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Is the Scottish subsidy unfair?

The Daily Mail's analysis fails to take into account North Sea oil revenues. But the Barnett Formula

Today's Daily Mail leads on what it describes as the "yawning gap" between England and Scotland: public spending. The latest Treasury figures show that state spending in Scotland averaged £10,212 per head last year - £1,624 more than in England, where public spending is £8,588 per head. So, is this subsidy (I'll come to the issue of whether it really is a subsidy) as unfair as the paper suggests?

First, it's important to note that Scotland isn't the only part of the UK that receives a public spending premium (see Table 9.4). The national average was £8,845 per head but Northern Ireland spent £10,706 and Wales spent £9,829. There are also discrepancies within England itself. State spending averaged £9,503 per capita in the North East and £9,349 in the North West but just £7,691 in the East. The West Midlands received £8,618 per capita but the South East received £7,533.

Were spending consistently allocated on the basis of need there would be no reason to object. But in the case of Scotland (and Wales and Northern Ireland), funding is allocated through the Barnett Formula, an outdated population-based measure that even its founder (Joel Barnett) has argued should be scrapped. In 2004, he said: "It was never meant to last this long, but it has gone on and on and it has become increasingly unfair to the regions of England. I didn't create this formula to give Scotland an advantage over the rest of the country when it comes to public funding." Most analyses suggest that Scotland would lose out under a needs-based formula and reform is long overdue. But this remains one fight the government shows every sign of avoiding.

Much of the Mail's righteous fury, however, is overblown. The paper takes aim at the seeming panoply of benefits enjoyed by the Scots: free university education, free personal care for the elderly and free NHS prescriptions. But these policies simply reflect the spending priorities of the SNP government. There is no good reason, for instance, why English students could not also enjoy free higher education. The government's decision to triple fees to £9,000 was a political choice, not an economic necessity.

But if Scotland really is subsidised to the hilt, how large is its fiscal black hole? And can the country afford to go it alone? The Scottish adiministration's annual Government Expenditure and Revenue exercise, which calculates how much of the UK's revenue is raised in Scotland, and how much is spent in Scotland, attempts to answer this question. The latest figures from the Holyrood statisticians show that in 2009-10, Scotland borrowed £14.9 billion (13.4 per cent of GDP), a gigantic deficit by any measure. But if we factor in the country's geographical share of North Sea oil and gas, 81 per cent of which lies in Scottish waters, the deficit falls to £9.0 billion (6.8 per cent of GDP), a sizeable black hole but one that compares favourably with the UK-wide deficit of 9.8 per cent.

This leaves open the question of how Scotland will pay its way when the oil runs out (my answer: it won't) but it's also a reminder that the subsidy debate is rather more complex than the Mail's splash suggests.

28 comments

Armin ius's picture

Very few people in Scotland give a monkey's chuff what the Daily Mail writes about Scotland but the comments on such stories (which, in contrast to most stories in the Daily Mail, are invariably unmoderated) reveal a deep rooted anti-Scottish prejudice amongst sections of English society which borders on racist.
It would come as a shock to many of these armchair bigots if they were to read the McCrone Report, a document prepared by a Tory economist in the wake of SNP electoral success in the early 1970s. McCrone concluded that with the benefit of North Sea Oil and independent Scotland in the 1970s would quickly have become a country as rich as Switzerland (rather than the post-industrial wasteland that Thatcher created). Unsurprisingly this report was kept secret until 2005 when it was grudgingly released due to a Freedom of Information request by the SNP.

carlung's picture

Geologists have discovered a new fault running from Inverness to Edinburgh. It is to called Salmond's fault!

