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

    Comment number 1423.

    1414Amicus Alba
    I am not 'claiming' it because I am English and will be voting Yes. This is because I lived down south and understand how little relevance the concerns of Scotland's people merit attention there, and you could argue why should they with 5 million people as opposed to 60 million rUK its simple maths. Therefore I think that Scotland needs to governed by the people of Scotland

  • rate this

    Comment number 1422.

    As a Scot living in Scotland, independence isn't what any of my family or friends want. Independence is a fantasy of the minority of nationalist loonies, who refuse to look at the costs and risks of breaking up a very successful union.

    The SNP have no credibility and this IFS study just exposes what everyone knows - that independence would turn out to be a financial disaster for Scotland.

  • rate this

    Comment number 1421.

    Ah, the IFS, if I could round you up and put you all in a bag, I would not trust you as far as I could throw you.

    grouting tiles; Whose fault is it then, if not THE GOVERNMENT'S?

    Vote Yes or we shall all be damned to a life of serfdom, where your vote counts for less than tolie smeared bog-roll and millionare tories hand down savage cuts and policies designed to ruin you.

  • rate this

    Comment number 1420.

    A broadside against the Yes campaign from the whole UK MSM. BBC, STV, Channel 4, BBC 24 hour news. Papers tomorrow.

    You have to ask yourself why they are trying to scare you.

    It's not because we're spongers.

  • rate this

    Comment number 1419.

    What a remarkably biased headline. Thank you EBC. The IFS identifies a fiscal deficit 50 years out ON THE BASIS OF CURRENT TAX AND SPENDING POLICIES. It recognises that an independent Scotland would be more able to optimise tax and spending to meet Scotland's needs.

    It's a brave - or foolhardy - economist who makes predictions 50 years out. Especially ones that he admits could be avoided

  • rate this

    Comment number 1418.

    Just think how much of this is being racked up on Scotlands behalf !! and how much harder it will be to service for Westminster without Scotlands assets -

  • rate this

    Comment number 1417.

    Scottish Farmers will have to vote for independence if Countryfile is to be believed. Scottish famers seem to get the worst deal in Europe which in tuen entitles the UK to receive an extra £250M from the EU. The UK government don't feel the need to give us any of this extra cash.

    Hmm . . . looks like a YES vote is the only solution for farmers in Scotland.

  • rate this

    Comment number 1416.

    the scaremongering has started early - I expect this think-tank has about as much credibility as the CBI etc with all their phoney recovery nonsense which is suddenly a fact since it's been spouted so often. Strikes me that with free prescriptions and decent higher education opportunities Scotland have got more right than we have down South so good luck top them whichever way they vote.

  • rate this

    Comment number 1415.

    The Union is harmful to Scotland politically, economically and socially.

    Politically, there is a democratic deficit: we get the government we vote for less than 50% of the time.

    Economically, we contribute billions more to the Union per year than we get back and are saddled with debt from UK overspend (not on us).

    Socially, Scotland is now the 4th most unequal country in the developed world.

  • rate this

    Comment number 1414.

    1395. Eric - [claiming to be English and Nationalist] "Why can't you understand that large section of people living in Scotland are not motivated by narrow outmoded nationalism"

    Perhaps because I live in Scotland? I also said "it motivates vast rank & file" - perhaps you are not one of those?

    Any comments on the suitability of SNP calling other Scots "anti Scottish" "Treacherous" etc?

  • rate this

    Comment number 1413.

    .1382. The UK has a debt of £1,377 billion, what will happen to this? how much will Scotland take when independent?
    Good Question. The answer is simple MP David Mundell (Scotlands only Conservative MP) recently stated "Scotland Dosn't exist, it's part of England since 1707."
    That means Scotland would legally become a new INDEPENDANT STATE and cannot be held for any debts incurred by the UK

  • rate this

    Comment number 1412.


    Ye're a wee gem Andy, so ye are.

    I hope you eat a good diet, because you really are going to blow a gasket if you keep being so angry.

    Yes, Scotland is going to become independent, but it won't be the end of the world. We'll do very well making our own decisions.

    Quack. Quack.

  • rate this

    Comment number 1411.

    Independence is exciting, it opens up opportunities that we will NEVER have in the UK. It gives us the chance to develop our country properly. The UK government is only concerned with what we give them. Yes the UK will be weaker without us, but if it was a fair and prosperous place for all then we wouldn't be having a debate on independence now. Fact is, the UK is damaging Scotland. VOTE YES!

  • rate this

    Comment number 1410.

    IFS - biased , unreliable, London, English, unionist agenda,economists, project fear, cannae trust em

    SNP- land of milk and honey, crystal ball, 20-20 foresight, believable, unbiased, no agenda


  • rate this

    Comment number 1409.

    1392. tonep
    Actually, it's British Nationalism that is increasingly ethnic in outlook as the politics of southern Britain lurch further to the right under threat of a UKIP ascendancy.

    From your comment, I wonder if you understand anything of what is happening in Scotland right now. I've seen no anti-Englishness whatsoever in the YES-Campaign but a lot of anti-Scottishness from the NO-camp.

  • Comment number 1408.

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

  • rate this

    Comment number 1407.

    It all seems to be coming down to a matter of will I be better off in or out! I don't think you can be certain so its going to be a gamble. If you get it wrong I'm sure it won't be the end of the world, it will be just a matter of opinion. So come on, watch Braveheart one more time and go for it. After all your paying all those politicians anyway so you might as well give them a country to run.

  • rate this

    Comment number 1406.

    While I am no longer a potential victim of the Little Scotlanders I do have to agree with them that an IFS report looking 50 years into the future isn't worth the paper it's printed on.

    Scotland might find even more oil. Or a huge mountain of gold or diamonds. It might avoid electing a Labour government ever again. It might avoid mass third world economic immigration.

    Anything could happen.

  • rate this

    Comment number 1405.

    This is a projection of what continuing present UK policies would do to Scotland over 50, yes 50, years. They dont work. Scotland should have the abiity to set its own policies suitable for it and not be dragooned into policies set for the convenience of the City and the SE and neither should the rUK.

    Westminster isn't working for Scots now, or in the next 50 years.

  • rate this

    Comment number 1404.


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