GERS: Scotland's deficit unsustainable in long term, says think-tank

A leading financial think-tank has warned that tax rises or public service cuts would be needed to tackle Scotland’s mounting deficit should the country gain independence.

The Institute for Fiscal Studies (IFS) said while the deficit will reduce as the UK economy recovers, and temporary additional spending on support for public services winds down, Scotland’s financial black hole would need to be tackled.

Describing the gap between monies raised and spent as “a structural deficit”, the organisation said independence would prove it to be unsustainable “on an ongoing basis”.

New government figures showed Scotland's deficit has doubled in the past year to £36 billion as a result of Covid pandemic spending, falling tax take, and a slump in oil and gas revenues.

North Sea oil and gas revenues have plummeted.

The IFS report states the deficit would “need to be tackled by some combination of spending cuts and/or tax rises, in the absence of much stronger economic performance, which is unlikely".

The document says the SNP’s Sustainable Growth Commission, which has been rejected by the party, was “admirably upfront about the need for a fiscal adjustment post-independence”, adding “although its honesty did not extend to admitting that its proposed solution of holding down spending to 1 per cent a year below economic growth would likely mean austerity for at least some public services”.

Addressing the claim by finance secretary Kate Forbes that an independent Scotland could borrow to deal with crises such as the pandemic, the report states: “There is a difference between a temporary surge in borrowing like the UK’s – especially at a time when the household sector is massively boosting its saving – and the large structural deficit that an independent Scotland would start life with.”

The think-tank also said a separate Scottish currency “could come under pressure if Scotland’s public finances were seen as unsustainable by the financial markets” and as a result “action to reduce Scotland’s deficit is therefore a key part of plans for a new currency”.

The IFS report admits none of the issues mean “Scotland cannot afford to be independent”, but says there should be no disagreement over Scotland’s “weaker fiscal position than the UK as a whole”.

"While not perfect, the GERS statistics tell such a clear story that that debate shouldn’t currently be a debate at all,” the report said.

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