Scotland's fiscal transfer, 1998-99 to 2025-26

While the GERS report allows us to understand the scale of Scotland's deficit in any given year, it doesn't explicitly explain how that deficit is funded. This is because the GERS deficit is an accounting outcome, not a financing requirement. Scotland is not required to be fiscally autonomous under current constitutional arrangements, so the scale of Scotland's contribution to the UK's overall deficit has no direct fiscal implications either for Scotland's budget or for reserved spending on behalf of Scotland.

We can calculate the implied fiscal transfer in two different ways, each of which leads to the same conclusion (as the tables below show)

• Method A: start with Scotland's deficit and consider how it is implicitly funded
• Method B: look at the per capita deficit gap between Scotland and the UK and gross that up by Scotland's population

Method A

• GERS quantifies Scotland's net fiscal balance (aka deficit)
• It is generally accepted - and implied within the GERS report itself, which allocates Scotland a population share of UK public sector debt interest - that Scotland would take responsibility for its population share of UK national debt. The UK's deficit cumulatively creates the UK's national debt, so this implies Scotland would be assuming a liability for a population share of each year's deficit
• Remove that absorbed liability from Scotland's deficit and what we have left is the amount of Scotland's deficit which Scotland assumes no liability for. That gap is implicitly funded by the rest of the UK (through central government borrowing which Scotland does not assume liability for) - this is the implied fiscal transfer

The fiscal transfer is implied because it is an attribution, not a cashflow: it is a measure of the difference between Scotland's contribution to the UK's deficit (including Scotland bearing a population share of UK-wide costs) and the share of that deficit that Scotland is assumed to be liable for.

Were Scotland to assume no responsibility for any share of the UK's debt, we simply need to exclude the cost of UK debt interest from Scotland's deficit. What's left is the deficit which isn't funded by debt Scotland is assumed to be liable for - so in effect Scotland is running this deficit without assuming any corresponding debt liability. Of course somebody has to pay for it, and that somebody is the rest of the UK through central government borrowing - so this restated deficit is the effective fiscal transfer from the rest of the UK.

Method B

• It is generally accepted - and implied within the GERS report itself, which allocates Scotland a population share of UK public sector debt interest - that Scotland would take responsibility for its population share of UK national debt.
• It follows that in any given year Scotland would take responsibility for its population share of the UK's deficit (the figure which determines how much the UK's debt increases by)
• Scotland's population share of the UK's deficit, expressed per head of Scotland's population, is by definition the same as the UK's deficit per head
• The difference between Scotland's deficit per head and the UK's deficit per head is therefore, per head, the difference between what Scotland adds to the UK's deficit and the share of it Scotland would be liable for - this is a figure we have referred to elsewhere as the per capita deficit gap
• Multiply this per capita deficit gap by Scotland's population and we arrive at the implied fiscal transfer

Were Scotland to assume no responsibility for any share of the UK's debt, we simply need to exclude the cost of debt interest on national borrowing from Scotland's deficit. What's left is the deficit which isn't funded by debt which Scotland is assumed to be liable for, so in effect Scotland is running this deficit without assuming any corresponding debt liability. Of course somebody has to pay for it, and that sombody is the rest of the UK through central government borrowing- so the difference between this restated deficit per head and the UK's deficit per head is the effective fiscal transfer per head from the rest of the UK (following the same logic as above).