GERS is a reasonable starting point for understanding the fiscal issues an independent Scotland would likely face on day 1 João Sousa

If GERS is the starting point where is the finishing line? We never get that far. The annual publication of the Government Expenditure and Revenue Scotland (GERS) reliably sets off what Fraser of Allander respectfully describes as a ‘debate’

Ironically, the report which is intended to ‘enhance public undeproorstanding of fiscal issues in Scotland’ does nothing of the kind in the chambers echoing with convictions of the opposing sides.

On one side: GERS provides evidence of prospects for constitutional change, if only Scotland were free. On the other: proof that there is no hope of an economically viable independent state. “Claims on both sides of the argument” says FAI, “are unfortunately often grounded in misinterpretations of how the statistics are produced and presented.”

Most people don’t have, or take, time to read the report, and may not get round to the admirably clear summary FAI provides explaining where the money comes from and where it goes. (It’s HERE)

So Sceptical Scot is sharing just two responses that get straight to the point clarifying the deficit driven by higher public spending, not unusual for devolved nations in the UK. But what does it say about government spending choices and how they match fiscal reality? [The headlines and bold text are added by Sceptical Scot.]

A reasonable starting point

First: João Sousa formerly deputy director at FAI, now senior research economist at the Institute for Fiscal Studies (IFS) where his response was published for press and public consumption. (You will also find it neatly summarised on his BlueSky account.)

“Today’s GERS figures show that Scotland’s notional fiscal deficit in 2025–26 was £25.3 billion, or 10.9% of GDP. This is a slight fall relative to 2024–25, as growth in onshore revenues more than offset a small decline in North Sea revenues and increases in government spending

“Scotland’s net fiscal deficit is significantly higher than the 4.2% of GDP deficit registered in the same period for the UK as a whole. This continues a long-term pattern. This higher deficit in Scotland is driven by higher government spending, while revenue per person remains similar to the UK average. It is not unusual for some parts of a country to have a larger deficit than the country as a whole: other nations and regions of the UK, including Northern Ireland, Wales and the North of England, all have even higher notional deficits than Scotland, and likewise receive implicit fiscal transfers from London and the East and South East of England.

“The figures released today are based on the current constitutional settlement and tax and spending policies, and look back at the 2025–26 financial year. Scotland’s larger notional deficit largely reflects UK government decisions – most notably, the relatively generous funding provided to the Scottish Government via the block grant – rather than economic or budgetary mismanagement by the Scottish Government. Indeed, as it stands, the notional deficit has little if any bearing on the Scottish Government’s finances: it is subsumed within the wider UK fiscal deficit, which the UK government needs to borrow to cover.

“But each year, GERS is inevitably interpreted in the context of the debate about Scotland’s constitutional future. If Scotland were to become independent, it would become responsible for managing its own public finances in full. The long-run structure of Scotland’s economy and public finances could look very different post-independence, and would depend to a large degree on future policy decisions.

Nevertheless, GERS is a reasonable starting point for understanding the fiscal issues an independent Scotland would likely face on day 1.

A deficit on the scale currently implied would be unsustainable and require some combination of higher taxes or lower spending – unless economic growth could be sustainably and significantly increased, which is certainly possible but far from assured.”

Higher taxation and fiscal drag

Second: Stuart McIntyre, Professor in Economics at the University of Strathclyde, and Head of the Department of Economics at the Strathclyde Business School.

As FAI head of research, Prof McIntyre also contributes to the FAI response to GERS (see HERE). But this is an extract from his succinct 9 point thread on X

On August 12, his first tweet said:

A few takeaways from me on today’s numbers:

1/ Scotland’s fiscal deficit narrowed from 11.5% to 10.9% of GDP.

BUT much of the revenue growth reflects higher taxation and fiscal drag, not unusually strong economic growth.

2/ McIntyre goes on to explain the effect of tax rises – UK government increased employer NI contributions and Scottish government froze the higher, advanced and top income tax thresholds – “pulling more income into higher bands as earnings rise.

3/ and 4/ Oil…North Sea revenues fell as they are sensitive to prices, production and taxes. But rising prices since March [thanks Trump] might show a boost in next year’s GERS. However: “Whatever your view on new North Sea consents, decisions taken now will take years to feed through into production and tax revenues.”

5/ 6/7/ The deficit reflects Scotland’s higher spending per person and there are good reasons for that (demographics, geography, cost of delivering services). Also remember: the headline deficit is a % of nominal GDP.

But that shouldn’t end the discussion about how effectively money is spent.

.And perhaps the key point of this thread is

8/ Which makes the lack of discussion of the Christie Commission striking. 15 years ago it warned that Scotland’s model of public services was financially unsustainable without greater prevention, integration and redesign. Still highly relevant to fiscal sustainability today.

McIntyre ends with the same point as Sousa

GERS is neither a prospectus for independence nor irrelevant to independence. It tells us about the fiscal starting point under current arrangements, not the final destination under any proposed constitutional change.

Meanwhile in Westminster and Holyrood as both governments are doing their best to avoid the fiscal reality of 2026 we have yet to reach the starting point.

Further reading

IFS: Further detail on the GERS 2025–26 estimates

FAI: Scotland’s net fiscal balance narrows despite drop in North Sea oil revenue

FAI GERS Guide

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