Independent Scotland 'facing bigger cuts or tax rises' than rest of UK

It is “highly likely” an independent Scotland would need to implement bigger spending cuts or tax rises than the rest of the UK in the first decade following independence, a leading economic think-tank has said.

The Institute for Fiscal Studies (IFS) also said it was “far from certain” that rejoining the EU would boost growth.

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The paper sets out plans to use sterling as an independent Scotland’s currency, before moving to a new Scottish pound when the “time is right”. It says physical customs checks would be required on the two main trunk roads between Scotland and England.

Nicola Sturgeon holds a press conference to launch the third paper in the Building a New Scotland series. Picture: David Cheskin-Pool/Getty Images
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Speaking at Bute House in Edinburgh, Ms Sturgeon said “clear fiscal rules” would be set “to put and keep public finances on a sustainable path”.

She added: “We intend to have fiscal rules that keep day-to-day spending within sustainable limits and debt on a sustainable path, but still permit governments to properly support public services and borrow to invest. We reject austerity as both morally wrong and economically counterproductive.”

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The First Minister was later pushed on whether the first decade of independence would require tax rises, spending cuts and expensive borrowing. She highlighted plans for a £20 billion fund, using a mixture of oil and gas revenues and borrowing, that would invest in capital projects in the first decade after independence.

Ms Sturgeon insisted day-to-day public spending would operate “within the fiscal rules we set”.

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The IFS said the new document “does not discuss what achieving a sustainable fiscal position could mean for Scottish taxes or public spending, arguing that the economic and policy environment is too uncertain to do so”.

The think-tank added: “It is true that the future path of the UK and Scotland’s public finances is currently even more uncertain than usual. But nevertheless, Scotland’s much higher levels of public spending and slightly lower levels of onshore tax revenues mean that it is highly likely an independent Scotland would need to make bigger cuts to public spending or bigger increases to taxes in the first decade following independence than the rest of the UK would need to.”

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David Phillips, associate director at the IFS, said: “The Scottish Government’s new paper on post-independence economic plans makes all the right noises on how the public finances would be managed, emphasising achieving fiscal sustainability. But it skirts around what achieving sustainability would likely require in the first decade of an independent Scotland – bigger tax rises or spending cuts than the UK Government will have to pursue.

“This is because while high oil and gas prices means Scotland’s underlying budget deficit this year will be fairly close to that of the UK as a whole, this is likely to prove temporary. Oil and gas prices are expected to fall back, and North Sea production is on a long-term downward trend. Scotland’s public finances are therefore expected to weaken relative to the rest of the UK again unless onshore economic growth could be boosted to grow revenues from income tax, VAT and the like.

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“That’s not impossible and the Scottish Government has rightly highlighted the UK’s poor productivity performance, including relative to many of the small northern European countries that it is suggested Scotland could emulate. However, boosting productivity and growth is far from certain and would be easier said than done. Experience from recent weeks suggests the markets may not look favourably on fiscal plans built on the uncertain hope of a substantial future boost to growth.”

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