‘Scotland’s economy needs austerity after Yes vote’

SCOTTISH INDEPENDENCE: The economic outlook for an independent Scotland is more optimistic than previously forecast – provided it continues with George Osborne’s spending squeeze, according to one of Britain’s leading economic research institutes.

Experts have said that Scotland would need to undergo a period of austerity if it became independent. Picture: TSPL

Analysis by the Institute for Fiscal Studies (IFS) predicted a brighter future for the Scottish economy, but warned that Scotland would start out more in the red due to heavier borrowing than the rest of the UK if independence was secured.

The IFS also forecast that North Sea oil revenue in 2016-17 would be just £3.3 billion, less than half of the most pessimistic scenario outlined by Alex Salmond’s white paper.

The IFS view on Scotland’s economic prospects over the next five years was presented last night by the think-tank’s director Paul Johnson in a speech to the David Hume Institute.

The report was based on figures produced by the Office for Budget Responsibility (OBR), set up by the UK government to provide independent analysis of Britain’s public finances.

Opponents of the SNP claimed the IFS oil figures undermined Mr Salmond’s arguments because it would make an independent Scotland overly reliant on a volatile commodity.

The Scottish Government, however, responded by claiming that Scotland’s oil and gas sector was going through an investment boom and that there were North Sea reserves with a wholesale value of £1.5 trillion.

Taking the economic situation of the UK and Scotland overall, the IFS said finances looked healthier in the medium term thanks to the higher than expected economic growth forecast over the next few years and the Chancellor’s decision to extend his public spending freeze for another year up until 2018-19.

The IFS described its findings as “good news”, but pointed out that the improvement in tax revenues was dependent on an independent Scottish Government following Mr Osborne’s austerity programme – a policy which has been consistently attacked by Mr Salmond.

On the question of oil, the report claimed there was a gulf in the projections envisaged by the white paper and the figures produced by the OBR last year.

According to the IFS, the OBR figures “implied” oil and gas revenues of just £3.3bn in 2016-17. That contrasted with the estimate of £6.8bn to £7.9bn set out in the white paper.

“It looks like the Scottish Government’s forecasts for revenues under these scenarios have been too optimistic in 2012-13 and, with the vast majority of payments already having been made for 2013-14, their forecasts for this year also look to be too optimistic,” the IFS report said.

A Scottish Government spokesperson said: “There is no doubt that, as Standard & Poor’s noted last week, even without North Sea oil and calculating per capita GDP only by looking at onshore income, Scotland would qualify for their highest economic assessment.”