Understanding Scotland’s Public Finances

This first appeared in the Times Scotland 25th August 2016

UNEDIFYING is probably the best word to describe the annual political bunfight over Scotland’s public finances, the oddest of arguments are made in the strangest of ways by otherwise rational people.

It is a snapshot of the state of the economy, tax base and finances now, under the current political arrangements with budgets and economic policy overwhelmingly set in London.

It is therefore singularly bizarre for those who run the world as it is now to then point to an unsustainable Scottish deficit, of their creation, as justification for keeping things as they are now and themselves in charge.

But what is also an inescapable reality for the SNP is that the figures provide the inherited starting point for any devolution of financial responsibility or indeed the greater autonomy of independence.

North Sea revenues provide no ‘get out of jail free card’ and must be regarded as the windfall they are to be invested if they exist and not spent on current outgoings.

At £14.8 billion or 9.5% of the economy Scotland’s deficit is in better shape than the UK was in 2010 but that is no great boast. But in March the Institute of Fiscal Studies suggested the Scottish figure could reach 6% by 2020 which is better than the UK figure in 4 out of the previous 8 years but still not good enough.

It is improving with revenues up by £2 billion and the onshore deficit down £1.2 billion in the year to March. Indeed of the 24 revenue lines Scotland outperforms the UK in 14. So the idea that this is all unmanageable cannot be true. The question is who do you want to manage it?

The major risk to the finances comes from a decision Scotland did not make. The Institute of Fiscal Studies (IFS) estimated recently that Brexit will take a divot from UK public finances of between £24bn and £39bn by 2019/20. This could mean a deterioration in Scotland’s deficit of potentially up to £5bn obliterating the forecast improvement we could otherwise expect.

Follow the logic of the current debate and Scotland’s lack of autonomy on all of this makes autonomy increasingly unaffordable. Go figure. I suggest the opposite is not only true but an imperative. The conduct of our economic debate will need to dramatically improve though — it could be the making of us.