COVID impacts Scotland’s finances

Pandemic has “shifted the fiscal landscape”.

New figures highlight the impact coronavirus (COVID-19) has had on the economy and public spending in Scotland.  

The Government Expenditure and Revenue

Scotland (GERS) 2020-21 statistics show record public spending of £99.2 billion, an increase of 21% on 2019-20. This increase reflects the scale of Scottish Government support during the pandemic, with £9 billion invested in public health measures, NHS Scotland, businesses and financial help for individuals.

Revenues totalled £62.8 billion, down from £66.2 billion in 2019-20. This includes a drop in North Sea receipts of 35% as worldwide demand for oil and gas fell sharply, as well as lower receipts from non-domestic rates and VAT.

In common with countries around the world, the significant rise in spending caused by COVID-19 meant Scotland’s notional deficit, the difference between income and expenditure, rose – up 13.6 percentage points to 22.4% of GDP.

Finance and Economy Secretary Kate Forbes said:

“These statistics clearly highlight the significant economic impact of the pandemic. Scotland’s economy contracted by about 10% last year, which is in line with the performance of the UK economy.

“The pandemic has not only changed people’s lives but it has fundamentally shifted our fiscal landscape, with countries and markets around the world reassessing what represents a viable deficit.

“The Scottish Government has worked tirelessly to support businesses and households throughout the pandemic. While we face continued challenges, there are welcome signs that the Scottish economy is beginning to recover strongly. Business confidence is back above pre-pandemic levels, output is increasing and job vacancies are rising.  As we rebuild, we are pushing forward with an ambitious 10 year agenda of economic transformation to help seize Scotland’s potential and deliver a more prosperous, fairer and greener economy.

“The GERS figures reflect Scotland’s position within the UK, under which 40 per cent of spending and 70 per cent of revenue income is reserved to the UK Government. The pandemic has clearly demonstrated the need for fiscal reform and that the Scottish Government’s financial powers are insufficient to deal with the new economic reality.

“We once again urge the UK Government to engage positively with us to devolve additional borrowing powers which would allow the Scottish Government to work with business and the public sector to build a recovery that works for Scotland.”

Background

Government Expenditure and Revenue Scotland 2020-2021

As a result of the pandemic the EU Economic Governance Review is considering whether existing fiscal rules should be replaced with a cap on the growth rate of government spending, as proposed by the European Fiscal Board. There is also a discussion of whether public sector investment seen as ‘growth enhancing expenditure’ should be excluded from short term fiscal targets, especially when the economy is operating below capacity.

The aim of GERS is to enhance public understanding of fiscal issues in Scotland. The primary objective is to estimate a set of public sector accounts for Scotland through detailed analysis of official UK and Scottish Government finance statistics. The report is designed to allow users to understand and analyse Scotland’s fiscal position under different scenarios within the current constitutional framework.

GERS is a National Statistics publication and is produced independently of Scottish Ministers. The publication has been assessed by the UK Statistics Authority in line with the Code of Practice for Statistics. This means the statistics have been found to meet user needs, to be methodologically sound, explained well and produced free of political interference.