The numbers just don’t add up for an independent Scotland

The Scottish government has just released its Government Expenditure and Revenue report for 2011/12. You should probably take a look at it, because it is the best guide we have to how the finances of an independent Scotland will look. And it isn’t the entirely pretty picture the SNP want you to see.

If you exclude the revenues from North Sea oil, the Scottish government’s revenues would have been £46.2bn. Add it in on a per capita basis (for the population of the UK) and revenues are £47.2bn. Add it in on what the report calls an “illustrative” geographical basis and they are £56.8bn. Spending in that year was £64.4bn. So without the oil, Scotland would have had a deficit of around 11%. With it, one of 2.3%.

The UK as a whole had one of around 6% that year. Exclude the oil, and the Scottish government spends 50% of the region’s GDP. Add it in, and that number is still 42.7%.

The key point here is that even adding in the whopping advantage of the oil, Scotland still spends more than it brings in. That makes a nonsense of the idea that it is possible for Scotland to build up a sovereign wealth fund in the same way that Norway has. Norway runs persistent budget surpluses. Scotland clearly doesn’t.

The other thing to note is that without the oil Scotland’s finances are pretty parlous – worse than those of the UK’s, which is saying something. Those keen to achieve a ‘Yes’ vote regardless of the consequences say that there is no need to look at the numbers without the oil because Scotland has the oil. But that’s too simplistic.


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For starters, there is no guarantee that Scotland will get 90% plus of the oil revenues – there are endless international standards and negotiations to pass through before that is clear.

Then there is the fact that these revenues are both hard to predict (according to the Times, the Scottish government overestimated them by £3.7bn this year) and very volatile: flick through the report and you will see them moving from £5bn to £9bn to £8bn to £7bn to £12bn and then back down to £6bn again before rebounding to £8bn and then £11bn.

It is also impossible to know what the investment environment will be in an independent Scotland (Shell warned on this yesterday) and to know the costs of extracting what is left in the fields.

Alex Salmond is fond of saying that there is £300,000 worth of oil in the North Sea for every man woman and child in Scotland. But other estimates suggest that once you take into account the oil that cannot be recovered and the cost of recovering the rest, that number is more like £20,000.

This all matters. The numbers in this report don’t mean that Scotland can’t or shouldn’t vote for independence.* Of course they don’t. But they should make it clear that an independent Scotland wouldn’t be starting from a very good place financially whatever the SNP might have you believe  – something that wouldn’t exactly be helped by an exodus of Edinburgh’s financial companies** and their highly paid staff (23% of Scottish tax revenues currently come from income tax).

* I went on BBC Scotland yesterday to run through the numbers, and a surprising number of people seemed to take offence at their very existence.

** Barclays, Lloyds and Standard Life have all expressed concerns over a ‘Yes’ vote, as has Scotland’s newest bank, Scoban. I have spoken to many more financial companies who are making contingency plans to shift their businesses in the event of a ‘Yes’.

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26 Responses

  1. 07/03/2014, Gorje wrote

    Your views on independence for Scotland seem fixed Merryn but can I point out some things which you and the Money Week readers may not be aware of.
    Looking at the gap in spending of £8 billion you claim is a deficit. This is misleading because this £8 billion is paid by Westminster “on Scotland’s behalf” and is credited as Scottish expenditure – but Scotland does not see it in the way your article implies.
    FIRSTLY
    The £8 billion includes the annual Scottish contribution to U.K. National Debt repayments. This despite the Scottish balance sheet GERS figures between 1980 and 2012 demonstrating that an independent Scotland would have generated a net surplus over this period. It would, therefore, not have been necessary for Scotland to borrow nor to service a per capita share of debt accumulated by the rest of the UK. But it was still taken as a Scottish expenditure and paid “on our behalf” so adds to the £64 billion
    SECONDLY
    Consistently the Ministry of Defence spends around £2 billion in Scotland but credits Scottish spending at £3.5 billion. So this adds to the £64 billion
    THIRDLY
    Non food VAT paid by Scottish consumers to retailers based in England with Scottish outlets are credited as having been paid to the London Treasury from the retail HQ south of the border. That VAT income is not added to the £56 billion tax take as having originated in Scotland.

    In terms of oil, I find myself puzzled. I had never thought as you seem to suggest that oil and gas is such a dreadful burden for a newly independent country and they would be as well without it. However can I point you in the direction of a recent Standard and Poor’s assessment which you will find I fear very disappointing.

