Scottish independence: 'Fiscal gap would lead to spending cuts', says IFS

 
Scottish banknotes An independent Scotland would need to cut spending or raise taxes, said the IFS

An independent Scotland would need to cut spending or increase taxes for its finances to be sustainable in the long term, a think tank has warned.

The Institute for Fiscal Studies (IFS) said an independent Scotland would face a "fiscal gap" of 1.9% of national income, compared to 0.8% for the UK.

This would require significant spending cuts or tax rises, the report said.

Finance Secretary John Swinney said the analysis "underlines the case for an independent Scotland".

But Alistair Darling, leader of the pro-Union Better Together campaign, said the report left the SNP's economic case for independence "in tatters".

The report, entitled Financial Sustainability of an Independent Scotland, says the exact size of the challenge would depend on factors such as how much debt Scotland inherited from the UK, the interest it paid on the debt, the age of the population and potential changes in oil revenues and immigration rates.

The predictions were based on research funded by the Economic and Social Research Council.

Oil revenues

At present North Sea oil revenues more than make up for higher public spending per head of population in Scotland compared to the rest of the UK, the IFS says.

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The Institute for Fiscal Studies can't be accused of lacking in bravery. A 50-year time horizon for forecasting the future state of the economy and public finances takes a bit of chutzpah.”

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The think tank analysis said "even under the most optimistic scenario" bringing national debt down would require something like a 6% reduction in total public spending, a rise of 9% on the basic rate of income tax or a VAT rate of 28%.

Such measures would have to be taken over and above the tightening of public spending already planned by the UK government.

However, independence could also give Scotland an opportunity to create an "optimal tax system" which could lead to some taxes being lower than the UK as a whole, the IFS said.

The analysis also noted that under devolution Scotland already had different spending priorities than the UK as a whole, and said this would continue post-independence, meaning budgets could be more focused on local needs.

The independence referendum takes place on 18 September 2014, with voters in Scotland being asked the yes/no question: "Should Scotland be an independent country?"

Gemma Tetlow, one of the authors of the report, said an independent Scotland would face "even tougher choices" than the UK as a whole over the long term.

"Revenues from the North Sea will probably decline and official population projections suggest that the average age of the Scottish population will increase more rapidly than for the UK as a whole, putting greater upward pressure on many areas of public spending," she said.

"As a result, to ensure long-run fiscal sustainability, an independent Scotland would need to cut public spending and/or increase other tax revenues more than would be required across the UK as a whole."

Projections 'uncertain'

Mr Swinney will set out the economic case for Scotland leaving the UK during a visit to Dundee University on Tuesday.

He said the IFS report highlighted the "damaging" economic decisions taken by the UK government, and the need for economic independence in Scotland.

He added: "This report actually underlines the case for an independent Scotland with full control of its own economy and the ability to take decisions that can secure a stronger and more prosperous future for the country.

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The IFS report broadly concludes that, even on an optimistic scenario with regard to these variables, it remains likely that Scotland would face an enhanced challenge”

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"It is no surprise that projections based on the UK's economic position show a long-term deficit when the OBR state that the UK's economic strategy is "unsustainable" and that the UK will run a fiscal deficit in each of the next 50 years.

"The IFS themselves admit their projections in this report are 'inherently uncertain and could evolve differently if Scotland were independent rather than part of the UK; in addition they could be substantially affected by the policies chosen by the government of an independent Scotland'.

"The whole point of independence is to equip Scotland with the competitive powers we need to make the most of our vast natural resources and human talent and to follow a better path from the current Westminster system which stifles growth and which is responsible for the damaging economic decisions which this report - and its projections - are based on."

'Big cuts'

Former Chancellor Alistair Darling, leader of the pro-Union Better Together campaign, said: "This sober and impartial analysis by the IFS leaves the SNP's economic case for independence in tatters.

"SNP ministers pretend that in an independent Scotland there would be more money to spend, but that notion has been comprehensively demolished by the analysis from this respected institution.

"Today's report is clear that an independent Scotland would need big cuts to things like pensions, benefits and the NHS or a big increase in tax.

"This report sets a major test for the SNP's White Paper. If the White Paper does not face up to the long-term consequences of leaving the UK, then it won't be worth the paper it is written on."

Blair Jenkins, chief executive of the pro-independence Yes Scotland campaign, said: "Only a yes vote can put in place the economic levers to produce policies best suited to the needs and aspirations of our people and provide a change of course from the City of London economic model.

"The urgency of independence to meet the demographic challenges ahead is further highlighted.

"It is extraordinary to see in black and white that UK policies are expected to result in a decline in the population of working age people in Scotland. That makes it clearer than ever before that Westminster is not working for Scotland - and we quite simply cannot afford to stay in the UK."

A spokesman for the UK government said the IFS report "confirmed that the Scottish government's promises for an independent Scotland are too good to be true".

He added: "Their independent analysis reveals that, even on the most optimistic scenario, an independent Scotland would require cuts almost two and a half times as deep than if they stayed in the UK."

