Spending on Scotland


In his Daily Telegraph column yesterday, Simon Heffer stated that, "As far as one can tell... the subsidy from other parts of the Kingdom (ie, England) to Scotland is currently at least £22 billion a year." This is something you often hear English people saying, much to the annoyance of many Scots, who insist it isn't true. Who is right? Well, the truth – as usual – is slightly complicated.

On the one hand, Heffer is right: Scotland does get 22 percent more public spending per head than England. Indeed, it even gets more spending per head than comparatively poorer areas of England, such as the Northeast. Interestingly, this disparity is not explained by higher levels of welfare dependency in Scotland – if you were to exclude spending on 'social protection' then the public spending gap would rise to 28 percent. It is simply a matter of government being bigger and less efficient north of the border.

But on the other hand, if you factor in Scotland's geographic share of North Sea Oil revenues (about 83 percent), then Scotland pays just about as much in tax as it receives in spending. That isn't to say that public spending in Scotland isn't too high (it is) or that it is sensible to base current spending on natural resources revenue (it isn't) – but those are separate issues.

So perhaps Scotland is – just about – pulling its weight at the moment. However, this should not distract from the fact that it won't be able to for much longer. North Sea Oil production peaked in 1999, and is now declining at an increasing rate. Meanwhile, Scotland's public sector wage bill has risen by 55 percent since 1999, with 1 in 4 Scots now directly employed by the state. Public spending has risen from 50 to 56 percent of GDP in the same period, and on current trends is set to reach 67 percent by 2012/13.

According to the Centre of Economic and Business Research, that would make Scotland the third most state dependent country in the world, after Iraq and Cuba. And what a sad accolade that would be for Adam Smith's homeland!