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Analysis: GERS report looks to be bad news for the Yes campaign

It's hard to see today's Government Expenditure & Revenue Scotland report, the annual figures which reveal the state of the country's finances, as anything other than bad news for the Scottish Government and the Yes campaign.

A year ago when GERS, as it's known, came out Finance Secretary John Swinney celebrated figures showing that in 2011/12 Scotland (including a geographical share of oil) was in a stronger financial position than the rest of the UK to the tune of £824 per person.

Today the latest equivalent figures, for 2012/13, show Scotland £283 worse off compared with the rest of the UK. Just to be clear, "worse off" in this context means even deeper in the red.

Those headline figures are based on the relative deficits - the gap between public spending and revenue raised - north and south of the Border.

Since GERS was published last year, the 2011/12 figures have been revised somewhat but the final version still shows Scotland in a stronger position, with a deficit of 5.8% of gross domestic product (GDP) compared with 7.6% for the UK as a whole (which actually meant Scotland was £489 per person better off rather than the £824 quoted by Mr Swinney initially).

In 2012/13, the latest GERS shows, the position was reversed. The black hole in Scotland's finances amounted to 8.3% of economic output compared with 7.3% for the UK as a whole. In cash terms, Scotland's deficit was £12.1billion and the UK's was £114.8billion.

Why was Scotland's deficit rising while the UK's was falling? In a word: oil. North Sea revenues slumped a startling 41.5% between 2011/12 and 2012/13, a fall from £11.3billion to £6.6billion in cash terms.

One other set of figures from the hulking, 100-page GERS compendium is significant politically and that is the comparison between public sector revenue and spending north and south of the Border.

Last year's report showed that for 2011/12 Scotland contributed 9.9% of UK taxes but only received 9.3% of public spending. That comparison has formed a key part of the SNP and Yes Scotland campaign for independence as Scottish Government ministers and grassroots activists alike have used the figures to argue that Scotland gets a raw deal from the UK and can well afford to go it alone.

Critics have argued the comparison is misleading as it fails to take into account the benefit of UK borrowing to Scotland (as the huge deficit clearly shows, more public money is spent in Scotland than is raised here). But even on these figures, today's GERS report undermines previous Yes campaign claims. It shows 9.1% of UK taxes were raised in Scotland in 2012/13 but the country received 9.3% of public sector expenditure.

Alex Salmond put a brave face on the figures yesterday, arguing the steep fall in oil revenues was the result not only of unexpected disruption to North Sea production but high levels of investment. Spending on new kit attracts tax breaks, which hit revenue in 2012/13, but will reap dividends in a few years time, he argued.

He also said his government's decision to switch funds from revenue to capital affected the Scottish deficit compared with the rest of the UK.

He chose to present the latest GERS not just in terms of the year it reports on, 2012/13, but as a five year average from 2008/9 onwards. Looking back over the past five years, the figures show Scotland was in a stronger fiscal position compared with the rest of the UK to the tune of £1600.

Mr Salmond argued it was reasonable to take a five year average because he plans to create a stabilisation fund to iron out large year-to-year fluctuations in oil revenues. Attention will now focus on exactly how that would be done. How much would have to be put in a stabilisation fund at the outset and would that require tax rises or spending cuts?

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