Independent Scotland spending gap would be smaller than UK's, CIPFA finds

30 Jun 14
Scotland’s public service funding gap is likely to be smaller than the UK’s if the country becomes independent in 2016/17, an analysis by CIPFA has found.

By Richard Johnstone | 30 June 2014

Scotland’s public service funding gap is likely to be smaller than the UK’s if the country becomes independent in 2016/17, an analysis by CIPFA has found.

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The institute’s The Scottish referendum: Scotland's future in the balance report found that in the proposed year of independence, and assuming that Scotland takes on a share of the UK’s national debt, public spending would total £69bn, against tax revenues of £65bn. This means there would be a projected shortfall between income and spending of around £4bn, or 6% of total spending.

For the whole of the UK, the spending gap is forecast to be £82bn, based on £753bn of projected spending versus tax revenues of £671bn. This is a shortfall equivalent to 11% of total spending.

Today’s report – which is intended to improve the information on Scotland’s public finances ahead of the September 18 vote – stated that ‘the challenges facing an independent Scotland are not dissimilar to that of the UK in 2016/17 in that there is a forecast shortfall to be addressed’. An independent Scottish government would need to use the financial levers available to it to take decisions on taxation, spending and borrowing in order to make its finances sustainable.

CIPFA also highlighted that, while devolution has led to significant divergence in policy choices between Scotland and the rest of the UK, the current financial reporting framework did not enable the position of the devolved public sector to be separately reported. 

In a bid to tackle this, CIPFA has produced a balance sheet for the devolved public sector for the first time. This estimated that the Scottish public sector has assets of around £84bn, mostly made up of property, plant and equipment (82% of the total), and liabilities of £100bn, of which pension and injury benefits make up around three-quarters.

Although this meant the overall position of the devolved Scottish public sector was a net liability of around £16bn, the report stated any post-independence negotiation around the division of public sector assets and liabilities would significantly impact upon this.

Don Peebles, head of CIPFA Scotland, said: ‘CIPFA thinks that the decision the Scottish people are being asked to take is vitally important and needs to be supported by financial information that is readily understandable.

‘A balance sheet for the Scottish public sector would provide a starting point that would help voters to understand clearly what we know about where Scotland’s finances are now, but also where further information needs to be provided. Our hope is that this report helps to shed light on the debate so as to better inform voters on all sides of the argument.’

Regardless of the outcome of the referendum, the report said it was essential the Scottish Government and the wider public sector could assure the public of the sustainability of the public finances in the future. This will require a different financial reporting regime to produce more transparent and understandable data on Scotland’s finances.

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