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Do the Scots subsidise the English?

By Channel 4 News

Updated on 28 June 2006

Robust SNP case but doubts over deficit remain.

North Sea oil rig

The Claim
"Scots will subsidise the rest of the UK to the tune of almost £800 a head in this coming year alone. Rather than sending our wealth south to London to be short-changed in return, now is the time to take responsibility for our own finances."
Stewart Hosie, SNP MP
24 June 2006

It's not only the World Cup which is re-igniting Scottish and English animosities. MPs south of the border have been calling for the axing of the Barnett formula, the mechanism which defines the amount of money Scotland receives from the Treasury and which allocates £1,500 more per head of the population to public services in Scotland than in England.

The Scottish National Party hit back. It claims that thanks to North Sea oil revenues England is being subsidised by Scotland - not the other way around - to the tune of £800 per head, said SNP MP Stewart Hosie. If Scotland was given full fiscal responsibility, it could become one of the wealthiest countries in the world.

So who's right?

Hosie's claim is based on SNP's static budget forecasts, which calculate what it says are the true revenue and expenditure estimates for Scotland.

According to its predictions, which re-allocate government spend more fairly north of the border and which also take north sea oil revenues into consideration, the Scottish surplus per head for 2005/6 is £700. This is expected to be closer to £800 for the 2006/7 period, figures for which are due out next week.

According to SNP figures, public service spending per head in Scotland is £1,068 per head above that of the UK overall, rather than the £1,500 per head quoted by Westminster, after adjustments are made to expenditure figures. These have historically been mis-allocated to Scotland using a "flawed system", according to Stephen Noon, a researcher at the Scottish National Party.

"[Westminster] figures are historically wrong and overestimate expenditure. The way they calculate non-identifiable spend, for example, doesn't reflect where the money is spent," he says.

Parliamentary answers and statistics from the Treasury have shown that just under £3.1m of non-identifiable English regional spending is mis-allocated. These mis-allocations include Scotland being charged for items which are England-only spending, and if spending is recalculated a total £435 is taken off Scotland's expenditure bill. Add mis-proportions charges for other revenues such as civil service wages and defence, a further £50 is taken off the per-head bill.

Meanwhile, the SNP has calculated Scotland's oil revenues at £1,818 per head. That's based on Aberdeen University's calculations of Scotland's share of North Sea oil revenues of £9.2bn for 2005-6.

Subtracting its newly calculated spending difference per head from estimated oil revenues per head, each Scot contributes £700 per head more to the UK than Scotland gets back in spending.

Its figures also show Scotland running a deficit of almost £1bn, and the SNP claims that, were Scotland to reap the benefits of all its natural resources, including oil and gas revenues it would be the eighth richest nation in the world, ahead of the other three countries of the United Kingdom.

"However, with devolution our oil wealth goes straight to London and as a result, devolved Scotland trails in at 18th place in the wealth league tables, behind each and every one of our nearest competitors," Hosie told FactCheck.

But figures from the Scottish Executive show that Scotland is a net beneficiary as a result of its inclusion in the United Kingdom, and that it has been running a deficit for many years. The latest figures available from the Government Expenditure and Revenue in Scotland (GERS) are from 2003-4 and show a Scottish deficit of £11.2bn, or 12.9 per cent of GDP, excluding proceeds from North Sea oil.

Even if Scotland were to receive all revenues from North Sea oil and the definition of Scottish GDP incorporated oil and gas production, the Scottish deficit would be £6.9bn or 6.2 per cent of output, according to its figures. Over time Scotland's reliance on the UK has grown, according to a spokesperson for the Scottish Executive with its net borrowing, or deficit, on an upward trend.

The Scottish Executive says that its figures are estimates, and should be regarded as indicative rather than precise. They are three years old and thus do not take into account rising oil prices but a spokesperson said that they are the "nearest projection of the benefit Scotland has of being part of the UK and its disadvantages if it were not part of the UK". But a recent release under the Freedom of Information Act of documents from 1975 showed that official UK government figures estimating the amount of oil revenues that would be attributable to Scotland if it were freed from the United Kingdom were "grossly misleading2, according to Professor Alex Kemp of Aberdeen University.

Economists have since lined up to scotch UK government claims that Scotland would not thrive if it was given fiscal autonomy and even Dr Andrew Goudie, the Scottish Executive chief economist said in 2003 that GERS figures "tell us nothing ... about the situation under Independence".

FactCheck Rating: 2 (How ratings work)

The SNP makes a robust case that Scotland subsidises England, drawing widely on academic research and some Treasury figures in the course of its argument. Nevertheless, indicative numbers from the Scottish Executive suggest Scotland would still be running at a defecit even if it it received all North Sea oil revenues. Case still open.

Government Expenditure and Revenue in Scotland (GERS), 2005
Public Expenditure Statistical Analysis: breakdown of non-identifiable spending, 2006
Scotching the Myth: SNP document
SNP's Static Budget 2005-6

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