New warning over economic case for an independent Scotland

A respected economic think tank has warned that the size of a separate Scotland’s deficit as a result of the Covid pandemic would generate deeper austerity than previously predicted, as it was revealed “alternative” taxation and spending figures promised by the Scottish Government last year would not be published.

The annual GERS report on Scotland's finances is published tomorrow.

Economist David Phillips of the Institute for Fiscal Studies (IFS) has estimated the annual gap between what the Scottish Government raises in taxes and what it spends on public services could surpass the £11.2billion previously suggested by the SNP’s own Growth Commission economic report.

He warned the impact of coronavirus could mean an even tougher starting point for an independent Scotland as the annual Government Expenditure and Revenue Scotland (GERS) figures were due to be published, underlining fears by opposition parties that independence could mean tax rises and services cuts.

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GERS figures: What are they and why are they controversial?

Mr Phillips said: “The deficit would likely be higher than they assumed. This is partly due to the impact of Covid-19 and partly because even prior to the crisis the UK Government had released the purse strings. Addressing this bigger deficit would require greater tax rises and/or spending restraint — effectively austerity — or a strong uptick in growth.”

Scotland’s economy slumped by almost a fifth between April and June, according to government figures, with a drop in Gross Domestic Product for the second quarter in a row, confirming a recession.

The Scottish Government is due to publish its annual GERS report today, giving the latest estimates on the difference between what Scotland raises in taxation and what it spends on public services. The Scottish Government's own website claims the aim of GERS is to "enhance public understanding of fiscal issues".

However the figures have become the subject of heated debate as independence supporters do not believe they reveal how a separate Scotland would function economically, as they are based on the current constitutional state.

Last year the then Economy Secretary, Derek Mackay, said he would produce his own set of “alternative GERS figures”, demonstrating how an independent Scotland might perform, but the government confirmed yesterday that the pandemic had “diverted resources” from producing the data.

Scottish Conservative MSP Murdo Fraser said he believed that this year’s GERS figures would “provoke lively debate... but would prove the benefit of the “union dividend”.”

He added: “In recent times the GERS figures have proved deeply uncomfortable for the Nationalist cause.

“Last year GERS showed the Scottish tax take was £307 per person lower than the UK average, taking into account a geographical share of North Sea Oil. Much more significant was the gap in public spending: in Scotland it is £1661 higher per capita than the UK average.

"This means that the “Union Dividend” – the fiscal transfer from the rest of the UK to Scotland - increased to a record £1968 for every man, woman and child in Scotland. That is the sum - £8000 for a family of four in each year – that Scotland stands to lose in the event of separation from the rest of the UK.”

However SNP Depute Leader Keith Brown said: "The Coronavirus crisis has created unprecedented demands on Government spending across the world.

"Every country has had to borrow substantially to combat the pandemic. Scotland is not unique in this respect.

"However, Scotland is unique in that we do not ourselves have the power to borrow to meet the specific challenges we face – independence will give us those powers.”

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