£13 billion question that Scottish independence supporters can't answer says it all about state of economy

The messages from this are stark. The net fiscal deficit for Scotland now stands at £26.5 billion, representing the gap between the amount of money raised in taxes, and the total spend. That figure is 11.7 per cent of gross domestic product (GDP), double the UK level.

In practical terms, that means if Scotland were to become an independent country, the government of the day would have to find around £13bn either in tax rises or public spending cuts, just to meet the current level of UK fiscal deficit, which some would argue is already too high. And the SNP, or campaigners for independence, never tell us how that gap would be filled.

READ MORE: Why the £5bn black hole John Swinney helped dig in Scotland's finances is only getting bigger

‘Westminster austerity’?

Broken down, that figure, the “Union dividend”, which represents fiscal transfers from other parts of the UK to Scotland, is now worth nearly £2,600 for every man, woman and child in Scotland.

With that level of extra cash to spend on public services such as the NHS, education, justice and infrastructure, Scottish residents would have the right to expect that they would be substantially better than they are in the rest of the UK. Patently, that is not the case, indeed in many cases outcomes are poorer here than they are in England, where much less money is spent.

Another fact that the Gers figures reveal is that the public sector spend in Scotland is now equivalent to 52 per cent of GDP, among the highest levels of any country in the developed world. The SNP can hardly complain about “Westminster austerity” when public spending here accounts for more than half of GDP. If that is their definition of austerity, what do they believe the correct figure should be?

The second publication which should concern us is the latest report from the Scottish Fiscal Commission, the independent watchdog that exists to scrutinise the Scottish public finances. The SFC have identified an “economic performance gap” which cost the public sector an estimated £1bn in the current fiscal year. Essentially, we are losing £1bn in revenue which would otherwise accrue if Scotland’s economy performed at least as well as the UK average.

The consequences of relative economic underperformance in Scotland are severe. The Scottish Government faces a projected £851 million negative reconciliation – ie, less tax than expected – in the financial year 2027-28, exceeding current borrowing limits, due to the slower increase in earnings here compared to the rest of the UK. At present, it is entirely unclear how that can be funded.

60% rise in civil servants

Even more seriously, extending to the financial year 2029-30, according to the SFC Scotland, faces a projected £4.8bn fiscal gap. The simple fact is that spending is growing faster than revenue, fuelled by increases in the public sector pay bill, and the growth in welfare spending.

Despite pledges from the SNP to reduce the size of the public sector workforce, the devolved civil service has grown by almost 60 per cent since 2018-19. And increased pay deals will simply add to the burgeoning public sector cost unless reductions in workforce which were promised are actually delivered.

Perhaps the biggest concern is around social protection spending, which has grown by 55 per cent in real terms since 2020-21, crowding out other budgets. As the SFC makes clear, this is simply not affordable.

Short-termism must end

Whoever is in government by 2029-30, this black hole has to be filled. So far, the SNP seem to be in complete denial about the scale of the problem. Perhaps they hope it will be somebody else’s responsibility by then or Westminster will once again come to the rescue, although given the state of the economy and the UK’s finances under Keir Starmer and Rachel Reeves, that would seem to be highly optimistic.

So what do the Scottish Conservatives believe needs to happen? Firstly, we are past the point when we need to end short-termism when it comes to government spending. We need a full multi-year spending review to identify priorities, make savings, and inform needs.

Secondly, we need a strategy to cap welfare spending growth, currently consuming too large a share of resource spending. There are simply too many people of working age now in receipt of benefits who should be part of the workforce, and that requires investment in apprenticeships and reskilling, and schemes to assist those currently far from the workplace to be engaged in meaningful employment.

Savings plan scepticism

Thirdly, we need to look at proper public service reform to see where savings have been made. Public finance minister Ivan McKee promises he can find £1bn-worth of backroom savings in government departments, although we have yet to see a detailed plan, and private correspondence released under the Freedom of Information suggests his ideas have been met with scepticism by SNP Cabinet Secretaries. It would be, at least, a start.

Fourthly, and perhaps most significantly, we need to see a proper focus on productivity and economic growth to broaden Scotland’s tax base. It is only by allowing businesses to thrive, and expanding the economy, that we will see more better-paid jobs created, and greater tax revenues to fund the public service revenues we all need.

I realise that saying the SNP need to get their heads out of the sand and face this enormous financial black hole is a horrible mixed metaphor, but it sums up the serious challenge this government faces, one which they seem clueless to address.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife