Nicola Sturgeon said the country’s is experiencing an “economic shock” as the full impact of global oil price crash on Scotland’s balance book was set out in stark new figures. But she insisted her dream of independence has not been undermined by the figures and said she would not have to impose tax rises or spending cuts to tackle the growing black hole unveiled in the latest Government Expenditure and Revenue Scotland (GERS) figures published yesterday.
“We have a fundamentally strong economy that is being affected by a particular economic shock situation, the oil crisis,” the First Minister said. “This is not about an economy that is not strong in its foundations underneath us.” She added: “The challenge of what Scotland faces is there regardless of what we choose our constitutional arrangements to be. That challenge has to be addressed.”
The country’s annual deficit –the shortfall between public spending on services like schools and hospitals and the taxes being raised to pay for them – grew by £500 million last year, (2015-16) to reach £14.8bn. This is more than twice the UK level, as a proportion of the economy.
The impact of the oil crash has been at the heart of the slump with tax revenues plummeting to £60m from £1.8bn the year before.
Scotland’s 9.5 per cent deficit to GDP ratio is three times higher than the 3 per cent set out in new hardline EU fiscal rules which saw Portugal and Spain narrowly escape fines when they hit 4.4 per cent and 5.1 per cent respectively. An independent Scotland in the EU, which Ms Sturgeon is now mobilising for in the wake of Brexit, would face a mammoth task in meeting these rules.
But the First Minister added: “This doesn’t paint a picture of what an opening position in an independent Scotland would be, that is influenced by a range of different factors.
“But if you’re asking me, if you’re facing a challenging situation is it better to be in control of all the levers at your desk or not, then I’m always going to say that I think it is.”
The overall tax take in Scotland did grow by almost £200m last year – but is down as a share of overall UK revenues to 7.9 per cent. Despite, this Scots still enjoy about £1,200 more in spending per head on public services, up by £100, than the rest of the UK where the figures have remained static.
Ms Sturgeon insisted that Scottish public spending is not being supported by taxpayers elsewhere in the UK.
“The idea that Scotland is somehow subsidised is not true,” she said.
But Scottish Secretary David Mundell said last night that the figures show how being part of the UK protects living standards in Scotland.
“Scotland weathered a dramatic slump in oil revenues last year because we are part of a United Kingdom that has at its heart a system for pooling and sharing resources across the country as a whole,” he said.
“It is important that continues and the financial deal between the UK and Scottish governments, struck last year as part of the transfer of new tax and welfare powers to Holyrood, means real security for Scotland.”
Low oil prices are forecasted to persist for some time which is likely to mean continuing weakness in North Sea revenues.
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Scottish Labour leader Kezia Dugdale said the GERS figures should be a “reality check” for those pushing for a fresh drive for independence.
“It’s clearer than ever that Scotland benefits from pooling and sharing resources across the UK,” she said.
“Being part of the UK means higher spending on the public services like education and the health service that we all rely on.
“That’s a strong, positive case for Scotland remaining in the UK – our most important social and economic union.
“During the independence referendum Nicola Sturgeon personally promised a second oil boom. Her own government’s figures show she misled people and that is unforgivable.”
Liz Cameron, chief executive of the Scottish Chambers of Commerce said the figures are a wake-up call.
She added: “The GERS figures make for disappointing reading.
“The Scottish economy can and should be performing so much better. Businesses are working hard to succeed and grow, creating and sustaining jobs and to drive up our productivity. We need our governments in Holyrood and at Westminster to focus, now more than ever, on the basics that our businesses need: a fair deal on taxation, investment in skills for our future and in our transport and digital infrastructure and services.”
Greens co-leader Patrick Harvie said the figures set out the need to “diversify” Scotland’s economy away from oil and gas.
“If we’re serious about building up alternative viable industries, and ending our over-reliance on unburnable oil and gas, we must see a joined up plan from the Scottish Government instead of a myopic obsession with getting back to ‘business as usual’,” he added.
Liberal Democrats leader Willie Rennie said: “The Nationalists’ case for independence has been swallowed up by £14bn black hole. It’s a dark day for Scottish nationalism but it is even darker for the Scottish economy. The oil shock and the Brexit shock should not be compounded with an independence shock. “
The GERS statistics will prompt a “sigh of relief” among Scots that they voted No in the 2014 referendum, according to Alastair Cameron, director of the pro-UK Scotland in Union organisation. Being part of the UK has allowed us to manage the fall in North Sea revenues without having to impose deep cuts to our school and hospitals or endure sharp tax rises. This would have been inevitable under Scottish independence,” he added.
“We were told an oil boom would fund independence but this has been exposed as fantasy and never again will Scots listen to those who argue we should risk our future on such a volatile commodity.
“Now those pushing for another referendum have to be honest about the economic consequences of independence and explain how they would meet Scotland’s deficit.
“The First Minister has spent the summer desperately trying to exploit the Brexit vote and is now threatening to bring forward new referendum legislation. She shouldn’t bother.”