    1) Oil revenues are bonus to Scotland, not something we are dependent on.
    S&P state that Scotland could manage independently even without the
    contribution of the North Sea. Our GDP without oil is roughly similar to other
    credit-worthy nations.

    2) Scotland is not excessively reliant on oil. S&P says it only considers an
    economy to be over-reliant on a particular industry if it accounts for more
    than 20% of GDP. Oil in Scotland is between 12-16% of GDP.

    3) The people of Scotland and the business community can be confident in the
    strength of an independent Scotland’s economy.

    S&P cites ‘high-quality human capital, flexible product and labour markets and transparent institutions’ as further reasons for confidence in the Scottish economy.

    4) Scotland has a strong balance of payments.The report states: ‘Overall, then,
    from a balance of payments perspective, there is little evidence that
    Scotland depends on the rest of the world to finance a large share of its
    annual GDP. In other words, net external financing on an annual basis appears
    to be relatively low’.

    5) Scotland is a wealthy nation.

    The report compares the GDP (wealth in the economy) on a per head basis with other countries, stating:

    Scotland GDP p/capita = $47,369
    Germany GDP p/capita = $43,855
    UK GDP p/capita = $41,066
    New Zealand GDP p/capita =$39,840

    All of those nations have an AAA credit rating from at least one of the three big credit rating agencies and Moody’s rates New Zealand higher than it does the UK.

    6) Scotland has a varied tax base (and by extension a diverse economy).
    S&P states ‘even excluding North Sea output and calculating per capita GDP
    only by looking at onshore income, Scotland would qualify for our highest
    economic assessment. Higher GDP per capita, in our view, gives a country a
    broader potential tax and funding base to draw from, which supports
    creditworthiness’.

  2. 07/03/2014, dave21kj wrote

    It seems to me that UK is like a mini-Europe. For Greece read Scotland, Portugal North of England. For Germany read England (mainly because England hold the purse, as mentioned in the previous comments).
    Like Greece we enjoy a currency Union and get poorer by the minute.
    It would be nice in this debate if we discussed how we could deliver a better Scotland within the UK. But we don’t want to go there. No one has a positive message.
    I am not saying the SNP have the answers because they do not; however, something needs to change in the debate because the approach of a) “you cant go it alone because you don’t have the capability, or b)the UK will bankrupt you if you do”; this negative debate will only drive a yes vote.

  3. 07/03/2014, CKP wrote

    There is no doubt that Scotland would be worse off financially after independence. However the rest of the UK would be freed of subsidising the enhanced lifestyles of the Scots – such as free higher education and elderly care. They currently completely take the biscuit on university fees: A Scottish student in a Scottish university will pay nothing, an EU student will also pay nothing but a student from London whose parents’ taxes pay for their higher education system will pay £9k.

    Once shale gas takes off in the UK, dwindling North Sea oil will be increasingly irrelevant.

    The financial sector in Edinburgh/Glasgow as well as other multinationals will have no choice but to relocate to London meaning a boost to jobs/tax receipts/economy/property prices at the expense of Scotland. Staying put in an independent Scotland for one of these companies would be like relocating to Iceland or Greece.

    Salmond refuses to take on his share of the national debt after independence, fair enough, he can have the bailout bill for RBS and HBOS instead, in full.

    Another possibility is that the UK will have to give up the nuclear sub base in Faslane and reconsider maintaining the nuclear deterrent. Scrapping this will save the UK taxpayer many billions of pounds over the coming decades.

    They say turkeys don’t vote for Christmas but I for one hope they do cos Xmas will come early for the remaining UK in the form of lower taxes and a fairer society.

    • 09/03/2014, Gorje wrote

      There are several enduring but persistent myths contained in this reply CPK which have seeped into the common consciousness of so many people that they are now sadly accepted as fact. There are two which stand out.