James Maxwell's picture

George Eaton is one of the few London-based lefty journos who writes well on Scotland, and this piece neatly scythes through much of the Unionist guff that clogs up debate north and south of the border. But he gets one or two things wrong. First of all it's worth noting - for the sake of argument, at least - that Londoners get a higher share of public funds spent them per head than Scots:£10,256 to £10,212. Secondly, he doesn't mention the historic 39% defence underspend in Scotland. Thirdly, the Scottish fiscal blackhole is the result of high levels of capital borrowing. Capital spending projects tend to pay for themselves in increased growth over the course of ten or fifteen years. For the four years running up to the 08/09 crash, Scotland had a current account surplus, including revenues from North Sea oil. This suggests the financial health of an independent Scotland would be much better than that of the rump-UK. Finally, estimates suggest Scotland has as many as twenty-five to thirty years of oil left, which gives it more than enough time to develop technologies capable of exploiting its massive renewables potential. Given the value of oil is going to rise in that time, it will generate more than enough wealth too.

swatantra's picture

Yes, but they should be allowed to raise their own taxes to compensate.
It may mean a lower standard of living for most Scots, but then thats their problem.

saltyseadog1's picture

So what you are saying is that Scots who have filled a very high percentage of top jobs in England at times from politics to banking to industry are somehow not capable of running their own country. The arrogance and ignorance of some English people is breathtaking. I sincerely hope the Daily Mail "story" leads to a cut in the subsidy as that will be the straw that broke the camels back and the answer to Alex Salmonds dreams. I myself can't wait to leave the union as you can gather.

Jim Adam's picture

What you fail to point out is that according to the same report, London receives a higher level of public subsidy than Scotland(£10,256 per head for London compared to £10,212 for Scotland.) See Table 9.2 on p115 of the report. Why is this ignored in your reporting? Bias?

David's picture

Oh, the good old Daily Mail getting their facts wrong yet again. If they think we get an unfair better deal, why are they so desperate to hang on to us? Oh that's right - we've got oil.

Stu's picture

Deminishing North Sea oil won't be such a big problem. Scotland is investing heavily into renewable energy creating manufacturing jobs and business.

But I think there are too many uncertainties especially in this climate to even think about splitting. On Alex's head it will be.

Helen Wright's picture

The Scots have their own National Parliament, yet still send MPs to govern England - Gordon Brown still sticks in the craw !!

Fairness is demanded by the English, but the Scots demand superior treatment continually. They cry oil, whilst England has several oil fields of its own and gas fields, as well.

The Scots can have higher funding, if they then agree to pay back the Darian bail-out and all the taxes we paid to support them prior to the oil discovery. Oh, and give the English the vote on Scottish Independence - they'd HAVE to have it then !

The arrogance of the Scots is astounding !

English Patient's picture

This the fault of the British - they've always been the enemies of the English.

May they all get what they deserve when English tolerance finally runs out.

swatantra's picture

Thats a bit unfair. Gordon is rarely seen around Westminster these days.

George Hill's picture

Helen Wright. The gaps in your education are showing through. Perhaps it's because it's an Engliah education. Before slating Brown as a divisive reason TRY a bit of reading and learn... a glance at HOW MANY Scots have "ruled" you as PM. Try Cameron for a start... hardly English lineage. Alex Douglas etc... but why should I tell you them all. Go research. Then come back and apologise my dear. Typical English whine when they think they're losing out. Believe the Mail? Try researching THEIR headlines over the years.

Pat Byrne's picture

The Mail up to their usual disgraceful borderline racist s**t. The "subsidies" north of the border apply to EVERYONE there...not just Scots. I've lived in (and paid substantial taxes in) England for fifty years. And "suffered" by receiving lower subsidies (there's a joke in there somewhere) My legacy - I leave you two educated, qualified professional, high-taxpaying children plus two "English" (almost qualified) grandchildren. They will all support you in your old age.

Hugh Markey's picture

In the middle of the nineties, some smart-bottomed Harvard economist calculated that before the Soviet Empire expired the direction of 'capital' flows was outward and not inward.
The nearer the subject was to Moscow the less-well off he was. It seems subsidising the Scots is a hold-over from the days of Jamie the First. If you visit Westminster Abbey compare the size of Elizabeth I's tomb with that of Jamie's mum. Gives one some idea.
And its colder north of the border; and it rains a lot!

