Scotland’s public finances dramatically improved last year thanks to a surge in revenue from North Sea oil and gas amid the energy crisis.

The annual Government Expenditure and Revenue Scotland (GERS) report showed the country’s notional deficit fell from 12.8% of GDP in 2021/22 to 9% in 2022/23.

The fall compared to the UK deficit remaining static at 5.2% of GDP.

For the first time since the oil slump of 2014/15, Scotland generated more tax revenue per head than the rest of the UK, based on a geographical share of the North Sea revenue going to the Treasury. 

The £696 extra per person compared to £498 less per person in 2021/22.

Scotland’s geographical share of North Sea revenue was £9.4bn in 2022/23, up from £2.4 bn in 2021/22 after the start of the Energy Profits Levy or windfall tax.

The return of substantial North Sea income presents the SNP with a dilemma, as it boosts the case for independence, but binds it to the exploitation of fossil fuels.  

Humza Yousaf, who last night said he intended to govern jointly with the Greens until the 2026 Holyrood election, has said the climate crisis goes against the development of new oil and gas fields.

He said Rishi Sunak was wrong to announce 100 new exploration licences and he would instead “take a side” on the climate, admitting his policies would “p*** off some people”. 

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The Alba party said North Sea oil and gas could be the "engine room" of an independent Scotland and the Yes movement "would be foolhardy to disregard such a massive economical and political opportunity". 

As well as the increase in Scotland’s share of North Sea revenue, there was also strong growth in income tax, national insurance contributions and VAT. 

Overall spending increased, primarily due to increased spending on UK debt interest and the introduction of cost of living support.

Total public expenditure in Scotland was £106.6bn, up £9.3bn (9.5%), while Scottish public sector revenue was estimated at £87.5bn, or 8.6% of UK revenue.

Of this, Scottish non-North Sea revenue was £78.1 bn, or 7.7% of UK revenue.

The overall difference between public spending and tax revenue was £19.1bn, down from £24.9bn in 2022/23.

Total public sector spending per person in Scotland, including UK spending, was £19,459 last year, or £2,217 more per head than in the UK as a whole.

However this was partially offset by the £696 more raised in taxes for every person in Scotland thanks to the increase in North Sea taxes.

It meant the so-callled “union dividend” last year was £1,521, sharply down from £2,710 the year before.

Unionist parties say the difference between public spending and tax receipts north of the border shows a newly-independent Scotland would need to cut services and raise taxes to bring down its deficit and establish its credibility with the financial markets.

Independence supporters argue GERS is of limited value as it shows Scotland’s constrained position within the Union, not its true potential outside it.

The Herald:

Wellbeing Economy Secretary Neil Gray said: “I am pleased that Scotland’s finances are improving at a faster rate than the UK as a whole, with revenue driven by Scotland’s progressive approach to income tax and our vibrant energy sector. 

“While the record revenues from the North Sea show the extent that the UK continues to benefit from Scotland’s natural wealth, these statistics do not reflect the full benefits of the green economy, with hundreds of millions of pounds in revenue not yet captured.

“It is important to remember that GERS reflects the current constitutional position, with 41% of public expenditure and 64% of tax revenue the responsibility of the UK Government. 

“Indeed, a full £1bn of our deficit is the direct result of the UK Government’s mismanagement of the public finances. 

“An independent Scotland would have the powers to make different choices, with different budgetary results, to best serve Scotland’s interests.

“While we are bound to the UK’s economic model and do not hold all the financial levers needed, we will continue to use all the powers we do have to grow a green wellbeing economy, while making the case that we need independence to enable Scotland to match the economic success of our European neighbours.”

Scottish Secretary Alister Jack said: “The Scottish Government’s own figures show yet again how people in Scotland benefit hugely from being part of a strong United Kingdom.

“Scotland’s deficit is more than £19bn - even in a year of exceptional North Sea Revenues. Without oil and gas, that figure soars to more than £28bon. 

“People in Scotland benefit to the tune of £1,521 per person thanks to higher levels of public spending. 

