2025–26 Government Expenditure and Revenue Scotland (GERS) estimates: IFS response

Responding to today’s GERS figures, João Sousa, senior research economist at IFS, said: 

“Today’s GERS figures show that Scotland’s notional fiscal deficit in 2025–26 was £25.3 billion, or 10.9% of GDP. This is a slight fall relative to 2024–25, as growth in onshore revenues more than offset a small decline in North Sea revenues and increases in government spending.

Scotland’s net fiscal deficit is significantly higher than the 4.2% of GDP deficit registered in the same period for the UK as a whole. This continues a long-term pattern. This higher deficit in Scotland is driven by higher government spending, while revenue per person remains similar to the UK average. It is not unusual for some parts of a country to have a larger deficit than the country as a whole: other nations and regions of the UK, including Northern Ireland, Wales and the North of England, all have even higher notional deficits than Scotland, and likewise receive implicit fiscal transfers from London and the East and South East of England.

The figures released today are based on the current constitutional settlement and tax and spending policies, and look back at the 2025–26 financial year. Scotland’s larger notional deficit largely reflects UK government decisions – most notably, the relatively generous funding provided to the Scottish Government via the block grant – rather than economic or budgetary mismanagement by the Scottish Government. Indeed, as it stands, the notional deficit has little if any bearing on the Scottish Government’s finances: it is subsumed within the wider UK fiscal deficit, which the UK government needs to borrow to cover.

But each year, GERS is inevitably interpreted in the context of the debate about Scotland’s constitutional future. If Scotland were to become independent, it would become responsible for managing its own public finances in full. The long-run structure of Scotland’s economy and public finances could look very different post-independence, and would depend to a large degree on future policy decisions. Nevertheless, GERS is a reasonable starting point for understanding the fiscal issues an independent Scotland would likely face on day 1. A deficit on the scale currently implied would be unsustainable and require some combination of higher taxes or lower spending – unless economic growth could be sustainably and significantly increased, which is certainly possible but far from assured.”

Further detail on the GERS 2025–26 estimates

• Scotland’s estimated underlying net (notional) fiscal deficit of 10.9% of GDP in 2025–26 is equivalent to £25.3 billion in cash terms, or £4,563 per person in Scotland. This compares with a net fiscal deficit for the UK as a whole equivalent to £1,841 – meaning government borrowing on behalf of the residents of Scotland was an estimated £2,722 per person higher than the average for the UK as a whole last year.

• This higher net fiscal deficit is due to higher government spending in Scotland. Total government spending for the benefit of Scotland – including both devolved and reserved spending – was an estimated £22,281 per person in Scotland in 2025–26, compared with an average of £19,561 for the whole of the UK – a difference of £2,720 or 14%. This is mostly due to higher UK government funding per person for the Scottish Government than is spent on comparable services in England – although recent IFS research shows this funding advantage is now being eroded by the so-called ‘Barnett squeeze’. The gap between spending in Scotland and the UK as a whole was highest for education and some of the relatively smaller areas of spending including ‘agriculture, forestry and fisheries’, ‘enterprise and economic development’ and ‘recreation, culture and religion’. Health spending is less than 3% higher than the UK average. 

• Taking all revenues from North Sea oil and gas and onshore economic activity together, estimated revenues per person in Scotland in 2025–26 (£17,718) almost exactly equal revenues per person for the UK as a whole (£17,720). This reflects somewhat lower onshore revenues per person (£17,150 versus £17,664), but much higher oil and gas revenues per person (£569 versus £56), reflecting the fact that most UK oil and gas production takes place off the coast of Scotland. Most of the decline in oil and gas revenues from their 1980s peak has already taken place, but further declines in future will slightly weaken Scotland’s underlying fiscal position, unless this is offset by higher onshore economic activity and revenues (or lower spending). 

• All regions of the UK except London and the East and South East of England have higher notional deficits than the UK average. As of 2024–25 (the latest year for which estimates for all regions are available), the net fiscal deficit per person was even higher in Northern Ireland (£8,216), Wales (£7,149) and the North of England (£5,159) than was estimated for Scotland that year (£4,662). A key difference though is that Scotland’s higher deficit is entirely explained by higher spending per person, whereas the biggest explanation of the higher deficits in the other devolved nations and North of England is lower revenues per person – reflecting their relatively weaker economies.