Infrastructure spend moves Scottish budget further into red

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  By Martin Kelly
 
Capital projects commissioned by the Scottish Government in the midst of the recession helped fuel a rise in the Scottish budget deficit during the period 2012/13, Scottish Ministers have said.
 
Figures contained in the annual Government Expenditure and Revenue for Scotland (GERS) report have revealed that the current budget deficit for Scotland increased to £8.6bn, which is 5.9% of GDP.

Over the previous five years the deficit for Scotland averaged 4.3%.  The Scottish budget deficit is now 0.1% higher than the UK as a whole which stands at 5.8%.

The increase in the budget deficit north of the border has been described by the Scottish Government as the “short term impact” of substantial investment in infrastructure projects coupled with massive north sea investment that has resulted in less of a tax-take from oil companies.

Commenting, Finance Secretary John Swinney said:
 
“What this year’s GERS figures show is a tale of two investments – the record levels of investment in North Sea oil and Gas, and the substantial capital investment in roads, rail, schools and hospitals by the Scottish Government.
 
“Those investments, during one of the biggest economic downturns in living memory, have had a short-term impact on Scotland’s overall fiscal position – but they are also supporting tens of thousands of jobs and will result in huge benefits to the Scottish economy in years to come.”

According to the latest GERS report, in 2012-13, the estimated current budget balance for the public sector in Scotland (the difference between current revenue and current expenditure i.e. excluding capital investment) showed a deficit of £8.6 billion (5.9 per cent of GDP) including an illustrative geographical share of North Sea revenue.

In 2012-13, the UK as a whole ran a current budget deficit, including 100 per cent of North Sea revenue, of £91.9 billion (5.8 per cent of GDP).

The report has been seized on by opponents of independence as proof that Scotland benefits from being part of the United Kingdom.

BBC Scotland business and economy editor, Douglas Fraser said: “After such a sharp one-year cut in oil and gas revenue, the tax take per head in Scotland remains higher than the UK.  But it’s harder to make the case that Scotland is punching above its weight.”

Chief Secretary to the Treasury Danny Alexander, said: “The Scottish government’s argument for independence has been undermined by their own figures.

“It shows that in 2012-13, the Scottish deficit per person was almost £500 worse than that of the UK.

“By 2016-17 this gap is forecast to have widened to around £1,000 per person – whatever the Scottish government says now, the government of an independent Scotland would be forced to raise taxes and cut public services.

“We are better off together.”

However the Scottish Government pointed out that the report made clear Scotland has been in a relatively stronger fiscal position than the UK over the five years to 2012-13 as a whole by the value of £8.3 billion – or £1,600 per person.

The SNP highlighted figures which showed that despite a 41.5% fall in North Sea tax revenues, Scotland’s current budget balance as a percentage of GDP was just 0.1% below that of the UK.

This, they said showed that the difference in the overall figures was the result of capital spending – an area that the Scottish Government has consistently given greater priority to than the Westminster Government.

Mr Swinney added: “The record North Sea investment by oil companies will help boost offshore production by around 16 per cent between 2013 and 2017, according to the industry themselves, and that will in turn help to increase oil and gas revenues.
 
“At the same time, the Scottish Government’s decision to invest heavily in major capital projects throughout the recession has protected jobs and will also deliver long-term benefits for the future.
 
“And with independence we will be able to invest even more heavily in Scotland’s future, saving money by not spending on things like Trident and spending it instead on policies like a transformation in childcare.”

In 2012-13 confirmed £3.1 billion of infrastructure investment, which was estimated to support more than 40,000 jobs across the Scottish economy. Good progress was made on major projects such as the Forth Replacement Crossing, the new South Glasgow Hospitals and Scotland’s Schools for the Future programme.
 
Over calendar year 2012, nine of the major infrastructure projects included in the Investment Infrastructure Plan, with a value of over £600 million were completed and are now in use.
 
These included three transport projects:

  • Paisley Corridor rail improvements – Substantially completed in February 2012 at £169 million. Two new platforms brought into
    operation at Glasgow Central.  On time and on budget.
  • Fife Intelligent Transport System (part of the Forth Replacement Crossing project) 
  • A96 Fochabers to Mosstodloch Bypass – contract value £31.5 million, opened early, on budget in January 2012

Four health projects: 

  • NHS Lanarkshire – Airdrie Community Health Centre
  • NHS Tayside – Mental Health Development Project (£95m) on time and on budget
  • NHS Lothian – Royal Victoria Hospital (£44m) on time and on budget
  • NHS Grampian – Emergency Care Centre (£110m) on time and on budget 

Two prison projects: 

  • HMP Low Moss (£125m), on time, slightly below budget
  • HMP Shotts – Redevelopment Phase 2 (£30m), on time and on budget

First Minister Alex Salmond said:

“Today’s GERS report confirms what independent commentators and analysts have been making clear: Scotland is one of the wealthiest countries in the world.

“The figures show that tax revenues generated in 2012-13 were £800 higher per head in Scotland compared with the UK, meaning that now for every one of the last 33 years, tax receipts have been higher in Scotland than the UK

He added: “North Sea revenues fell by 41.5 per cent between 2011-12 and 2012-13. This – in part – was caused by unplanned disruption to production and record capital investment by the oil and gas industry which has doubled since 2010. This will reduce tax receipts in the short-term but maximise tax revenues in the future.

“Despite these factors, Scotland’s net fiscal deficit was only one percentage point higher than the UK figure in 2012-13.”

Labour MP Alistair Darling, leader of the Better Together campaign, said: “This is a landmark moment in the debate. This is the day that Alex Salmond’s own figures made the case against independence.

“If Scotland was independent today we would have no option but to cut spending on services like schools and hospitals or put up taxes – or probably both. Today as part of the UK we don’t have to do that.”