Gers figures: Scottish public spending deficit falls amid record North Sea oil and gas revenue

Record oil and gas revenues have fuelled a multi-billion pound drop in Scotland's public spending deficit, figures show.

The improvement in public finances is revealed in the annual Government Expenditure and Revenue Scotland (Gers) report and comes ahead of Humza Yousaf's first Programme for Government as first minister.

He has signalled potential tax changes as well as action on climate change, telling the Holyrood Sources podcast that some decisions will "piss off some people".

The latest Gers figures show the public spending deficit fell to £19.1bn from £23.7bn. The current level remains higher than that seen pre-pandemic and, at nine per cent of Scotland's GDP, the deficit is higher than the UK figure of 5.2 per cent.

However, the Scottish Government said the notional deficit is falling at a faster pace than that of the UK as a whole, with revenue for Scotland rising by 20.7 per cent compared with 11.3 per cent for all four nations.

Wellbeing economy secretary Neil Gray said he is "pleased" with the results, but the statistics "do not reflect the full benefits of the green economy, with hundreds of millions of pounds in revenue not yet captured".

Record North Sea revenue and strong growth in income tax, national insurance contributions and VAT are behind the shift in Scotland's finances, according to the Gers report. When the North Sea take is excluded, the deficit stands at 15.1 per cent of GDP, or £28.5bn.

Health spending was down year-on-year as Covid-related outlay reduced. However, overall spending went up, with most of this down to increased spending on reserved debt interest and the introduction of cost-of-living support.

The 2022-23 report put public sector revenue at an estimated £87.5bn. Without revenue from the North Sea, this was £78.1bn.

Total expenditure by the Scottish Government, UK Government and other parts of the public sector stood at £106.6bn. This is an increase of 9.5 per cent, some of which is linked to inflation.

Gray said: "It is important to remember that Gers reflects the current constitutional position, with 41 per cent of public expenditure and 64 per cent of tax revenue the responsibility of the UK Government. Indeed, a full £1bn of our deficit is the direct result of the UK Government's mismanagement of the public finances. An independent Scotland would have the powers to make different choices, with different budgetary results, to best serve Scotland's interests."

The Scotland Office said the "Union dividend" in Scotland – the combined value of spending and revenue – was £1,521 over the year, down from £2,720 in 2021-22.

Scottish secretary Alister Jack commented: "The Scottish Government's own figures show yet again how people in Scotland benefit hugely from being part of a strong United Kingdom. Scotland's deficit is more than £19bn, even in a year of exceptional North Sea revenues. Without oil and gas, that figure soars to more than £28bn."

He went on: "As we face cost-of-living pressures and unprecedented global challenges, it is clear Scotland is better off as part of a strong United Kingdom."

Speaking on the Holyrood Sources podcast, Yousaf said finance secretary Shona Robison is "100 per cent aligned" with his vision, while there were "differences around progressive taxation" between him and former finance secretary Kate Forbes. 

On the Programme for Government, he said: "As First Minister, you have to have conviction and choose a side. 

"There's a number of issues where in the Programme for Government that will be completely clear."

He said the response to the climate emergency is one such area, stating: "You have a prime minister literally saying that he's on the side of the motorist, sitting in Margaret Thatcher's old Rolls Royce and making it a wedge issue. Now you've got Keir Starmer saying he'll roll back on ultra low emissions zones. 

"This is a time for politicians to take more action to tackle the climate emergency, not less actions. So yes, I will be choosing sides because that's what you have to do and, frankly, that's going to piss off some people."

Commenting on the Gers report, David Phillips of the Institute for Fiscal Studies said the gap between Scotland's notional fiscal deficit and that of the UK as a whole "is set to widen again from next year if oil and gas prices fall back as forecast".

Phillips said: "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."