Scots Broth

Stuart Eels's picture

George Hill

Why do you think that more people in England want Scotland to have their independence than in Scotland. There is no reason to insult Helen Wright, surely we are all entitled to our views. I happen to think that Alex Salmond is head and shoulders above the rest of the Britains Politicians.

I also note however that Gordon Brown along with all the sitting Scottish Labour MPs and most of the sitting Liberal Democrat MPs signed the Scottish Bill of Right. In which they all said that they would put Scotlands demands above all others. I would on that basis he shouldn't even have served in a UK Government but then so many other who had also signed were in those Cabinets.

I am not having a whine, I just don't think that Scotland should be having this excess, just as I'm sure many English People didn't think they should have received such generous terms under The Goschen Proportion 188-1958.

Lets end this never ending debate and split up the UK. Then we wouldn't have all this mud slinging going on.

Gerry Tierney's picture

Anyone who complains about the number of Scottish Labour MPs ("sending their MPs to rule over us" etc) is either willfully ignorant or borderline mentally incapacitated.

Look at the other side of the story; how many times has Scotland returned a Tory majority over the past few decades, now tally that with how many times Scotland has been "ruled over" by a Tory government put into power by England.

Get your heads from out your a*ses and see it from our perspective for once.

duck soup's picture

The Barnett Formula is actually unfair to Scotland since we have vastly more miles of road per head of population than any English region.Deduct transport infrastructure costs and it's plain that Scotland is not on any kind of cushy number in the union.
Whoever heard of any other country in the world whose industries based on natural resources are not counted in an analysis of the country's economy?Scotland gets this treatment though courtesy of the UK Treasury.The trick being that we're a UK region when contributing oil revenue to the Exchequer and become a "too poor nation" when our economy(minus the oil revenue) is being assessed.
Far from being too poor,Scotland has the largest oil reserves in the EU.One eighth of EU gas reserves.25% of the EU tidal and wind energy.10% of the EU wave energy.69% of UK coal reserves.70% of UK fish landings.Our whisky industry was found to account for 25% of UK food and drink exports in 2007.Scotland's tourist industry is a big earner despite the recent "UK Riots" headline lies.No wonder we never had an independence referendum when it was up to Westminster on whether to hold one.

Kevin Phillip's picture

Calm down good people of these Islands, please remember 23, 27, 50. That is 23% voted SNP, 27 for others but the most telling is that half the voting population could not be arsed voting which is about the same percentage of working age Scots who don't actually work. If we made them vote they sure as hell wouldn't vote to split the UK as Scotland just couldn't afford them!

iainburnshill's picture

I speak from Glasgow.

Why does everyone in the UK think that s/he is an expert on Scottish finance, while in fact almost totally ignorant of it. The Daily Mail and its friends have much to answer for in stirring up inaccurate and tendentious comment.

At least you blow apart the meaningless comparisons between Scotland and the English "average". Individual comparisons on a regional basis get nearer the truth. Why though do you not quote the [high] figure for London?

You are quite right about the need for a needs based distribution to replace a long-outdated fudge created for purely political reasons.

Stuart Eels's picture

Like I said, lets stop the arguement and split up the UK, the advantages outweigh the disadvantages. The absolute winner is that we won't be able, or I should say our Prime Ministers won't be able to start foreign adventures to prove what big men they are.

No more chairs at the UN Security Council, all the indivisual Countries could opt in or out of the EU and we would all have to sink or swim by our own efforts as Countries with no one else to blame! wonderful! Lets campaign for it now!

