Scotland bearing the financial burden for Starmer's overseas conflicts, as per GERS 25 report
The Scottish Government's annual report on revenue and expenditure, known as GERS, has once again generated headlines, with a key issue surrounding the allocation of defence spending to Scotland.
The report allocates defence spending to Scotland based on population share rather than actual expenditure within Scotland. This means that Scotland's share of UK-wide defence spending is estimated at £5.1 billion for 2024–25, simply by applying Scotland’s population proportion to the total UK defence budget. However, this does not reflect the actual amount physically spent or invested in Scotland.
For instance, the Ministry of Defence reported £2.1 billion of defence procurement contracts awarded to Scottish industry in 2023–24, a figure that reflects direct economic activity within Scotland. This discrepancy between assigned and actual expenditure in Scotland has sparked debate, with pro-independence voices arguing that Scotland is not getting value for money given the disparity.
The impact on Scotland's finances is significant. This methodology inflates Scotland's assigned defence spending relative to actual local expenditure, affecting the reported fiscal deficit. In 2024-25, GERS reports a £26.5 billion gap, with a portion of this attributable to defence spending.
If the UK increases military spending to 5% of GDP, Scotland's "share" of the additional £80 billion will be £6.5 billion. This amount will be added every year to Scotland's notional "deficit" for spending that will not support jobs in Scotland.
Moreover, some expenditure declared "for" Scotland is for UK Government departments and UK-wide issues managed outside Scotland. If the bombs are paid for by increasing the UK's own borrowing deficit, a population share of the interest payments (already more than £8.5 billion per year) will be added to GERS.
Defence spending, which can occur anywhere in the world, is declared to "benefit" every resident of the UK equally, with the total spend in GERS based on Scotland's population share. However, much of the administration could be done cheaper within an independent Scotland, as shown in a 2016 policy paper.
In conclusion, the main issue is that GERS' population-based allocation of UK defence spending to Scotland creates a discrepancy between assigned military spending and actual expenditure in Scotland, complicating the interpretation of Scotland's fiscal balance and economic benefits from defence. This discrepancy is a significant factor in the ongoing debate over Scotland's financial position and independence.
The allocated UK-wide defence spending to Scotland, as per GERS, is not reflective of the actual amount spent or invested within the region, with Scotland's share based on population proportion instead of actual expenditure. This disparity has triggered discussions, particularly among pro-independence voices, who argue that Scotland is not receiving optimal value for money given this discrepancy.
The methodology employed by GERS in allocating defence spending to Scotland potentially overstates Scotland's assigned defence spending relative to its actual local expenditure, thereby influencing the reported fiscal deficit and affecting the interpretation of Scotland's fiscal balance and economic benefits from defence.
