GERS 2025-26: Scotlands deficit narrows to £25.3bn

Scotland spent £25.3 billion more than it raised in tax over the past financial year, according to the latest Government Expenditure and Revenue Scotland (GERS) figures. The notional fiscal deficit stood at minus 10.9% of GDP, marking an improvement of 0.6 percentage points compared to the previous year's deficit of minus 11.5%. Revenue growth outpaced spending growth, shifting the fiscal balance even as public expenditure reached historically high levels.

Total revenue raised in Scotland hit a record high of £98.3bn, representing 8.0% of all revenues raised across the entire UK. That figure was up by £6.3bn, or 6.9%, from the prior year. Growth was driven primarily by National Insurance Contributions, which surged by £2.4bn following former Chancellor Rachel Reeves' decision to hike employer NIC rates in the budget. Income tax receipts also rose by £1.5bn, bolstered by general wage growth, inflation, and the Scottish Government's decision to freeze higher tax bands.

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Those tax increases were partially offset by a downturn in the energy sector. Scotland's geographical share of North Sea oil and gas revenue fell by £0.4bn to £3.2bn, driven down by weaker oil and gas prices over the year. UK-wide, underlying figures showed a decline in corporation tax receipts from the sector, pushing North Sea revenue down for the third consecutive year. CBI Scotland director Michelle Ferguson noted that the narrowing fiscal deficit would be welcomed by firms and households, but cautioned that the widening gap with the rest of the UK remains a concern, as reported by the Bbc.

Public spending rose to £123.6bn, up 4.8% from the previous year, equivalent to 53.1% of Scotland's GDP. Social protection remained the single largest spending category at £36.5bn, accounting for nearly 30% of all Scottish expenditure and rising by £2.1bn over the year. Spending on benefits set and paid directly by the Scottish Government grew by 11%, led by the Adult Disability Payment, which reached £3.38bn. Health spending climbed by £1.5bn to £21.1bn, and total defence spending attributed to Scotland rose by around 2.7% to £5.23bn.

Total public spending per person in Scotland stood at £22,281, which is £2,720 higher than the UK average of £19,561. According to the Worcester News, part of that difference is explained by public funding for water and sewage services in Scotland, unlike in England and Wales. However, Scotland's deficit remains significantly larger than the overall UK average deficit of minus 4.2% of GDP. While Scotland's deficit narrowed by 0.6 percentage points, the UK's overall deficit narrowed faster, by 1.0 percentage point over the same period.

Political Reaction and Constitutional Debate

The release reignited familiar debates over the constitutional future of the country and the merits of the Union.

Deputy First Minister and Finance Secretary Jenny Gilruth defended her administration's record:

"The latest GERS stats show that total and devolved revenues grew faster than spending – showing in particular that in the areas where our Government has control, we are delivering sustainable finances."

Jenny Gilruth, Deputy First Minister and Finance Secretary, via Herald Scotland

Gilruth added that the figures provide notional estimates as part of the UK and do not reflect the position of an independent Scotland, where different policy levers could be pulled. Scottish Secretary Douglas Alexander countered that the data demonstrates the tangible value of the United Kingdom, pointing to the £2,720 per person spending advantage funded by pooled and shared resources.

Scottish Conservative shadow finance secretary Craig Hoy argued that every Scot is over £2,700 better off under the Union, describing independence as a potential disaster for the nation's finances. Scottish Labour finance spokesperson Michael Marra suggested the figures underline the strength of pooling resources across the UK, while criticising the SNP's management of public services over nearly two decades in government. Reform UK's Scottish leader Malcolm Offord branded the spending levels a damning indictment, calling for a challenge to welfare bills and net-zero policies. Meanwhile, Scottish Liberal Democrat finance spokesperson Liam McArthur emphasised that while the figures show the benefits of the Union, a relentless focus remains needed on fixing the NHS and growing the economy.

Economic Context and Future Outlook

João Sousa, senior research economist at the IFS, noted that the notional deficit has little bearing on the Scottish Government's finances because it is subsumed within the wider UK fiscal deficit covered by UK government borrowing. He observed that while GERS serves as a reasonable starting point for understanding day-one fiscal issues in an independent Scotland, a deficit of that scale would prove unsustainable without higher taxes, lower spending, or significantly increased economic growth.

The drop in North Sea revenue also arrives at a politically sensitive time, with a UK government decision on consent for the Rosebank and Jackdaw fields expected soon.

• Total Revenue: £98.3bn, up 6.9% year-on-year
• Total Spending: £123.6bn, up 4.8% year-on-year
• Notional Fiscal Deficit: £25.3bn (-10.9% of GDP)
• Spending Per Person: £22,281 in Scotland versus £19,561 across the UK