Lox's picture

Helen Wright, you can choose figures that show Scotland is subsidised by England. A Scottish Nationalist (like me, for example) could choose another set of figures to show the opposite. We'd both be equally correct, and equally dishonest.
Would England be ruined as an independent country without oil revenues? Of course not. Would Scotland be screwed without the Barnett formula? No.
Both countries would thrive independently of one another-with effective government. I'm glad for knee jerk reactions to the bullshit printed in the Mail about funding of Scotland, because every day it brings full fiscal autonomy closer to my country.
You're right, Swatandra. It'll be our problem, not yours.
Incidentally, Helen, you should read something about the Darien crisis before you start spouting on about it. It ruined the Scottish nobility (you know, the parasites the English government bribed to pass the Treaty of Union), but civic Scotland-the burghs and the nascent bourgoisie-was prospering.

duck soup's picture

@ Kevin Phillips

The Scottish employment rate for April-June 2011 was 71.9%.England's employment rate for the same period was 70.8%.

The Daily Mail.The paper that once upon a time peddled the lie that Hitler was a decent chap.Now the paper that peddles the lie that the Jocks are spongers.The New Statesman just peddles a subtler,more insidious version.

PMK's picture

What subsidy?

Presumably you mean the one Scots send South for London's imperial projects - such as Crossrail, a high-speed rail line going to "the North" (i.e. Birmingham, or - perhaps, if they are very good - Manchester), and the great Olympics swindle?!

Scotland contributes far more per head of population than any other region in the UK, other than London and the South East - and that is without the massive subsidy sent to England's capitol by the rest of the country.

When England is begging for electricity, oil and water from an independent Scotland ten years down the line, we shall see who relies on whom.

chrisbrown's picture

Most financial estimates about Scottish and English independence consist of comparing apples with pears at best or apples and ipods at worst. In the event of mutual independence a great many things would be radically different. Scottish defence needs are tiny. With a military more than 10% smaller than it is now (disproportionate number of Scots in RN and RAF, and the army even more so)and English 'Post- UK' government would have to reduce their world-power aspirations and might well choose to become a country with a genuine 'defence' ministry rather than what is really an America-friendly war ministry. The Trident program would probaly have to go since there would be nowhere in England to base the boats. In short, both coubnries could end up with very much smaller expenditure on defence.
More inerestingly perhaps, English representation in Europe would not be sigificantly less than the current UK representation, but Scottish representation would quadruple at least thereby allowing a stronger 'British' voice when E.and S. chose to cooperate. Incdentally, the oft-repeated claimt that Scotland would not be 'part of Europe' applies equally to England. The 'United Kingdom' means the Union of England and Scotland; dissolution of the 1707 Treaty would have the same implications for both countries...given how the public perceives Europe both countries might actually leave the EU.

Akin's picture

@Helen Wright

'give the English the vote on Scottish Independence'

Yes, the master should have an equal say in whether the slave is to go free.

Anyone who thinks the bigger country joins the littler country out of charity, and not self-interest, is beyond naive - surely the history of statecraft is not so boring that you should willfully ignore the entirety of it?

Helen Wright's picture

George Hill, blood line is a different issue to constituency. Not sure why you automatically reverted to the ancestry of individuals? For example, although Rifkind is Scottish and says he will always have an eye on the welfare of Edinburgh, he is elected to a safe English seat. [You have similar places up there - you know, the type of places that will vote for a pig if it wears the right colour ribbon. The bane of every nation and not just ours] Ergo, he is not a Scottish MP. So Cameron's blood line, which he brags is Scottish, has nothing to do with his constituency. He's not a Scottish MP either, unless elected to a Scottish constituency. He's another one in a safe seat and as in Party, the scum always rises to the top. Labour and Lib Dems are no exception to this rule. At the present time I would omit Salmond from that description, and would be very disappointed for you if he proved me wrong.

Duncan's picture

We're forgetting roughly the same thing happened about a 100 years ago when Norway and Sweden split...

Norways not doing too shabby at the moment.

jeremylundgr13's picture

One if forgetting to analyse the breakdown of the union through the lens of geopolitics. England, as the most powerful nation in the union, currently is militarily secure as it has Scotland, Wales and N.I as part of it. If these were to break off and create their own armies, suddenly England is under threat again. There is no way a government in Westminster is going to allow that to happen. Why else do you think we cling to N.I?

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