Gers report highlights the risks of Devo-Max

The annual publication Government Expenditure and Revenue Scotland (Gers) has brought the debate over the merits of Full Fiscal Autonomy (FFA) or Devo-Max into sharp focus.

The report shows that in 2013/14, people in Scotland paid £400 more in tax than the UK as a whole but they also received £1,200 more in spending. The revenue figures include taxation from the oil and gas industry in Scottish waters. However, these figures have a time lag and therefore don’t include the most recent fall in oil revenues. 

Lost revenues now total around £6 billion compared to the figures in the Scottish Government’s November 2013 White Paper. By sheer coincidence, the amount the ConDem coalition has cut from the Scottish budget since introducing austerity economics is also £6bn. That has resulted in 50,000 public service job losses and huge cuts in the services our communities rely on.

The IFS has projected the impact of falling oil revenues on Scotland’s budget if we had adopted FFA. They calculate:

“that if Scotland were fiscally autonomous in 2015–16, its budget deficit would be around 4.0% of GDP higher than that of the UK as a whole. In cash terms, this is equivalent to a difference of around £6.6 billion.”

Now, as the BBC’s Douglas Fraser fairly points out “while Scotland runs at a loss, the UK government continues to run at a similar scale of loss, with a huge debt, and nothing to show in the bank for 40 years of oil and gas tax revenue.”

While this is a legitimate historical point, it doesn’t strengthen the case for FFA. The Scottish Government’s defence is that with FFA the economy in Scotland would be growing faster. Well it might, but not at the rate necessary to plug the gap in oil revenues, as the IFS confirms. And, as Douglas Fraser also says; “It would also have to counter the prospect of offshore tax take falling quite fast, with much more impact than on UK finances, as a result of the oil price fall and lower production levels.”

That is why the UNISON submission to the Smith Commission argued against FFA and oil revenues being devolved in particular. Devolved administrations want the least volatile revenues and expenditure possible. As the STUC put it yesterday:

“Today’s report is a sobering reminder of some of the risks of full fiscal autonomy for Scotland.  The STUC has consistently argued that whilst Scotland’s funding settlement with the UK is entirely fair in the context of its historic and anticipated fiscal contribution, there are real risks associated with the volatile nature of oil revenues. It is for this reason that we argued for a combination of increased tax devolution and a continuing block grant as the best mechanism for secure and predictable funding for Scottish public services.”

Fiscal devolution is always a complex interaction, but Full Fiscal Autonomy was always going to be a high-risk approach. With so many public services and the jobs that go with them at stake, it remains a gamble too far.