The debate rages on Scotland’s finances

The SNP government will today argue that independence would 'transform' Scotland’s economy.

The SNP government will today argue that independence would ‘transform’ Scotland’s economy.

Ahead of the publication next week of the much anticipated White Paper on independence, a new report to be published today by the Scottish government will outline the range of economic levers that an independent Scotland would gain, such as potentially cutting corporation tax.

The paper will argue that had the Scottish economy grown at the same rate as other similar independent nations between 1977 and the start of the recession in 2007, GDP would be 3.8 per cent higher than at present (£900 per person in Scotland).

Declaring that Scotland can “more than afford to be an economically successful independent country”, John Swinney has said ahead of the paper’s launch in Dundee:

“The key difference between Scotland and better performing independent European countries is that they have the ability to set economic policy in their own interests while economic policy in Scotland is determined by the one size fits all policies of Westminster.

“With independence we can bring together the full range of powers we need to improve economic growth, build a more secure future for Scotland and tackle inequality across society.”

Yet for all the bluster about using economic levers to transform Scotland, the reality is that ministers at Holyrood are simply brushing aside all credible economic data pointing to an independent Scotland facing the prospects of a bigger deficit than the UK as a whole faces, with the prospects of having to either raise taxes of cut public spending.

Yesterday’s report by the respected and non-political Institute for Fiscal Studies on the fiscal sustainability of an independent Scotland could not have been clearer.

“Despite the considerable uncertainty surrounding the future path of borrowing and debt in Scotland”, it concludes, “the main conclusion of our analysis is that a significant further fiscal tightening would be required in Scotland, on top of that already announced by the UK government, in order to put Scotland’s long-term public finances onto a sustainable footing”.

Outlining the risks of basing an economy on North Sea Oil, the report’s authors observe:

“Our basic model, which adopts the same assumptions as made by the OBR in the 2013 FSR for its central projection for the UK, suggests that by 2017–18 this gap between spending and revenues will have fallen to 2.2 per cent of national income for the UK and to 4.3 per cent for Scotland.

“The main reason why Scotland’s borrowing is projected to decline much less quickly than the UK’s over the next five years is that North Sea revenues (which are a more important source of income for Scotland than for the UK as a whole) fell sharply between 2011–12 and 2012–13 and are forecast by the OBR to fall even further by 2017–18.”

Using the same model it continues:

“without policy action, public sector net debt in Scotland would increase every year as a share of national income and exceed 100% of national income by 2033–34. We estimate that Scotland would require a permanent tax increase or spending cut (or a combination of the two) equal to 4.1 per cent of Scottish national income (or about £6 billion in today’s terms), to be implemented in 2021–22, to put Scottish public sector debt on course to reach 40 per cent of national income by 2062–63.”

Even under the most optimistic of scenarios, the report concludes that “the fiscal gap for Scotland would be 1.9 per cent of national income, i.e. significantly larger than the gap that we estimate the UK faces”.

Warning that the figures show that independence is a risk that need not be taken, the former chancellor and head of the Better Together Campaign Alistair Darling has declared:

“The choice we face is clear – believe Alex Salmond or believe the experts and the facts.

“As part of the UK, we are better placed to tackle the long term challenge of sustainable public finances. Things are difficult just now, but the IFS report makes clear that they would get much worse if we separated from the UK. That is a risk that we really don’t need to take.

“Coming little more than a week before the publication of the SNP’s crucial White Paper, the IFS report poses a significant challenge for Alex Salmond. The White Paper must face up to the consequences of independence, including the need for big spending cuts and tax rises. If it doesn’t, then it won’t be worth the paper it is written on.”

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