By Keith Aitken in Edinburgh | 19 September 2013
A newly independent Scotland could face a shortfall of close to £6bn in its public finances, thanks to a mixture of UK-led austerity measures and falling oil prices, according to a report today from the Institute for Fiscal Studies.
The report, which was roundly dismissed by the Scottish Government, suggests that Scotland would have to find some £2.5bn of cuts or tax rises in the years 2016/17 and 2017/18 – if it followed the public spending course set by the UK government. Using recent projections by the UK Office of Budget Responsibility, it also warns that falling oil revenues could deepen the black hole by a further £3.4bn.
Assuming Scottish National Party Ministers stuck by their promises to safeguard health and education, the report suggests spending on other services would have to be cut by close to a third, unless Holyrood resorted to tax increases to shore up Scotland’s £33bn budget.
The report, produced for a conference in Edinburgh one year ahead of the independence referendum, says that per capita spending in Scotland is 11% higher than the UK average cross the budget, and 17% higher on services.
Its estimates on likely service cuts take as their starting point the UK government’s plan for cuts equivalent to 1.6% in 2016/71 and 2017/16. For Scotland, it says, this would amount to a spending shortfall of around £2.5bn.
David Phillips, one of the report’s authors, acknowledged that Scotland’s different spending priorities could mean much less costly allocations for remits like defence and overseas aid, but said that Scotland’s proportionately higher spend on transport, housing, economic development and social services implied a need either for cuts or for significant tax rises.
Iain Gray, Labour’s Scottish finance spokesman, seized on the report which, he claimed, ‘laid bare the economics of independence’. He said: ‘Common sense tells us we are better off sharing resources with our neighbours and as a consequence the best way to deliver a more prosperous Scotland is with the security of the union.’
But the Scottish Government said an independent Scotland would be able to follow its own spending choices rather than those ordained by Westminster. The OBR projections for North Sea oil, first issued in July, were also challenged at the time by Scottish ministers, who pointed out that they were markedly gloomier than the industry’s own expectations.
First Minister Alex Salmond told MSPs this week: ‘Excluding oil, our national income is on a par with the UK. Including oil, our gross domestic product per head is 18% higher than for the UK. In fact, it’s among the ten highest in the Organisation for Economic Co-operation and Development.
‘Scotland more than pays its own way at the moment and can more than afford to be a successful independent country,’ a Scottish government spokesman added. ‘We have contributed more tax per head than the rest of the country for every one of the last 32 years to 2011/12, while spending on welfare and pensions is more affordable in Scotland compared to the UK.’
