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

Even if you take into account the most optimistic figures for North Sea oil, an independent Scotland would start off in a terrible financial position.

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%.

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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.

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'.

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.