iScotland set for £4bn budget shortfall in 2016

A report has said that an independent Scotland faces a budget shortfall of four billion pounds in 2016 - but the UK government faces a shortfall of 11 billion pounds. Picture: TSPL

The study said that for 2016-17 - which could be the first year of independence if there is a Yes vote in September’s referendum - the highest estimates for both tax and spending “still suggests a shortfall between income and spend of around £4 billion, or 6 per cent of total spending”.

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But the research, by the Chartered Institute of Public Finance and Accountancy (CIPFA) Scotland, said in that year the UK could be facing an £82 billion deficit between expected tax revenues and total spending - some 11% of total spending.

“Thus, the challenges facing an independent Scotland are not dissimilar to that of the UK in 2016-17 in that there is a forecast shortfall to be addressed,” CIPFA said.

“An independent Scotland could spend £69 billion on public services in the proposed year of independence (2016-17), but estimated tax revenue is less than that. This means that there will be a shortfall to be met, but an independent Scottish Government would have the powers and financial levers necessary to manage its financial and economic position sustainably.”

It stressed that a “clear and understandable picture of Scotland’s public finances is essential to fully inform this important national debate” in the run up to the historic vote.

As part of that, CIPFA produced a “balance sheet” for the current devolved Scottish public sector, describing this as “a basic management tool which is essential for any organisation, government or country”.

It said Scotland is “not currently required to produce a balance sheet for its devolved public sector” but CIPFA estimated that the devolved government and wider public sector to have assets of approximately £84.4 billion, along with liabilities of approximately £100.7 billion.

The report said it is “common for governments to have a negative equity position, where liabilities exceed assets, ie more is owed than owned”.

It also stated: “Although our work gives a clearer indication of the Scottish public sector’s assets and liabilities, it is not, however, currently possible to form a complete picture of what Scotland’s opening financial position would be as an independent nation, because this would be a product of negotiations with the UK Government.”

CIPFA said there were “remaining uncertainties, particularly around the division of assets and liabilities between the UK and an independent Scotland and the impact of the currency arrangements”.

These would “significantly impact on ‘Scotland’s public sector balance sheet’”, CIPFA said.

It added Scotland’s share of the national debt could be up to £120 billion, which could result in an annual cost of approximately £4 billion if the country voted for independence, while the existing public sector pension liabilities would increase.

Negotiations will also be needed to determine Scotland’s share of North Sea oil revenues, which are “likely to be a major source of revenue for an independent Scotland”.

The report stated: “CIPFA concludes that the outcomes of these negotiations are fundamental to the starting position of an independent Scotland, and the fact that the outcome will not be known until after a vote for independence means that a truly informed decision cannot be made in the referendum.”

Don Peebles, head of CIPFA Scotland, said: “CIPFA thinks that the decision the Scottish people are being asked to take is vitally important and needs to be supported by financial information that is readily understandable.

“A balance sheet for the Scottish public sector would provide a starting point that would help voters to understand clearly what we know about where Scotland’s finances are now, but also where further information needs to be provided.

“Our hope is that this report helps to shed light on the debate so as to better inform voters on all sides of the argument.”