{"id":17181,"date":"2025-08-16T09:27:49","date_gmt":"2025-08-16T09:27:49","guid":{"rendered":"https:\/\/sceptical.scot\/staging\/?p=17181"},"modified":"2025-10-07T13:48:55","modified_gmt":"2025-10-07T13:48:55","slug":"higher-budget-deficit-driven-by-devolved-spending","status":"publish","type":"post","link":"https:\/\/sceptical.scot\/staging\/2025\/08\/higher-budget-deficit-driven-by-devolved-spending\/","title":{"rendered":"Higher budget deficit driven by devolved spending"},"content":{"rendered":"\n

The estimates of Scotland\u2019s net fiscal balance are out for 2024-25. As we\u00a0previewed<\/a>, there was deterioration of the fiscal balance, which is unsurprising given that the UK\u2019s fiscal balance worsened during that year as well.<\/strong><\/p>\n

Scotland\u2019s estimated net fiscal balance was estimated to have been -\u00a326 billion, or -12% of GDP, when including a geographical share of North Sea revenues and economic activity.<\/p>\n

Chart 1: Scotland\u2019s net fiscal balance as a share of GDP<\/h2>\n

\"Chart<\/a><\/p>\n

Source: Scottish Government<\/em><\/p>\n

The worsening of the fiscal balance in 2024-25 is larger for the figure including the North Sea, in large part because oil and gas tax receipts have fallen \u2013 by \u00a30.8 billion, or 0.4% of Scotland\u2019s GDP.<\/p>\n

Higher devolved expenditure is the main driver of the widening deficit<\/h2>\n

Scotland\u2019s net fiscal balance is 1.9% of GDP worse in 2024-25 than it was in 2023-24, but it is worth looking at what is driving this. We have already seen that North Sea revenues have added 0.4% of GDP to the deficit; reserved expenditure also adds 0.2% of GDP to that figure.<\/p>\n

Reserved revenues (excluding North Sea) fell by 0.8% of GDP relative to the previous year, largely as a result of the cut to employee National Insurance Contributions announced in March 2024. Devolved tax revenues near-enough offset this, with Scottish Income Tax accounting for the lion\u2019s share of this increase, although Land and Buildings Transaction Tax revenues also rose by nearly 20%.<\/p>\n

But it was the spending side that accounted for most of the deterioration in the fiscal balance. UK Government spending rose by 0.2% of GDP, but it was the 1.2% of GDP increase in devolved expenditure that accounted for most of the 1.9% that the net fiscal balance fell by.<\/p>\n

Chart 2: Decomposition of changes to Scotland\u2019s net fiscal balance as a share of GDP in 2024-25 relative to 2023-24<\/h2>\n

\"Chart<\/a><\/p>\n

Source: Scottish Government, FAI calculations<\/em><\/p>\n

This is in many ways unsurprising, as higher spending as a share of the economy has long been the driver of Scotland\u2019s higher net fiscal deficit than the UK\u2019s. Public spending in and for the benefit of Scotland has now risen to 55.4% of GDP, compared with 44.4% for the UK as a whole.<\/p>\n

The Scottish Government\u2019s response<\/h2>\n

The Scottish Government have chosen to welcome the fact that devolved revenues are growing faster than devolved spending. The ministerial statements that accompany statistics often are looking for the positive story from the statistics, and the make any political points.<\/p>\n

But let\u2019s take a step back. The consequences of this could be to imply that the Scottish Government are running some kind of surplus on devolved budgets, but of course it does not work like that, for two reasons:<\/p>\n