Tuesday, 16 October 2012

Deficit Reduction

16 October 2012

When is a deficit a surplus? When it's a "relative surplus" of course.

In the wake of the Edinburgh Agreement yesterday, there's been much #indyref chatter about Scotland's relative fiscal strength based on the annual GERS figures.
Some say there's a deficit, some say a surplus.
The answer is both, sort of.

Alex Salmond frequently quotes Scotland's 9.6% contribution to the UK tax take (including North Sea revenues), compared to the 9.3% of UK spending that goes to Scotland.
For example, on the BBC last month he said: "We contribute 9.6% of the UK's taxation with 9.3% of the spending and just over 8% of the population - that is a relative surplus of £2.7bn in 2010/11, but £500 a head for every man, woman and child in the country."

Sounds healthy, right?
But look again at the absolute figures.
That 9.6% of taxes raised £53.1 billion in 2010/11, according to GERS.
But the 9.3% of UK public expenditure going to Scotland was a far higher sum, £63.8bn.
In other words, Scotland had a deficit of £10.7bn last year, even accounting for a geographic share of North Sea revenue.

Yes, 9.6% is bigger than 9.3%, but it's 9.6% of a different, and smaller, number than the 9.3% refers to.
The 9.6% refers to UK income and the 9.3% to UK expenditure, and as we all know, the UK's income is smaller than its expenditure and as a result it has a large deficit.
Hence Salmond's careful use of the phrase "relative surplus".

Scotland isn't running an absolute surplus at all - it was £10.7bn in the red last year - it's just that the deficit isn't as bad as the UK's.
According to GERS, the Scottish deficit was 7.4% of GDP in 2010/11 compared to 9.2% of GDP for the UK.
And here it is in black and white on the Scottish Government's own website


  1. Well Scotland's in deficit...is this particulary unusual for western democracies?

    I highly doubt that if we were to ask 100 random Scots if they knew Scotland's deficit was smaller than the UK's many would know.

  2. If Scotland were required to apply for EU membership would the 7.4% GDP be within the necessary membership criteria?

  3. It is not unusual for a country to run a deficit, but this is not the same thing as Scotland being in surplus, and the SNP should stop saying so. At the same time it seems to be easier for larger countries to sustain deficits in tough times, compared to small ones.

  4. The other thing this shows is just how reliant an independent Scotland would be on North Sea oil. I do not wish to live in an oil state.