economy] improves. Don’t lose sight of the fact that onshore revenues excluding oil and gas are up by £2bn. That is faster growth in onshore revenues than UK growth in onshore revenues in the same year.

“We have a Scottish economy that has had a difficult time in the last few years because of the position in oil. Notwithstanding that we have had strong onshore growth and we see that picture continuing here.”

Finance Secretary Derek Mackay added: "The latest economic data points to an improving picture in Scotland. Our economy grew twice as fast as the UK in the most recent quarter, while unemployment remains close to its record low and confidence is returning to the oil and gas sector.

"Overall revenue in Scotland reaching £60bn for the first time ever, underlining the fact that we have a productive and growing economy, despite the UK Government's London centric economic policies.

"Meanwhile, Scottish exports of goods have increased by 12 per cent over the past year - the fastest rate of growth of any nation in the UK - with huge potential for further expansion in key overseas markets."

Scottish Tory MSP Murdo Fraser said: “If Nicola Sturgeon wants to continue her threat of second referendum, she has to explain where she would find £13bn to fill this deficit.

“Assuming that can’t be done, the prospect of another divisive and unwelcome vote must be removed for good so Scotland can focus on what really matters.

“Yet again, the union dividend has been made clear.

“By being part of the UK, Scotland received an extra £1576 for every man, woman and child last year above the UK average. For a family of four, that’s more than £6000 in additional public spending.

“If Scotland was to be ripped out the UK, this spending would be slashed drastically, meaning schools, hospitals and infrastructure would be hit.

“Any Scottish Government would also have to massively increase taxes and borrowing to help make up the difference, something the hardworking public simply wouldn’t accept.

“And while Scotland’s finances improved slightly on the whole last year, the rest of the UK’s have done even better, meaning the gap is now bigger.” Scottish Labour leader Richard Leonard said: “People across Scotland are sick and tired of austerity – and these figures show that the SNP’s plans for independence would mean unprecedented levels of austerity for Scotland.

“The SNP’s plan to close Scotland’s deficit is a cuts commission – a vision which protects the interests of big corporations and the privileged few instead of our vital public services.

“The dividing line in Scotland is now between Labour’s plan to invest and build an economy that works for the many, not the few, or further austerity with the SNP and the Tories.”

Scottish LibDem leader Willie Rennie said: “These numbers are another cruel blow to the Nationalists, coming from their own government.

“It adds to the misery set out in the SNP's Growth Commission.

“Whichever way you look at it, under nationalist plans all the good things we all want to do in Scotland would be under threat because of funding cuts. Investing in people through education and mental health would be harder under independence.”

Scottish Green MSP Patrick Harvie added: “Here we have another reminder that the Scottish economy is still too focussed on oil and gas extraction instead of making the needed transition to clean and sustainable renewable sources of energy.

“While other parties use this annual publication as justification for how Scotland couldn’t be a small, successful independent country, or how great the SNP government thinks it is; they’d do well to remember that both our prosperity and our climate depends on moving to a clean economy.”

Professor Graeme Roy, director of the Fraser of Allander think tank, said: “GERS takes the current constitutional settlement as given.

“If the very purpose of independence is to take different choices about the type of economy and society that we live in, then a set of accounts based upon the world today will tell us little about the long-term finances of an independent Scotland.

“But GERS does provide a pretty accurate picture of where Scotland is in 2018. So in doing so, today’s numbers set the starting point for a discussion about the immediate choices and challenges that need to be addressed by those advocating new fiscal arrangements.”

Mike Tholen of Oil & Gas UK said the GERS data showed a "striking transformation" of the UK oil and gas industry since the downturn.

He said: "Improvements to operational efficiency, careful management of costs and a stablefiscal regime have ensured it is better placed to weather volatility in international oil markets. This golden formula must now be maintained as we look to maximise economic recovery.”