 

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  • rate this
    -2

    Comment number 83.

    Personally, STUFF Scotland.

    They burnt the bridge and now want to go their own way. Then so be it.

    BUT, DEAR LONDON government.

    Thanks for destroying the lives of many Portsmouth so you can BRIBE the Northern border with Investments just to have a grip on Scotland NOT leaving

    @Scots. Come 2015 the new ENGLISH government WILL walk away from you if you keep throwing YOURE TOYS out of the PRAM

  • rate this
    -3

    Comment number 82.

    Which shows that we are subsiding Scotland - a good reason for us to get rid of them!
    Another is that all they send to Westminster are Labour MP's so we in England would never have to suffer another Labour government. Why is Cameron not behind Salmond 100% on this issue??

  • rate this
    +2

    Comment number 81.

    Luckywhiteheather - I'm not sure that anyone's aspiration is for a 'tartan nirvana'. Most people in the independence movement want our country to be the same as the rest - ie the aspiration is for normality ...... this is clearly scaremongering - I expected no more or less .... next??

  • rate this
    +5

    Comment number 80.

    Better to have tried and failed than to have never tried at all!

    Scottish policies, Scottish priorities, Scottish values... At least then we can only blame ourselves...

  • rate this
    +1

    Comment number 79.

    The majority of people who live in Scotland that I know here, have no interest in this time and money-wasting election. Three quarters think the idea of independence is ridiculous. It's impossible and impractical to separate and why on earth would we want it.

    Please don't assume the majority of people living in Scotland agree with Alex Salmond - they certainly don't.

  • rate this
    0

    Comment number 78.

    The sad thing here is the futility of the whole thing. Scotland are not having an action vote just an opinion vote. Even if they vote yes they will never be allowed to actually leave the UK. There are too many wealthy and powerful scots that stand to lose a great deal if they become independant. They will not sacrifice that just to give the plebs a moral victory.

  • rate this
    +6

    Comment number 77.

    Surely, the question for Scots should be "do you want to be independent of the UK"? Not - "Would you be better off being independent of the UK".

    If so, research like this should be irrelevant in their decision making.

    As an Englishman looking on, it's seems to be gettinng very muddled.

  • rate this
    -2

    Comment number 76.

    I liked it when Scottish HYS articles were in the "Scotland" section. Then you didn't get the ill-informed UKIPpers coming out with the same nonsense.
    Once again, Scotland pays more into the UK than we get out of it.
    Our free universities & prescrptions are funded by ourselves.
    The SNP has been gunning for independence since before Salmond was born; it's not an "ego trip" & it's not voting for him

  • Comment number 75.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +3

    Comment number 74.

    More scare tactics from the BBC with a false headline! last time I looked the BBC stands to lose £120M a year if it's a yes vote.

    everytime the topic of independence comes up, it's labelled "separation"..when exactly is the American separation day?..or when you become old enough to want a life of your own do you "separate from your family" no you become independent and stand on your own two feet

  • rate this
    -3

    Comment number 73.

    A small country like a new scotland would be a far larger risk to investers; this would mean their debt repayments would be higher than the UK. Then you add in the fact per head they spend alot more money than the as the UK. Can't see it going wrong for them, what so ever!

  • rate this
    +1

    Comment number 72.

    Keep Scotland, get rid of London.

  • rate this
    +5

    Comment number 71.

    I don't believe what the BBC report anymore, they always seem to have an agenda.

    Lol, yesterday they were 'confusing' weather with climate change.

  • rate this
    0

    Comment number 70.

    Finance Secretary John Swinney said the analysis "underlines the case for an independent Scotland" - Proof here that he didn't actually read it.

  • rate this
    0

    Comment number 69.

    Not yet have the SNP given good reason or explanation as to how Scotland is going to survive on its own. It seems to be all very "don't worry we'll be fine"

  • rate this
    0

    Comment number 68.

    Scotlands plans are all based around Oil. but most of the Oil belongs to Shetland - who also want independence from Scotland (and have a very good case given the history of the Islands). But Salmond wont give this.

  • rate this
    -2

    Comment number 67.

    Something that is often overlooked when it comes to taxation is Defence costs. an independent Scotland could cut out all defence spending knowing that the rump UK would have to defend Scotland if only to protect it's own interests, not very friendly but a certain money saver.

  • rate this
    +10

    Comment number 66.

    Usual bias from the BBC.

  • rate this
    +18

    Comment number 65.

    What these reports by 'independent' think tanks assume in their projections is that the policy direction in an independent Scotland will mirror that of the UK. Independence will be for nothing if Scotland chooses to continue on the path that Westminster has set the UK on. Given this omission these reports don't really mean very much. Why isn't this fact reported on?

  • rate this
    +171

    Comment number 64.

    I was born and raised in Scotland but I now live and work in England, with my English wife. Why are we still so obsessed with countries, flags and borders? We are not at war; we are all the same people living in one fairly homogenised culture. So why don't we continue to live and work together and leave the jingoism back in the 17th century?

 

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