By Richard Johnstone | 11 April 2014
Scotland would have the second highest deficit among industrialised countries if it becomes independent in 2016, the Treasury has warned in its latest economic analysis ahead of September’s referendum.
The projection, published yesterday using International Monetary Fund data, found Scotland would have a fiscal deficit of 5.5% in 2016/17, equivalent to £9.5bn. As a percentage of gross domestic product, this would only be smaller than the United States, with Japan, Greece, Ireland and the rest of the UK among the 31 nations with lower estimated borrowing.
The figures are based on global fiscal forecasts released this week by the IMF and the Centre for Public Policy Research’s forecasts for the Scottish fiscal position.
The Treasury stated that the US’s position as the world’s reserve currency allowed it to run lager deficits, but creditors and ratings agency were ‘unlikely to have such confidence’ in an independent Scotland.
Publishing the analysis, Chief Secretary to the Treasury Danny Alexander, who represents Inverness, Nairn, Badenoch and Strathspey in the Scottish Highlands, said the analysis showed the ‘broad shoulders’ of the UK meant lower tax bills and higher spending on public services.
‘Our analysis of the IMF’s data shows that an independent Scotland would have the second highest deficit of any advanced economy in the first year of independence and more than £1,000 per person higher than the UK’s deficit. This would be a great risk to the Scottish economy, and would mean higher tax bills and cuts to public services to balance the books.
‘Being part of the larger UK economy provides Scotland with jobs, stability and security.’
The Treasury report is the latest examination of the economics of independence. It comes after the National Institute of Economic and Social Research warned that an agreement between Westminster and an independent Scotland to repay historic UK debt may not be enough to reassure credit ratings agencies that all obligations will be met.
However, the Scottish Government’s White Paper on independence, published ahead of the vote on September 18, argued Scotland’s public finances were robust enough to support independence and would get stronger with extra powers.
Responding to the report, a Scottish Government spokeswoman said an independent Scotland would be the 14th wealthiest country in the OECD.
'Scotland’s share of the UK debt is lower as a percentage of GDP than the UK’s when allocated on either a per capita or a historic basis,' she added.
'Over the past five years as a whole, Scotland’s deficit has averaged 7.2% of GDP whilst the UK have averaged 8.4%. Scotland has also generated more tax revenue per person than the UK as a whole in each of the past 33 years.'
The IMF data highlighted how badly the UK’s public finances are despite years of austerity, she added. 'Independence will give Scotland the economic tools we need to grow the economy more quickly and improve the fiscal position.'
