IFS expresses concern over Scottish government’s analysis of public finances

The respected Institute for Fiscal Studies has cast doubts over the assumptions underlying the Scottish government’s assessment of public finances.

The respected Institute for Fiscal Studies has cast doubts over the assumptions underlying the Scottish government’s assessment of public finances should Scotland vote for independence in September.

The UK and Scottish governments have today published contradicting documents outlining the benefits, or otherwise, independence would bring to Scotland’s financial positions.

Seeking to explain the differences, the IFS has this afternoon produced an analysis, pointing to a potentially over optimistic assessment by SNP ministers of the likely deficit of an independent Scotland, underpinned by calculations on north sea oil revenue that is at odds with both the IFS and the Office for Budget Responsibility.

In its analysis, Scottigh ministers conclude that under independence, “Scotland’s deficit is projected to fall to 2.8 per cent of GDP in 2016-17” – greater than the 2.4 per cent deficit currently forecast by the OBR for the UK as a whole in that year. In March, however, the IFS put this figure at a far larger 5.2 per cent.

Pointing to the Scottish government’s decision not to use the same figures as those used by the IFS and OBR in calculating North Sea Oil revenues, Rowena Crawford and Gemma Tetlow from the IFS explained:

“The main point of disagreement is the different forecasts for revenues from North Sea oil and gas used. Our figures and the Treasury’s figures are based on the Office for Budget Responsibility’s projections. The Scottish government report instead uses their own – higher – forecasts for North Sea revenues. Their figures assume that Scotland will receive £6.9 billion (or 4.1 per cent of Scottish GDP) in tax revenues from offshore oil and gas production in 2016–17, rather than the £2.9 billion (1.7 per cent of GDP) forecast by the OBR.”

Highlighting the difficulties in knowing “exactly what offshore oil and gas revenues will be in future”, the IFS analysis warns that Scotland’s fiscal position would be “much more sensitive” to fluctuations in oil revenues than for the UK as a whole, which would, the IFS notes, “pose its own challenges to the management of the public finances in an independent Scotland”.

Even assuming that oil revenues come in as forecast by the Scottish government up to 2016-17, the IFS continues to urge caution about the sustainability of Scotland’s public finances if it opted for independence:

“Unfortunately the longer-run picture is not that simple. There are two important fiscal challenges that an independent Scotland would have to face in the longer run. First, an ageing population, which would tend to increase public spending (particularly on health care and pensions) and reduce some tax revenues. Second, as reserves of oil and gas are depleted over the long run, offshore revenues are likely to decline. These pressures will tend to increase public spending and reduce revenues, and therefore increase borrowing and debt, in the absence of other offsetting policies.

“In other words, even if the Scottish public finances were to look favourable in 2016–17, the long run picture may look very different. These challenges face not only Scotland but the UK as a whole. However, our previous work suggests that the issues (particularly the decline in revenues from offshore production) would be more acute for Scotland.”

Expressing concerns with the Scottish government’s analysis which provides scenarios suggesting that debt “could be on a decreasing, rather than increasing, path every year from 2018–19 onwards”, the IFS conclude:

“…whilst it may turn out to be the case that the Scottish economy does a great deal better after independence than it would as part of the UK, planning on this as a central assumption seems less than cautious.”

6 Responses to “IFS expresses concern over Scottish government’s analysis of public finances”

  1. Iain S

    Since when has the Institute for Fiscal Studies been “respected” by the Left?

    Tax Research UK has said that “Institute for Fiscal Studies is a
    body that persistently recommends tax increases that benefit the
    wealthiest in society at cost to those who make their living from work
    and the poorest in society” http://en.wikipedia.org/wiki/Institute_for_Fiscal_Studies#Criticism

  2. Alec

    Since when did you speak for the Left?

    As for your bad manners in making no attempt to engage with the merits – or not – of the argument. Just one to shut down the discussion with a link to Wiki.

