04 May 2007
Scotland's weak economic performance could affect the country's ability to prosper under independence, a leading think-tank has warned.
A study by the National Institute of Economic and Social Research concludes that Scotland would not be able to rely on North Sea oil income alone and that other issues, such as a public sector 'overspend' and sluggish productivity growth, would hamper its prospects.
The findings challenge Scottish National Party claims that a Scotland outside the UK would quickly prosper. The institute notes that the SNP has suggested that in government it would aim to raise Scotland's gross domestic product growth – currently lower than the rest of the UK – by 0.75 percentage points within four years.
This would need to be achieved by a rise in productivity, but the experience of the UK government over the past ten years suggests that is easier said than done, the researchers warn. They say the weakness of Scottish productivity growth is the main problem and that independence is 'unlikely to lead to a leap in prosperity overnight', as found by some of the small European Union nations.
According to the institute, there is no reason why an independent Scotland could not pursue a competitive tax strategy by cutting corporation taxes and drawing in new investment. However, it believes this is unlikely to lead to the kind of 'growth miracle' achieved in Ireland, especially as Scotland would be starting from a position of relative affluence.
While acknowledging that North Sea oil revenues would go some way to loosening the fiscal straitjacket Scotland would probably find itself in were it to go it alone, the researchers stress that revenues depend on the oil price and scale of production and that hedging bets on oil is not necessarily a prudent strategy.
Researchers Rebecca Riley, Simon Kirby and Martin Weale state: 'While oil may buy an independent Scotland time, it cannot be the only answer to the more pressing issues of public sector overspend, an ageing population and sluggish productivity growth.'
PFmay2007
