Scottish independence: ‘Huge budget deficit’ for go-alone Scotland

By EDDIE BARNES
Published on 27/06/2012 00:00

ONE of the UK’s most powerful business figures has warned that Scotland would have to increase taxes, slash spending or increase borrowing after independence, in a gloomy assessment of the country’s economic muscle.

Addressing a House of Lords committee yesterday, CBI director-general John Cridland argued that post-independence, Scotland would immediately be faced with a large budget deficit, potentially bigger proportionally than the UK’s.

As a consequence, he argued that a new government would be confronted with a choice involving “more borrowing, more taxation or reductions in spending”.

Pressed on whether the near £9bn revenues from the North Sea would ease the difficulties, Mr Cridland warned that the new country’s heavy reliance on its North Sea bounty would “produce much more volatility” within the public finances.

He added: “That produces uncertainty and that is the most damaging characteristic for building investment.”

Insisting fragmentation of the UK single market would be “inevitable”, he said: “In our judgment there would be an economic loss. It is for that reason that we have taken the view that we can’t see an economic benefit. For that reason we favour the retention of the Union.”

However, also giving evidence, Simon Walker, director-general, of the Institute of Directors, said his organisation remained on the fence, as there was division among his members on the merits of independence.

Mr Cridland claimed his own figures suggested Scotland’s current account deficit would be “in excess of 11 per cent of GDP”.

The CBI confirmed afterwards that he was basing his figures on Scottish Government statistics that estimate the country’s fiscal balance with only a per capita share of North Sea oil. The same figures show that, with a geographical share, Scotland’s deficit would be only 4 per cent, or lower than the UK’s deficit in the last financial year.

Last night he SNP insisted last night that Mr Cridland’s warning was misplaced. A spokesman for John Swinney said: “These claims are wrong. Scotland’s public finances are in a better position than the UK’s.”

He added: “And an independent Scotland, with access to its own huge natural resources, will be the sixth wealthiest country in the developed world.”

In the evidence session, held before the Lords’ Treasury committee, Mr Cridland also suggested that, in the short term, Scotland would have to counter set-up costs as the country found its feet. “That is inevitable.”

He quoted the experience of Slovakia when it and the Czech Republic divided, saying GDP had fallen by 4 per cent, before recovering.

He also warned that as negotiations and the transition carried on after a Yes vote, the danger was that businesses would hold back on investment. “It is a fact that the British economy is held back by political uncertainty. It is a killer for business confidence.”

However, Mr Cridland praised Scotland’s ability to attract inward investment.

He said: “There is a Scottish brand that is rightly and proudly recognised around the world.”

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