“As we face cost of living pressures and unprecedented global challenges it is clear Scotland is better off as part of a strong United Kingdom."

Alba Party MP Neale Hanvey said: "Since Scotland’s vast oil reserves were first exploited £300 Billion has flowed to Westminster.

"We know from the OBR and the Chancellor’s own Autumn Statement that the equivalent of £16,000 for every man, woman and child in Scotland will go to the Treasury over next five years from the North Sea. 

"In 2014, the Labour Tory Better Together Coalition said that Scotland’s oil was running out, today it’s keeping the UK afloat.

"Today’s GERS figures show that a sustainable future for the North Sea Oil and Gas industry can continue to be the engine room of the early year’s of an independent Scotland.

"Meanwhile the deployment of carbon capture technology on an industrial scale in the North Sea and as a condition of development can make that investment compatible with the future of the planet.

"The independence movement would be foolhardy to disregard such a massive economical and political opportunity." 

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Tory MSP Liz Smith said: "The figures wholly reaffirm the case for ensuring our oil and gas sector continuing to play a key role in Scotland’s economy for years to come. That has helped to drive an improved position in Scotland’s revenues.

“That is why it is astonishing that every other political party – including the SNP-Green coalition and Keir Starmer’s Labour Party - have turned their backs on the industry.

"It is only the Scottish Conservatives who are standing up for the highly-skilled workforce and recognising the importance of the sector to Scotland’s finances.

"With public spending at its highest ever level, it is also clear that the SNP have squandered the record funding settlement delivered from the UK Government."

Scottish Labour MSP Michael Marra added: “Today’s statistics plainly show the economic benefit that Scots receive as part of the UK and expose the SNP’s plans for independence as little more than a charter for austerity. 

"With Scots individually benefitting to the tune of some £2,217 from higher spending in Scotland despite the larger negative balance in Scotland’s public finances, the potential harsh financial cost of leaving the union is laid bare for all to see.

“It is Humza Yousaf’s duty to explain exactly what he would cut, when and how deeply to make up this huge deficit in his independence plans. 

"The fact is that the SNP’s plans for independence will mean cuts to the services upon which we all rely leading to poorer services and quality of life for millions of Scots.”  

Scottish Green MSP Ross Greer added: “This is further evidence of how outrageous it was for the UK Government to implement a so-called ‘windfall tax’ with a 90% reduction for oil and gas companies who continue with their climate-wrecking behaviour.

“These companies are laughing all the way to the bank with their obscene profits while ordinary people struggle to pay their energy bills and public services go without billions of pounds of essential investment, all thanks to the UK Government.

“The contrast between Westminster’s economic incompetence and the Scottish Government’s successful management of its own limited finances could not be greater.

"Think of how much more Scotland could do as an independent nation, untethered from the union and free to fully manage our own economic future.”

Scottish Liberal Democrat finance spokesperson John Ferry said: “The GERS figures are a good test of which Nationalist politicians struggle to accept the reality that Scotland’s economy benefits immensely from our fiscal integration within the UK.

“These figures make clear once again that the SNP’s plans for breaking up the UK would cost the average Scot thousands of pounds in reduced government spending.

“If the SNP really want to write another independence paper, perhaps they could use it to honestly set out whether it will be schools, pensions, the NHS or all three that they would cut if they ever achieved their dream of breaking up the UK.”

Pamela Nash, chief executive of the anti-independence group Scotland in Union, said: “There is no positive case for breaking up the UK, as these official figures produced by the economists in the Scottish civil service confirm.

“As part of the United Kingdom, we - alongside most nations and regions in the UK - have more to spend on vital public services as we pool and share resources and risk across the entire country.

“This is a far better way to protect our schools and hospitals than rely on the extreme volatility of North Sea oil.

“With record waiting times in the NHS, community cuts, and tough challenges for businesses, the SNP and Greens should end their obsession with economic vandalism and focus on the people’s priorities.

“As part of the UK we are stronger together, and we can build a brighter future for every community in every nation and region.”