      Myth1 – “The subsidy Junkie Jock”.
      Public expenditure in Scotland is £1,200 per head higher than the UK average.
      Scottish taxpayers contribute £1,700 more than the UK average.
      ( Source Fullfact.org )

      Myth 2 – “Scotland and the bank bailouts”
      It is assumed wrongly by you and others that banks are bailed out by the taxpayers of the country in which the institution is headquartered. Barclays Bank PLC, Global Headquarters,1 Churchill Place, Canary Wharf, London, E14 5HP, UK. Barclays is a UK bank and if you accept there is such a thing as a Scottish bank then Barclays is clearly an English bank.
      The public was repeatedly informed by the media during the crash that “Barclays didn’t need a taxpayer bail out at all”. In fact, this proved quite the opposite. Barclays Bank – yes, that English based bank – received the single biggest bail out of any UK bank, but most of it didn’t come from the UK taxpayer.
      Barclays was bailed out to the tune of £552.32bn (at backdated exchange rates) by the US Federal Reserve and £6bn by the Qatari Government. Or to put it another way, foreign governments bailed out Barclays to the tune of more than twelve times more money than the UK Government’s capital support for RBS (£45bn). Barclays is also not moving to the USA. Barclays’ CEO at the time of the crash, Bob Diamond, recently told a Westminster Treasury Select Committee hearing:
      “Barclays intended to remain based in London”. He said “the City had numerous benefits, including the time zone, a good pool of talent and the fact that English was the native language”.

      The credit crisis provides us with a clear historical precedent showing that banks are not primarily bailed out by the government of the country hosting their brass plaque. It’s worth also noting that the UK Government bail out of RBS and HBOS amounted to £65bn. That’s a lot of money, but the US Federal Reserve made emergency loans available to RBS of £285bn and to HBOS of £115bn.
      Could an independent Scotland have afforded our contribution?
      The answer is absolutely yes, according to the Harvard professor and international banking expert Andrew Hughes-Hallet, who said “the cost of Scotland’s contribution to the bank bail out as an independent country would have been roughly the same as it was as part of the UK – roughly 10%” ( Source http://www.businessfor scotland.co.uk )

  4. 07/03/2014, JamesH wrote

    CKP
    We have heard all this unsubstantiated NONSENSE before on previous blogs on Scottish Independence. Below is a repeat of my previous post:
    “The 2011-12 Govt. revenue & expenditure figures show that Scotland has 8.4% of the UK population and generates 9.9% of UK taxes and receives 9.3% of UK spending.This amounts to a contribution of £4.4 billion or £824 per person per year more than Scotland’s share.”
    The charging of fees to English and Welsh students is simply a legal way,under Devolution, of recovering some of the £4.4 billion mentioned above.”
    Your derogatory comments, at this stage of the debate, are irritating!

  5. 07/03/2014, Angela wrote

    I find it interesting that our leaders are very clear that the population of Crimea cannot vote to separate from Ukraine, because only a vote taken by the entire state would be valid.
    Conversely, the population of Scotland will vote on whether to seperate from a similar unified state of several nations, no mass vote required.
    The whole of the UK should be voting on the prospective break-up of our Union. Alternatively, every national grouping in the UK should be offered a similar opportunity for complete independence. I include Cornwall as an area of seperately identity.
    Why not go the whole hog and offer independence to the citizens of the former kingdom of Eric Bloodaxe, too. (England north of the Wash).

    • 08/03/2014, JamesH wrote

      angela.
      The UK Govt. has agreed to all the terms & conditions of the Scottish Referendum.It is legal & binding.
      If other “national groupings” in the UK want “complete independence” they should form a political party and campaign for it as the SNP have done for the past 80 years.

  6. 07/03/2014, CKP wrote

    Unsubstantiated nonsense? :
    ..according to figures published by the Institute of Fiscal Studies, total public spending was around 11 per cent higher per person in Scotland than in the UK as a whole in 2011-12.

    Official figures from the previous year suggest Scotland spent £62 bn but raised just £45 bn — an annual subsidy from the English taxpayer of at least £17 bn.

    Also, research in 2007 showed almost one in three Scots workers had a taxpayer-funded job

    Scotland’s welfare bill alone is huge, and utterly unsustainable without some form of external funding. Its pensions bill is £13.3 bn a year, health care costs £11 bn and social security £8 bn.

    As MSW correctly states, even if Scotland kept ALL the oil and the companies stayed put (both v unlikely) the bills won’t get paid. Hence Salmond’s petulant insistence on retaining the pound in order that he can continue piling on the deficit while the BoE picks up the bill.

    The Tory politicians are against independence as they are scared of the political fallout from what would be a very messy and protracted divorce. Longer term England has everything to gain.

    An irritated English taxpayer.

