'Dual challenge' for independent Scotland

Money and Saltire purse The initial essence of the IFS report is that Scotland is relatively well placed fiscally at the moment

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Anticipation can be a very powerful experience, generating enthusiasm, apprehension and puzzlement in varying degrees.

All three may be said to apply with regard to the White Paper on independence which will be published by the Scottish government a week on Tuesday.

Nationalists are enthusiastic, Unionists say the people of Scotland should be fretful - and there is always a decided degree of uncertainty when one has yet to study the full details of a proposal.

However, perhaps the core substance of the choice which will face us in the White Paper and, more specifically on September 18 next year, is already before us, to a large measure. Perhaps that core substance is to be found in two publications, today and tomorrow.

Today we have a report from the Institute for Fiscal Studies examining the long (very long) term prospects for an independent Scotland. Those prospects are, broadly, not good, according to the IFS, prompting supporters of the Union to counsel against independence.

Tomorrow the Scottish government will spotlight the levers which, they argue, would be available to ameliorate the economy post independence.

The two might, perhaps, be considered in tandem because here, before us, we have the core arguments which will form the referendum campaign. Get used to them: you will hear them more than once.

Fiscal tightening

The starting point for the IFS is to note that spending on public services remains higher, per capita, in Scotland than elsewhere on these islands. Self-evidently, that has to be funded - or cut.

Despite that level of spending, the initial essence of the IFS report is that Scotland is relatively well placed fiscally at the moment - I stress, relatively - if a geographical share of North Sea revenue is included. Indeed, onshore output and tax revenues are comparable to the rest of the UK. (Spending is not, see above.)

However, the fifty year projection (told you it was long) brings a dual added challenge: declining oil revenues, costly demographics.

That dual challenge, they note, is over and above the fiscal tightening which is already implicit in the UK's austerity programme. Scotland, they argue, would need to make "significant" policy changes on top of the UK plans: higher tax, lower spending, combination of both.

Why? Because, it is noted, our relative strength at the moment (stress, repeat, relative by comparison with the UK as a whole) begins to dissipate as the oil runs out and our population profile ages. The IFS say all parts of the UK will experience increasing numbers of elderly people, with a concomitant impact upon spending. However, they add that Scotland faces an added challenge in that the numbers who are of working age - and thus paying tax - are projected to reduce here. (Elsewhere, all sectors of the population increase.)

Greater demand. Fewer taxpayers. Declining oil. So says the IFS. Hence, say Unionists, stick with the UK.

Alternative scenarios

However, as the Finance Secretary John Swinney is quick to point out, the Institute also acknowledges that other brands are available. There are alternative scenarios.

Mr Swinney rightly points out that the IFS concede that their projections contain a degree of inherent uncertainty, dependent as they are upon long-term forecasts and economic variables - in particular, the rate of net migration which might provide more tax payers.

In the past, SNP Ministers have argued that Scotland must be more welcoming with regard to economic migrants who could make a contribution to growth and stimulus. It will be intriguing to see whether this develops further as a referendum theme.

There are other variables. Might North Sea revenue prove more buoyant and enduring than forecast? Might an independent Scotland design a more efficient tax system which stimulates growth and thus state income?

To be clear, though, 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.

Mr Swinney draws a different conclusion. He says that Scotland is in a potential mess precisely because of the economic stewardship of the UK, that comparable independent countries have registered higher growth rates and that tailored economic policies under independence could generate results.

Brian Taylor Article written by Brian Taylor Brian Taylor Political editor, Scotland

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