Wednesday, 6 April 2016

Deficit? It would've been a disaster

In the first post in this series I introduced the graph below, in the second I presented a pro-independence argument based on it and now I'll give a pro-union one, again from the centre-ground of politics. I'm not aiming for balance here, and not suggesting both descriptions are equally valid or complete; my aim is to explore how the same data can be interpreted from two very different points of view. In the next post I'll highlight some flaws in both arguments.

According to the Scottish Government's own GERS figures, independently assessed by the United Kingdom Statistics Authority, Scotland would be facing a £15 billion deficit if it had become independent in March 2016.

As a percentage of GDP, the UK's deficit is 5%, but Scotland's is 10% of its GDP. An independent Scotland would have had the ignominious honour of having the largest deficit in the EU.

And you can appreciate the full extent of the problem from this graph. The gap between the top of each bar (including the white bit) and the green line is Scotland's deficit.
The fact that the green line (spending) sits above the top of the bars (revenue), and well above it in recent years, tells us that Scotland is spending beyond its means. It can afford to do so because it is part of the UK.

You may have heard North Sea revenue being called a "bonus", but is it? If you consider only onshore revenues by ignoring the white bits of each bar, then you'll see that the £15 billion deficit of 2014-15 is actually the smallest deficit post-2008, with the largest being an eye-watering £22 billion in 2009-10. So a bonus? No. Maybe a fiscal buoyancy aid during an economic storm, and not a reliable one at that: North Sea revenues have dropped from averaging £7.6 billion per year over the last decade to only £1.8 billion in 2014-15 and are expected to be smaller still in 2015-16.

But none of this is a problem for Scotland because it is the UK that borrows to fund the deficit and this ensures the debt burden is distributed and does not fall on any one of its countries. The UK's debt is worryingly high right now — £1.6 trillion and will continue growing along with the interest we pay on it while we run deficits. But the UK is well-equipped to deal with its deficit and although the crash in oil prices would have left a big hole in an independent Scotland's finances, it is much diluted in the UK's larger economy. The union is a ship that, if steered with care, can carry us safely through these stormy economic seas together.

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