Scotland’s financial deficit could be around £1,300 per person higher than the UK due to significant deteriorations in its fiscal outlook due to the impact of falling oil and gas prices, a think tank has warned.
Story by Conor Matchett
3 April 2023
Scotland's financial projections have 'deteriorated significantly' due to changes in oil and gas prices - IFS© The oil platform Stena Spey amongst other rigs in the Cromarty Firth near Invergordon in the Highlands of Scotland.
Lower prices, while good news as a whole, has led to Scotland’s financial projections having “deteriorated significantly”, the Institute for Fiscal Studies has said.
This means that the November forecasts where the underlying budget deficit of Scotland for the 2023/25 financial year appeared to be lower than the rest of the UK had reversed.
Critics said the implications were “very concerning” and underlined how the Scottish Government had allegedly “mismanaged” the economy.
The latest forecast from the Office for Budget Responsibility (OBR) predict the UK’s oil and gas revenues will hit £11 billion in 2022/23 and just over £10 billion the following financial year, a marked decrease from its forecast last November which expected revenues to reach £15 billion then almost £21 billion respectively.
The IFS said this has a particularly detrimental impact in Scotland since most of the UK’s oil and gas revenues are generated from activity in Scottish waters.
The think tank said November’s forecasts implied Scotland’s underlying budget deficit for 2023/24 might be lower than that of the UK as a whole for the first time in more than a decade but the latest forecasts suggest Scotland’s deficit could be close to £1,300 higher per person than that of the UK as a whole.
David Phillips, IFS associate director said: “The fall in forecast oil, and particularly gas, prices since last autumn is welcome news for households, business and the public finances of the UK as a whole.
“However, the fact that the vast majority of the UK’s oil and gas revenues are from taxing activities in Scottish waters means that Scotland’s underlying public finances will improve by a lot less in the coming year than previously expected: lower prices mean lower revenues.
“As a result, the underlying Scottish budget deficit now looks set to remain significantly higher than that of the UK as a whole this year and next, in contrast to what we thought last autumn.
“This highlights just how significant volatile oil and gas revenues are in a Scottish context.
“In addition, this gap between Scotland’s deficit and that of the rest of the UK will grow further in the longer term as oil and gas production in the North Sea slowly declines, unless new revenue-rich sources of economic growth for Scotland can be found.”
Finance spokesperson for the Scottish Conservatives, Liz Smith, said the figures were “very concerning”.
She said: “The SNP Government has presided over more sluggish growth, and a higher fiscal deficit, than the rest of the UK for a decade. That position will only get worse with a reduction in revenue from the oil and gas sector – to which the SNP and their Green coalition partners have shown such hostility.
“The latest forecasts underline just how woefully they have mismanaged the Scottish economy and blow a hole in their budget for the coming year. Scotland desperately needs economic growth, but that’s been neglected while the Nationalists pursue their constitutional obsession.
“Now our fiscal deficit is set to be worse than the rest of the UK’s by around £1,300 per person – a shocking indictment of the SNP’s fiscal ineptitude.”
Scottish Labour’s Colin Smyth said the SNP had failed to make Scotland’s energy resources “work for our economy”.
He said: “Scotland’s potential for renewable energy still sits untapped. Too often the benefits in the sector go straight to companies owned overseas and we have little to show by way of supply chain jobs.
"To truly unleash our energy potential, we need a publicly owned, clean energy company that will properly invest in renewables and deliver the jobs in Scotland. Only Labour can deliver this and put the profits back in the pockets of ordinary Scots."
The Scottish Government has been contacted for comment.
https://www.msn.com/en-gb/money/other/scotland-s-financial-projections-have-deteriorated-significantly-due-to-changes-in-oil-and-gas-prices-ifs/ar-AA19qceK
