SCOTLAND is set to face a deficit more the double the rest of the UK, the Institute for Fiscal Studies (IFS) has warned.
The shortfall between revenues and spending is expected to be around £23bn, or £4,100 per person, while the shortfall across the rest of the UK is expected to be around £1,650 per person.
The IFS also highlighted that Office for Budget Responsibility (OBR) forecasts for North Sea income have been downgraded three times in less than 18 months.
Initial forecasts from November 2022 for oil and gas revenue in 2023/24 was £20.7bn.
That has since plummeted to £5.2bn as a result of declining North Sea revenues.
And uncertainty surrounding those revenues means Scotland’s underlying public finances are far more volatile than the those in the rest of the UK, according to the IFS.
The £5.2bn in 2023/24 also represents a near-50% decrease on the £9.8bn revenues the previous year.
David Phillips, an associate director at the IFS, said: “Tax revenues from North Sea oil and gas production are volatile and uncertain, and often driven by events thousands of miles away – such as Russia’s invasion of Ukraine.
“The direct effects on UK-wide tax revenues are fairly muted, indeed, as a significant net energy importer, increases in revenues from oil and gas producers when prices rise are likely more than offset by reductions in other tax revenues as other sectors of the economy suffer.”
Mr Phillips accepted that under current constitutional arrangements in Scotland, the public finance position “does not matter much”, but the situation could be heightened should the country become fiscally autonomous or independent.
“The situation for Scotland is different given most UK oil and gas production takes place in Scottish waters.
“Scotland’s underlying, notional public finance position, while less affected by swings in oil and gas revenues than in the period between the 1980s and 2000s, is much more dependent on these revenues than the UK as a whole is.
“Under current constitutional arrangements, this does not matter a great deal, but that would change under full fiscal autonomy or independence.”
The IFS adds that deficit in the UK is expected to be pushed down as low as £560 per person by 2028/29 through a combination of higher taxation and more stringent public spending.
However, it is barely expected to move in Scotland, only dropping to £3,640 by 2028/29.
It’ll mean the equivalent of an £18bn gap.
“Oil and gas revenues would need to amount to around £20bn per year in 2028–29 for Scotland’s net fiscal balance per person to match the UK’s,” the IFS said.
“That would be more than four times more than what they are forecast to raise in the financial year that is about to end.”