Monday 15 December 2003

Scotland's finances

It's that question again: Is Scotland subsidised by England? According to the Scotsman, the answer is yes:
SCOTLAND is being subsidised by English taxpayers by a record £8 billion a year, according to a major new report published yesterday.

Some £39.4 billion was spent in Scotland in 2001-2, but the amount raised in taxes was just £31.4 billion - leaving a deficit of £8 billion.

Obviously Scotland is an economic basket case.

Well, maybe not. First of all these figures exclude the tax revenue from North Sea oil. Although I don't believe that oil should be taxed by the state, we live in a society that accepts such taxation. The North Sea is treated as a separate UK territory in the government's revenue accounts. The oil revenue is counted as "British" but not "Scottish", nor indeed "English". This is bizarre. The overwhelming majority of the oil lies in Scottish waters, no matter how the boundary is drawn. The only reason that these figures attract so much attention is because there is a possibility, however remote, that Scotland may at some time chose to become independent. Almost all of the oil tax revenue would then accrue to the Scottish government, assuming it's not pinched by Brussels of course. That would bring the deficit down to £3 billion.

But now let's look at the expenditure side. Spending on public "services" is £1,000 more per head in Scotland than in England. That's a £5 billion bonus for Scotland. But it doesn't do us much good, does it? Despite the additional spending, health services and education are attracting more criticism than in England.

We could cut our £8 billion deficit down to £3 billion by reducing per-capita expenditure to English levels or by counting the revenue from the oil off the Scottish coast. A £3 billion deficit is less than our proportionate share of the UK deficit recently announced by Gordon Brown. Cutting expenditure and reallocating oil revenue brings us into surplus at a time that the Chancellor is borrowing £37 billion for the UK as a whole.

In Scotland on Sunday Andrew Neil cleverly points out that Brown's accounting is somewhat suspect:

His figures look even worse when his Enron-style approach to the nation’s finances is taken into account. When you include all the borrowing Mr Brown has shoved off-budget on to public agencies like Network Rail and various private finance initiatives for public investment - all underwritten by government guarantee - then another £45bn or 4% of GDP is missing from the Chancellor’s accounts.

The bottom line is that, for all Mr Brown’s boasting, Britain’s national debt as a percentage of GDP is already over his precious 40% limit and fast rising to the high European levels he affects to abjure. If the Tories were not so innumerate and inadequate they might have been able to point this out on Wednesday but the response of the shadow chancellor, Oliver Letwin, had all the force of a wet noodle.

How that affects Scotland's balance sheet is not clear. Scotland currently produces 8.1% of Britain's GDP with 8.6% of the population - an underperformance of 6%. But the British figure includes London, which produces one of the highest per-capita GDP figures in Europe. The Scottish economy certainly needs improvement but I think that things aren't quite as bad as some have suggested. Let the Scottish parliament be responsible for all taxes raised in Scotland and then have a massive cut in wasteful state expenditure. Too much public expenditure has produced a dependency culture that we need to end. Scotland has the potential to prosper.