IFS: indy Scotland would need to hike taxes or cut spending

An independent Scotland would have to hike taxes or cut spending and is likely to face political pressure to adopt the euro as the price of EU membership, a leading economist has said.

The price of oil had made Scotlands financial position more difficult since the independence referendum in 2014. Picture: PA

Paul Johnson, director of the Institute for Fiscal Studies, said public spending was more than £1,000 higher per person in Scotland than in the rest of the UK, despite tax revenue being similar.

He added that the fall in the price of oil had made Scotland’s financial position more difficult since the independence referendum in 2014.

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Brexit had made the situation more complicated because if Scotland was inside the European Union single market and the rest of the UK was outside, trade with its largest partner could suffer.

Setting out why spending cuts or tax hikes may be required, Mr Johnson said: “Scotland looks very much like the rest of the UK in terms of its income per head, so we get just about as much tax per person from everyone in Scotland as we do in the rest of the UK.

“But spending in Scotland is more than £1,000 per person higher than spending in the rest of the UK.

“So what that means is that there is a big transfer of money from the rest of the UK to Scotland and, obviously, if Scotland were to become independent it would have to either reduce its spending by more than £1,000 per head or increase its taxes by more than £1,000 per head.”

The price of oil had made Scotlands financial position more difficult since the independence referendum in 2014. Picture: PA

The question of whether Scotland would be able to continue to use sterling was one of the major economic arguments during the 2014 referendum - and the UK’s departure from the EU could make that more unlikely.

He said: “It would clearly be more difficult to maintain the pound if the UK was outside the EU and Scotland was inside and the pressure on Scotland politically from the rest of the EU to join the euro would be significant.

“But in the end that would be a political, as much as an economic, choice.”

The price of oil had made Scotlands financial position more difficult since the independence referendum in 2014. Picture: PA

Mr Johnson told BBC Radio 4’s World At One: “Two things have changed since the last Scottish referendum. The first is that the Scottish fiscal situation has got worse, relative to that of the rest of the UK, because the oil price has gone down.

“And with spending per head more than £1,000 more in Scotland than it is in the rest of the UK that creates quite a significant fiscal problem going forward.

“Secondly, of course, the Brexit vote means that the UK looks like it is going to come out of the single market but if an independent Scotland were to be in the EU - within the single market - and the rest of the UK were to be out of it, then that helps Scotland in terms of its access to the rest of the European economies but potentially hinders it very badly in terms of its access to the UK market, depending on the political and economic agreement that was come to.”