  7. 09/03/2014, JamesH wrote

    ckn
    Here we go again “spending per head in Scotland is higher therefore England subsidises Scotland”
    You are continuing to ignore the full facts given to you in my previous post.
    1.Scotland’s population 8.4% of UK’s total.
    2.Scotland generates 9.9% of UK’s taxation.
    3.Scotland receives 9.3% of UK’s spending.
    4.This results in a contribution of £4.4 billion ,or £824 billion per person,per year more than Scotland’s share.
    Read this in conjunction with my previous post and it might just sink in.
    I make no reply to your plethora of unrelated and unsubstantiated figures and comments from para.2 onward.

  8. 09/03/2014, JamesH wrote

    ckn
    .
    correction @ 4 above. for £824 billion read £824.

  9. 09/03/2014, CKP wrote

    The G.E.R. where you obtain your numbers from is far from fact. It is a biased, rose-tinted political document produced by the SNP govt for the purpose of furthering their independence campaign. For example they optimistically draw an East to West Sea border that conveniently gives them the bulk of North Sea oil. Income taxes raises 25% of Scotland’s revenues but a third of this is from public sector employees. Witness this week the torrent of statements from FTSE350 companies moving their HQs and operations South of the Border. Voting for independence is financial suicide. Remember the history of Ireland where the population declined for several decades after independence and didn’t rise again until 2006!

  10. 10/03/2014, dave21kj wrote

    It seems my earlier point is validated. No one can say anything positive about the status quo, and both sides want independence for different reasons. It doesn’t matter who is right, time will tell. A small country will have discipline forced upon it by the market.

  11. 10/03/2014, IWWG wrote

    Cpk – your comments are the least objective and the most deliberately distorting of facts posted here, obviously driven by your anti – Scottish prejudice. Your comment re Alex Salmond not taking on liabilities is a blatant misrepresentation of facts (as is the norm in the British media on this subject of Scottish independence) – he actually said that if Westminster didn’t share UK assets then Scotland clearly wouldn’t take on UK liabilities. That is completely different to what you state. You also completely twist what that ‘torrent’ of companies said, which was that they would risk-assess changes in the structure of the UK and take whatever mitigating action, if any was deemed necessary, once the situation became clear after the referendum and any subsequent negotiations, which every sensible governance framework should incorporates. I also notice you didn’t mention BA’s statement, which said they could see positive aspects for their business in the event of a yes vote.

    The amount of unpleasant, negative, insulting, non-objective views & mis-represention of facts being displayed by many English has really opened the eyes of Scots who previously felt kinship with their fellow UK citizens. This lack of any goodwill or empathy from England, the lack of positive reasons being put forward for staying in this political union, for sure have undermined the union even should the vote in September be no to independence. It almost makes it just a matter of time before it happens.

    • 10/03/2014, CKP wrote

      IWWG,
      My views are not anti-Scotland at all, indeed I am strongly pro-independence. I just do not think it is in the best interests of those currently resident in Scotland. If they feel they can pay their own way while maintaining their standard of living (which I personally doubt) then they should vote YES. I am sure Boris Johnson would be waiting with open arms to welcome more big businesses to London. Good luck and au revoir.

    • 10/03/2014, CKP wrote

      Please do not confuse my economic views with anti-Scot xenophobia. I respect Scots as hardworking honest proud and resilient people. I even like the accents. Scots have rightly wanted the right to self determination for a long time but have been paid off financially by England to remain in the Union. They cannot expect this subsidy (both direct and indirect) to continue once they leave.

      • 13/03/2014, jimtaylor wrote

        Subsidy?

        What about the oil money keeping the UK afloat since the 1970′s?

  12. 10/03/2014, Merryn wrote

    We also have to beware of assuming that any of these numbers are static. Over time who knows what will happen but in the short term there is a high chance revenues will fall.. look at the list of big firms now warning about the effect of uncertainty on the economy – from Alliance to Standard Life, big business is getting worried.

  13. 10/03/2014, Merryn wrote

    Evidence of that uncertainty here in the sales numbers for top end houses.. the world’s rich aren’t flocking to Scotland.. http://www.independent.co.uk/news/uk/politics/referendum-jitters-hit-wealthy-buyers-in-the-scottish-housing-market-9180009.html

    • 10/03/2014, Romford_Dave wrote

      I think you should have read the entire article Merryn, it’s not often an estate agent speaks without using a forked tongue, but I think Faisal calls it about right…

      “Faisal Choudhry, head of research at Savills Scotland, said the country’s unique appeal meant there would always be buyers for the right properties. “Yes, people are asking questions, and there’s anecdotal evidence of people becoming concerned. But I don’t think there’s evidence of people pulling out at the moment because of the destination’s qualities,” he said.

