Independent Scotland would have debt above 100% of national income
An independent Scotland would have to massively raise taxes or cut spending to put its long-term debt on a sustainable footing, new research has revealed.
A report by the respected Institute for Fiscal Studies (IFS) found that without significant additional fiscal tightening, an independent Scotland would have public sector net debt rise above 100% of national income by the early 2030s.
“An independent Scotland would face even tougher choices than those faced by the UK over the longer term,” Gemma Tetlow, one of the report’s authors, said.
“In 2011–12, higher public spending per person in Scotland was more than matched by higher revenues from activity in the North Sea.
“However, 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.
“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.”
The findings present a serious risk to Alex Salmond’s efforts to present the public with a convincing argument for the financial viability of an independent Scotland in a white paper later this month.
Alistair Darling, leader of Better Together, 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.
“The choice facing the people of Scotland is clear – believe Alex Salmond or believe the experts and the facts.”
Researchers found that public spending per head is higher in Scotland than in the rest of the UK but that onshore tax raising was at a similar level.
Previously the gap was forecast to be covered by North Sea oil revenues, but analysts predict a drop in income from that source, meaning an independent Scotland would need to launch additional fiscal tightening and take on more migrant workers to balance out its aging population.
Even on the most optimistic assessment of the variables which could affect the country, Scotland faces a more challenging fiscal outlook than that affecting the rest of the UK.
If the Scottish government wanted to reduce public sector debt to 40% of national income over the next 50 years, it would need to implement a permanent tax rise or spending cut equal to 4.1% of national income, amounting to around £6 billion in today’s terms.
The changes would come in addition to fiscal tightening already pencilled in to be completed by 2018.
Analysts found that even under optimistic assessments, the ‘fiscal gap’ in Scotland amounts to 1.9% of national income – roughly £3 billion.
The fiscal gap for the UK as a whole requires tightening of just 0.8% of national income.
That would leave the Scottish government facing an unenviable decision of increasing the basic rate of tax by nine per cent, increasing the standard rate of VAT by eight per cent, or cutting public service spending by eight per cent.
