OFFICIAL figures show Scotland is running a 7% deficit - the highest in EuropeRuth Davidson tweet, August 21, 2019


THE Scottish Government at Holyrood runs an annual surplus not a deficit and has done so every year since 2007. The provisional surplus for 2018-19 is £449 million. 

On the other hand, the UK Governments (Labour, Conservative and Coalition) have run annual deficits every year since 2001 – and most years since 1945. Scotland only has a notional deficit if elements of this endemic UK deficit are apportioned hypothetically to the normal Scottish Government surplus, as happens in the annual Government Expenditure and Revenue Scotland (GERS) paper exercise.

The National:

When the same hypothetical exercise is conducted across all UK nations and regions, nine areas show a notional deficit and three (the zone constituting London, the South East and East of England) show a notional surplus. This result reflects the bias that most commercial UK tax revenues are booked in London and environs because that is where most company headquarters are based.


THE following table shows the notional net fiscal balance (spending versus local tax revenues) of the standard UK regions and nations, calculated by the Office for National Statistics. 

It shows that the English North West (Liverpool, etc) has the biggest notional deficit, while the so-called Scottish deficit is broadly similar to that of the West Midlands and Wales. The notional deficit in the West Midlands (Birmingham, etc) was actually greater than Scotland’s in 2019: £15,015 billion versus £13,499bn on the ONS calculation.

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In other words, there is nothing unique about the Scottish notional deficit. (Note, these ONS figures differ from the GERS numbers because of different assumptions underlying each paper exercise – which proves the uncertainties for both results.)

The notional surplus projected for London and environs in this chart represents the fact that corporate headquarters (especially banks) are situated there, so tax revenues earned from pan-UK and international transactions are booked there, artificially boosting notional Treasury income. For instance, because of the concentration of UK financial institutions in the City of London, most interest payments, profits, leasing revenues, insurance fees, credit card fees and bank charges are recorded there as corporate taxable items – regardless of where in the UK or abroad they were earned. In an independent Scotland, on the other hand, these revenues would be taxed locally and register as Scottish Treasury income.

In addition, the East of England registers tax revenues from offshore gas fields in the English North Sea. Finally, the monopoly effect of London within the UK means that prices of property and living expenses are higher in the capital, which in turn generates above-average revenues for the Treasury. The imbalance between the notional deficits across the UK regions and nations compared with the notional surpluses in greater London is largely a statistical optical illusion.

Ruth Davidson’s claim there is a 7% deficit in Scottish public finances relies on misrepresenting the 2018-19 GERS paper exercise. Using her misleading methodology, it is the English North-West and West Midlands that have the highest deficits in Europe! Actually, those English regions are just as 
short-changed by the GERS and ONS figures as is Scotland.


The National:

Sorry Ruth, better luck next time.