The latest Government Expenditure and Revenue in Scotland (GERS) statistics on Scotland’s public finances provide stark evidence on the mismanagement of the economy by the UK Government.
Two-thirds of Scotland’s current account deficit in 2022-23 was due to two aspects of poor UK economic management: the cost of living support that was necessary due to inflation in the UK that was higher than other advanced economies, and the significant increase in the cost of servicing public sector debt. These result from UK policy mistakes including Brexit (and its impact on inflation), greater exposure to global oil and gas prices than other countries and the decision to index-link a much higher proportion of government debt than any other country, increasing the exposure of UK public finances to inflation.
If the Scottish current account deficit for 2022-23 were revised to remove these two examples of UK economic mismanagement, it would fall from 6.4% of GDP to 2.2%, well below the UK current account deficit and well within the 3% that is generally regarded as sustainable.
The substantial contribution of oil and gas revenues to Scotland’s public finances also highlights a significant economic opportunity. Whilst it is possible that the 2022-23 may represent a peak in oil and gas revenues, at £9.4 billion, the forecasts of the Office for Budget Responsibility (OBR) are for an additional £35-40 billion over the next five years.
This provides a huge opportunity for the Scottish economy and Scottish public finances. These revenues are taxes on the profits of the energy sector. The profits retained after tax are set to be invested in the energy transition, which will generate many employment opportunities (for example, in offshore wind farm construction) and provide a basis for increasing the competitiveness of the Scottish economy in the long-term and sustainable public finances.