      “These buying decisions are emotional things and I don’t think political or economic factors will put someone off who really wants a trophy Scottish estate. Scotland’s natural beauty and quality of life, its educational establishments will always be a pull factor whatever the outcome of the referendum.”

      And

      Aren’t these the self same super rich (or at least their close cousins) you’ve highlighted previously as the chief culprits for distorting the market down here in London & South-East?

  14. 10/03/2014, CAN wrote

    It is worth pointing out that the UK population is approximately 63.7m, Scotland’s population in 2012 was around 5.3m or 8.3%. If there is a “Yes” vote the UK will be left with around 58.4m, this is important from a trading view point. When you look at it in the cold light of day the remaining UK population will be an extremely important trading demographic for Scottish companies, unlike the Scottish population.

    As the UK as a whole becomes more nationalistic I anticipate that product branding such as “Buy British” or “Made in Britain” will become ever more important for companies selling their goods in the UK. At the moment this benefits Scottish companies but moving forward they will not be able to have this labelling. We know that by purchasing goods labelled like this that we are helping our economy, I am not so sure that we will continue to purchase Scottish labelled goods knowing that it will be benefiting a “competitor” nation.

    Having spent the best part of 30 years working in the supply chain and logistics environment, I am well placed to understand the costs of servicing the population of Scotland. With a small population in an independent country, I am not so sure that the current “cost to serve” could be maintained.

  15. 10/03/2014, NeutronWarp9 wrote

    Surely the independence vote is much more than just an economic one, no matter what the numbers might arguably show. it is also about identity. When hoity toity southern Englanders preach from on high it is a red rag to a bull to many people. A bigoted view, perhaps, but it is increasingly common. How many would rather feel free than be ruled from a far by a self-serving elite?

  16. 10/03/2014, CAN wrote

    Parliament in Westminster has representatives from all areas of the UK, let us not forget that it was a “Scottish” chancellor who subsequently became Primeminister who steered us into this financial mess.

    I agree that “identity” is important for all of us, however as devolution has proven the more you fund “one” identity the greater the risk of unrest. At present, we are I believe living in the “United Kingdom” of Great Britain, would it not be sensible to have one central government who’s sole purpose it is to ensure that prosperity of the UK as a whole.

    Currently we have Holyrood, Stormont, The Welsh Assembly and Westminster Governments ruling our small country. Firstly, Westminster is the only one who’s main focus is the prosperity of the UK, all of the others are focussed on “their” areas of the UK, only England at present has no “nationalistic” voice. This is wrong in many ways but it is what it is, however from a purely cost view point surely this is 3 too many. When you add Brussels to this we have 5 governments that we have to pay for, would it not be economically sensible to revert to the “one” central Government and save billions of tax payers money, including those of the Scottish element of the UK.

  17. 11/03/2014, Merryn wrote

    @RomfordDave. On the man from Savills.. he would wouldn’t he? I have spoken to the buying agents and they are pretty clear that people with money aren’t buying until they know that money will be safe..

    • 12/03/2014, Romford_Dave wrote

      I was conscious of his line of business Merryn and mentally afforded him only a temporary reprieve from the forked tongue line of spiel…

      And I’ve little doubt that any hint of uncertainty ensures the clasps stay firmly locked on the wallets of the wealthy ~ but I was thinking of Scotland’s charms and attractions for a wee while longer than this side of Hogmanay :)

  18. 16/03/2014, Borders Biz wrote

    LOOK! you all miss the point basing an independant Scotland on these figures. They give a good starting base point to Scotlands wealth or wealth potential but you are missing some of money weeks own information and not looking at the tax benefits an indy country also earns.

    Import taxation.
    proper corporation tax clamp down.
    proper whisky taxation an exportation.
    vehicle road excise
    taxation on fuel tobacco and alcohol
    All supermarket non food tax

    These are but a few that add to the treasury before you greatly reduce the number of civil servants running the infrastructure.

    And readers buy Money Week because you are all so bright?

  19. 17/04/2014, EM99 wrote

    When we have food banks at record levels and child poverty at the level it is, who really cares whether highland estates are flying off the shelf?

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