The UK government’s oil and gas revenues increased 4-fold to £11
billion in 2022–23. Despite this, its borrowing increased by £10
billion as this boost to revenues was outweighed by the cost of
energy bills support and elevated debt interest spending. In
contrast, because most of the extra oil and gas revenues were
generated in Scottish waters and only a small part of the higher
spending related to Scotland, its public finance position
improved, with its notional fiscal deficit falling by £6 billion,
according to the latest official GERSfigures.
However, Scotland’s notional fiscal deficit remained
substantially higher than that of the UK as a whole – 9.0% of GDP
versus 5.2% of GDP, equivalent to an extra £1,530 per person,
with most of this gap due to higher government spending in
Scotland. Without another
substantial increase in oil and gas revenues or faster growth in
its onshore economy, Scotland’s deficit, measured relative to the
size of its economy, will remain substantially higher than that
of the UK as a whole. If Scotland’s onshore economy tracks that
of the UK as a whole, Scotland’s notional fiscal deficit in
2027–28 would be expected to be around 7.5% of GDP, compared to
1.8% of GDP for the UK as a whole – a difference of over £2,500
per person.
David Phillips, an Associate Director at the IFS and
author of the comment said:
“In contrast to the situation for the UK as a whole, the surge in
oil – and especially gas – prices last year led to an improvement
in Scotland’s fiscal position. However, Scotland’s notional
fiscal deficit remained substantially higher than that of the UK
as a whole – 9.0% of GDP, compared to 5.2%. And the gap is set to
widen again from next year if oil and gas prices fall back as
forecast.
As it stands Scotland’s notional fiscal deficit is just that –
notional. It is subsumed within wider UK government borrowing on
behalf of the whole country. Independence would change that. To
avoid even bigger spending cuts or tax rises than in the rest of
the UK over the coming decades, an independent Scotland would
need to see a sustained boost to economic growth. That’s
certainly possible – indeed, during the 2000s, Scotland’s
employment, earnings and economic growth outpaced that of the UK
as a whole. But the decline in oil and gas output in the North
Sea and associated onshore economic activity – already noticeable
since the referendum in 2014 – would present some tricky
headwinds.”
Read the new full IFS
briefing here.
ENDS
Notes to Editor
Read the full response on the IFS website: https://ifs.org.uk/articles/higher-oil-gas-revenues-boost-scotlands-underlying-fiscal-position-big-deficit-remains