    Okay, Tax Research UK is basically Richard Murphy who has himself come in for criticism.

    One area of criticism is the arrangements used in conducting his own tax affairs, such as supplying research work through a company, Fulcrum Publishing Ltd[4] not paying business rates on business premises[5]and writing articles in The Guardian on minimizing tax in situations such as being self-employed or employing a nanny.[6]

    In 2001 Murphy wrote an article in the Observer recommending that parents set up a personal service company for their nanny in order to avoid income tax and national insurance contributions.[7]

    The greatest area of controversy concerning Murphy has been his estimate of the tax gap.[8] He has disputed HM Revenue and Customs’ estimates of the tax gap. His estimate has been dismissed by HMRC.[9] There have been several other criticisms of his methodology including Oxford University Centre for Business Taxation in their December 2012 publication The Tax Gap for Corporation Tax.[10]

    In February 2013, the Institute for Fiscal Studies cited his estimate of the corporate tax gap for the TUC as one which was “likely overstated (possibly by a wide margin)”

    http://en.wikipedia.org/wiki/Richard_Murphy_(accountant)

    Tu quoque straight back at you.

    ~alec

  3. Iain S

    I never said I spoke for the Left; I asked a question.

    I’ll ask another. Are you saying criticism of Richard Murphy negates criticism of the IFS?

    As to my manners: disputing the merits of a commentator is engaging with the story.

    How about quoting the source of the UK Treasuries figures? The author describes the use of his report as “ludicrous” http://www.bbc.co.uk/news/uk-scotland-scotland-politics-27611563

    And the OBR has a record of woeful predictions http://www.leftfutures.org/2013/12/fairytales-from-the-obr-nightmare-for-the-population/

    I do find it somewhat strange that disreputable organisations become “respected” when they speak in support the Union.

  4. Alec

    I never said I spoke for the Left; I asked a question.

    Yeah, right. And how would you know what “the Left” ‘thought’ if you didn’t think you had an especial insight into it? Still, at least you haven’t strung people along for a dozen comments before pulling a blinder on them – in fact, purposefully leading them down one route before introducing a wholly unexpected retort which no-one who’s not a mind-reading could have anticipated – as you normally do with your childish trolling.

    As to my manners: disputing the merits of a commentator is engaging with the story.

    No, it’s thuggish polemics unless you can dispute the actual substance of the assertions. I know Cybernats – oh, wait, are you about to tell us you’re a NO voter? – are fond of dismissing any criticism of their favoured sources as ad hominems, but yours is that and nothing else… the IFS is a bad ‘un as decreed by you, so everything it says is to be distrusted.

    All you gave was a casual Wiki link which plainly was edited by a Tax Research UK insider… and, given Tax Research UK is Richard Murphy and nothing else, it’s a reasonable bet who that was.

    Unlike IFS, which actually is a professional company conforming to industry standards, Tax Research UK is a one man operation… and a very silly man.

    The thing is, if you’d read down the Wiki page after your lazy Google, you’d have seen that it’s hardly sympathetic to the current Government’s economic policies.

    I do find it somewhat strange that disreputable organisations become “respected” when they speak in support the Union.

    Given that neither of the links you gave are from LFF (and one is from an amateur blog) or even about the IFS, this smacks of another attempt to derail a thread you’re not in control of.

    Try responding to the substance of the AtL piece instead of throwing around links in an attempt to opponent up in endless verification.

  5. Iain Macmillan

    Don’t bother trying to engage with the BritNats on here Iain, they all have that imperial mindset that can’t tolerate us uppity Jocks actually wanting to run our own country!

  6. Alec

    Oh, look, another bad mannered troll who doesn’t think it’s his place to actually respond to the post. And, see, you all are up-voting your comments… bit cliquish, no? Bit like a mob, eh?

    Who says “uppity Jocks”? Absolutely no-one! Just because you’re a boorish bigot masquerading as progressive doesn’t mean you can project your prejudices onto everyone else.

    ~alec

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