Fall in North Sea oil revenues last year left Scottish economy with worse annual deficit level than United Kingdom
Alex Salmond’s economic case for independence endured a blow after it emerged that oil revenues are due to decline sharply for two successive years, deepening Scotland’s spending deficit.
Scotland’s annual accounts disclosed that the country had a deficit of £12bn last year, after the country’s share of North Sea oil revenues fell by 41.5% in 2012-13, cutting those revenues by £4.5bn from the previous year.
The Treasury then disclosed that this financial year’s oil tax receipts are currently 24% lower than last year’s. That puts Scotland’s geographical share on course to fall from £5.6bn in 2012-13 to roughly £4.2bn this year, implying an even deeper overall public spending deficit.
The figures, from the annual Government Expenditure and Revenues Scotland report, have come at a crucial time for the Scottish government, with six months to go before the independence referendum.
Alistair Darling, the former Labour chancellor who chairs the pro-UK Better Together campaign, said the figures raised critical questions about the Scottish government’s heavy reliance on oil receipts to fund high levels of public spending.
“If Scotland was independent today we would have no option but to cut spending on services like schools and hospitals or put up taxes – or probably both. Today as part of the UK we don’t have to do that,” Darling said. “The drop in oil revenue is so big that it is the equivalent of the entire budget for Scottish schools.”
The first minister fended off the attacks, insisting that last year’s decline was a short-term bump. Thanks to several boom years with oil revenues, Scotland’s economy had still been £8.3bn better off overall over the last five years than the UK’s, he said.
Speaking before the Treasury released the latest HMRC tax figures, Salmond said even last year’s deficit left Scotland one of the world’s wealthiest nations.
He added that, despite the fact oil revenues fell by 40%, Scotland’s net deficit was only 1% higher than the UK’s, showing Scotland’s overall finances in a healthy state.
“The figures show that tax revenues generated in 2012-13 were £800 higher per head in Scotland compared with the UK, meaning that now for every one of the last 33 years, tax receipts have been higher in Scotland than the UK,” Salmond said.
However, the Institute for Fiscal Studies said the data for 2012-13 confirmed its view that Scotland faced even greater spending cuts than the rest of Britain if oil revenues continued to fall.
“The latest figures therefore illustrate how sensitive an independent Scotland’s public finances would be to volatility in North Sea revenues,” the IFS said.