DCSIMG

Warning over deficit after Scottish independence

The Scottish Government claims its deficit would be just 3.2 per cent of GDP. Picture: Jon Savage

The Scottish Government claims its deficit would be just 3.2 per cent of GDP. Picture: Jon Savage

  • by DAVID MADDOX
 

THE UK’s leading economic think-tank has warned that an independent Scotland’s deficit would be “unsustainable” and worse than previously estimated.

The Institute for Fiscal Studies (IFS) said that in the first year of independence, in 2016-17, it would be 5.5 per cent of GDP, or £8.6 billion – £1,600 per head based on figures produced by the independent Office for Budget Responsibility.

It noted that, at the point the UK would be ending its period of austerity, Scotland would have to continue with tax increases and service cuts.

Previously it had suggested that the deficit would be 5.2 per cent, but had said this would be £8.9bn in today’s money at £1,600 per head.

David Phillips, a senior research economist at the IFS, said that the lower cash figure was because the estimates for Scotland’s GDP are now lower.

He said: “The key point is that the underlying structural picture is getting worse for Scotland in terms of deficit proportion to GDP.”

The Scottish Government claims its deficit would be just 3.2 per cent of GDP, or £5.5bn at £1,020 per head. However, other estimates including Citigroup and the Centre for Public Policy for Regions also have an independent Scotland’s deficit at 5.5 per cent.

At the same time, the UK deficit is expected to be 2.4 per cent of GDP, or £680 per head.

The IFS analysis notes that the Scottish Government independence white paper outlined tax-raising measures and spending cuts that would save just under £500 million a year, with an added aspiration to raise a further £235m by tackling tax avoidance.

But the IFS said spending increases and tax cuts described in the white paper are around £1.2bn a year in the short term and “potentially considerably more in the longer term if full aspirations for childcare and state pensions are met”.

Better Together leader and former chancellor Alistair Darling said: “There is little doubt now that leaving the UK means big cuts to the benefits and pensions that millions of people in Scotland rely on.”

A Scottish Government spokesman said: “Scotland is one of the wealthiest countries in the world – more prosperous per head than France, Japan and the UK – but we need the powers of independence to enable that wealth to be shared.”

 

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