Capital and reserved costs can't be ignored when considering the possible sustainability of a fiscally autonomous or independent Scotland
John Swinney previously argued that revenues (at the time excluding North Sea revenue) were sufficient to cover "all day-to-day devolved spending" and "social security spending in Scotland" [2022 Scot Gov press release]. More recently, the Scottish Government stated that revenue (this time including North Sea revenue) "was enough to cover all day-to-day devolved spending and all reserved social security, including the State Pension" with Shona Robison adding "GERS allocates Scotland a population share of reserved UK spending rather than accounting for real expenditure" [Aug 2025 Scot Gov press release]
It's worth unpicking this political framing
Firstly: by referring to "day-to-day spending", over £12 billion of annual capital spending (most of which is devolved) is being ignored.
Secondly: while explicitly addressing reserved social security spending, these statements fail to address other reserved costs which Scotland clearly benefits from and/or would need to fund if Scotland were fiscally autonomous or independent
- Reserved spending directly in Scotland (e.g. Network Rail costs, energy bills support, renewable heat incentives, R&D tax credits, research & innovation investment, etc.)
- Other reserved spending from which Scotland clearly benefits, much of which does take place in Scotland (defence spending, HMRC and DWP staff costs, etc.)
- Spending which it is fair to assume Scotland benefits from and/or would seek to replicate if independent, including foreign aid and central government departments (e.g. HMRC, DWP, Home Office, FCDO, Treasury etc.). If Scotland were to separate from the UK, what it would cost to operate dedicated, stand-alone government departments to replace those whose costs are currently allocated to Scotland on an 8% population share basis is an open question
- A population share of UK central debt interest (a cost which the SNP's Sustainable Growth Commission accepted as a legacy cost an independent Scotland would be expected to meet)
- Reserved accounting adjustments which are required to accurately report Scotland's deficit and generally have matching adjustments on the revenue side (i.e if you ignore the cost of accounting adjustments on the spending side, you should also ignore the benefit of accounting adjustments on the revenue side)
Thirdly: stating that "GERS allocates Scotland a population share of reserved spending" is a gross simplification: while that statement is true for defence, debt interest and international services, over £4 billion of other reserved costs are allocated based on being identifiably for Scotland (not simply by population share). Stating that GERS somehow "isn't accounting for real expenditure" is simply wrong - the expenditure is real and much of it takes place in Scotland, the only question is how much of that spending is fairly considered to be for Scotland (a question which the Scottish Government's own Chief Economic Advisor addresses by creating the GERS report).
The chart shows the journey from revenue to deficit for Scotland in any given year, with a particular focus on the reserved expenditure items which contribute to that deficit. Revenue is shown split between onshore (green) and offshore (grey) and devolved spending is split between current and capital spending. Reserved spending allocations are broken down into their main constituent parts. Footnotes explain what's behind each element of reserved spending, with a particular focus on whether the costs involved represent identifiable expenditure that takes place directly for Scotland or non-identifiable expenditure which is typically allocated on a population share basis.
Understanding reserved expenditure items allocated to Scotland in GERS (and why they can't just be assumed away when discussing fiscal autonomy or the possible impact of independence for Scotland)
- Accounting adjustments are required to report the fiscal balance on a National Accounts basis (ESA 2010), consistent with ONS Public Sector Finances and with how every other country reports. They are mostly Scotland specific (e.g. related to Scottish local authority capital stock, Scottish Water, Scottish student loans and Scottish public corporations) and generally mirror accounting adjustments on the revenue side (i.e. if these accounting adjustments were excluded, revenue would need to drop by an equivalent amount)
- Social protection is identifiable spending for and in Scotland including pensions, universal credit, reserved sickness and disability benefits and child benefit as well as DWP corporate costs see [spend detail]
- Defence spending is treated as non-identifiable and allocated to Scotland on a population share basis. It averages close to 2.0% of GDP see [here] and is perhaps most usefully considered within the context of the historical NATO guideline for member countries to spend 2% of GDP on defence, and the more recent 5% Hague defence commitment committing allies to 3.5% of GDP on "core defence requirements" (i.e. what this HMT category represents) with a further 1.5% on "defence- and security-related spending" by 2035.
- Transport spending is dominated by identifiable Network Rail expenditure for and in Scotland see [spend detail]. A less than population share allocation for Maritime & coastguard services is also included.
- Enterprise & Economic Development spending is almost entirely identifiable as being both for and in Scotland: energy bills support scheme, renewable heat incentive, R&D tax credits and other tax reliefs (which net off against taxes reported on the revenue side. See [spend detail]
- Public & Common services are mostly non-identifiable central government costs allocated on a population share basis, including: EU withdrawal agreement financial settlement, HMRC operating costs, Cabinet office, FCDO, House of Commons and House of Lords costs, HMT operating costs, etc. see [spend detail]
- International services are treated as non-identifiable costs allocated on a population share basis, including foreign economic aid and FCDO operating costs (including British embassies, high commissions, and consulates overseas). see [spend detail]
- Other is mostly identifiable spend for and in Scotland see [spend detail] and includes: DSIT (research and innovation investment), DCMS (BBC and Lottery grants), DWP (overhead and operating costs), DESNZ (nuclear decommissioning: treated as non-identifiable in GERS, so population share allocated although the actual costs associated with nuclear decommissioning in Scotland are greater, as explained in GERS table A.6)
- Public sector debt interest is a population share allocation of UK central government debt interest (see fiscal transfers for more discussion of the implications of this assumption)