If, like in the UK, there is an integrated economy where tax and spend are not tied to specific regions, then disparities in regional fiscal balances are smoothed out by an effective fiscal transfer from the best performing regions to the worst.

The Fiscal transfer can be calculated by taking a region’s net fiscal balance from the population share of the national fiscal balance 

For example:

The UK runs a countrywide fiscal deficit. We can use the latest ONS Regional Statistics report for 2016-17 [1] to examine the various countries and their contributions to this. Of the component countries in the UK only England has a negative fiscal transfer. This is due to its relatively small net fiscal balance compared to its population size. i.e. England's deficit is less than its population share of the UK total. Logically, this means that revenue flows out of England to the other regions, however, in practice as the whole of the UK is in deficit this means that England bears a disproportionately increased debt burden. Scotland has a positive fiscal transfer, as its actual deficit is higher than its population share.

Due to population size discrepancies and a large variance in the performance of the various English regions, a country level view does not tell the whole story. 

To provide more useful data with respect to Scotland’s relative performance, we will use the ONS stats to further break down England’s figures into economic regions, which are more comparable with Scotland, Wales and Northern Ireland in terms of population size.

It is worth noting that while figures are not available, this regional variance also applies to Scotland – for example, during the 80’s oil boom, Aberdeen would have experienced a large positive net fiscal balance compared to Scotland's west coast, which faced the economic challenges of de-industrialisation. 

As shown, three regions in the UK have a positive net fiscal balance. These are London, the South East and the East of England. We see that, in particular, London and the South East have significantly large positive balances. 

The fact that the three regions in surplus have disproportionately large populations (36.5% of the UK, and 43.3% of England) only serves to amplify the absolute contribution to the aggregated net fiscal position of England. So, while the other English regions have a net fiscal position similar to or worse than Scotland’s, the overall position of England appears much healthier due to the strength of these three regions.

Of the three regions in surplus, London dominates, generating 56.6% of the total from the combined surplus.

If we look at the nine regions that are running a fiscal deficit, we can see that the largest percentage is from the North West at 18.8%, with the South West lowest at 5.2%. Scotland lies half-way between, responsible for 13.9% of the total deficit when you remove the three regions in surplus.