Business

Scotland: A case of give and take

  • 9 January 2012
  • From the section Business
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Does Scotland get more out of the union than it puts in?

Talk of a Scottish referendum has revived this very old debate, which is old precisely because it does not allow for an easy answer.

You won't catch me taking a view on the broader question, whether Scotland would be better off leaving the UK - economically, or, er, spiritually. Nor will you find me commenting on the rights and wrongs of a divorce from the standpoint of the English.

But Sir Gus O'Donnell, in almost his last public act as head of the civil service before Christmas, decided to highlight the risk that Scotland would leave the UK in the next few years, and apparently the prime minister has taken the warning to heart.

So it seems a good time to go through the numbers on that narrower question of whether Scotland gets more in terms of public spending than it gives back in revenues.

For readers who'd rather not wade through the statistics: the answer is yes, Scotland does get a net subsidy.

But how large depends heavily on how you account for North Sea oil. And if you define a subsidy as getting more in spending than you put back in revenues, it's worth remembering that we're all being subsidised by the Treasury these days. It's just that when we're talking about the UK we call it a budget deficit.

Now for the numbers part.

The basic facts are that Scotland accounts for 8.4% of the UK population, 8.3% of the UK's total output and 8.3% of the UK's non-oil tax revenues - but 9.2% of total UK public spending.

Scottish Executive figures for 2009-10 show that spending per capita in Scotland was £11,370, versus £10,320 for the UK. In other words, spending in Scotland was £1,030 - or 10% higher - per head of population than the UK average.

What about revenues? The same source shows Scottish total non-oil tax revenues coming in at £42.7bn in 2009-10, or £8,221 per head, which compares with total public expenditure attributable to Scotland of £59.2bn, or £11,370 per head.

Incidentally, these numbers include not just the so-called "identifiable" public spending that took place in Scotland, on schools, roads and the like, but also more amorphous parts of the budget like defense and debt interest.

On this basis, Scotland 'got' £16.5bn more in UK public spending in 2009-10 than it contributed to total UK revenues - or a 'subsidy' of around £3,150 per head.

Now it is customary - even south of the border - to point out that Scotland has greater spending needs than many other parts of the UK, because it has a higher unemployment rate, for example, and higher levels of expensive illnesses like heart disease and cancer.

So it's not necessarily a sign of great profligacy that the Scottish spend more per head. That is one reason why more than half of Scotland's public spending is allocated according to the dreaded "Barnett formula", which for sanity's sake I'm trying not to get into.

But Alex Salmond and his supporters have a more basic objection (phew), which is that the revenue figures for Scotland make no mention of North Sea oil. These are falling, but were still more than £6bn in 2009-10.

If you add in a proportion of those revenues, in line with Scotland's share of the UK population, it makes very little difference to the overall story. But if you say that more than 90% of the oil revenues are Scottish, as Mr Salmond would consider geographically appropriate, then you get Scotland 'putting in' £48.1bn in tax revenues in 2009-10, not £42.7bn.

Put it another way: Scotland provided 9.4% of total UK revenues and got 'only' 9.2% of UK public spending in return.

Now of course, the UK Treasury doesn't agree that the oil revenues belong to Scotland, and it almost certainly never will. In fact, as any Scottish Nationalist will happily tell you, it was the Treasury that helped to invent a new extra-territorial category of national output for North Sea oil, in the 1970s. Treasury statisticians will tell you it made sense to keep the oil sector separate from the broader UK economy. Mr Salmond will tell you it was a Whitehall plot to steal the oil from the Scots.

So there are two numbers to choose from, depending on whether you take a Whitehall view of oil, or the view from Holyrood.

On the Treasury view, the gap between spending and revenues in Scotland for 2009-10 was £3,150 per head. On the Scottish Nationalist view, the gap between spending and revenues was closer to £2,130.

Please, take your pick. All I ask is you bear in mind one other number - related to one other obvious, but very important fact. Namely, that Scotland is not the only part of the UK that is currently spending more than it raises in revenues.

If you apply the same kind calculation to the UK as a whole, the net 'subsidy' for the average person was well over £2,000 last year.

So Scotland and England do have that in common, after all.