Scottish independence: IFS deliver economy report

The IFS have delivered a further report on the economic situation an independent Scotland would face. Picture: TSPL

The IFS has issued “good news” for an independent Scotland compared with its more cautious forecast last year, but said it must continue with the spending cuts which have been unpopular with the present Scottish Government.

It has also warned that official UK oil forecasts are now less than half the revenue expected in the Scottish Government’s least optimistic forecast.

The UK Office for Budget Responsibility (OBR) has revised its oil forecast downward from £4.5 billion to £3.3 billion in 2016/17, meaning the SNP’s forecasts of between £6.8 billion and £7.9 billion “look to be too optimistic”, the IFS said.

The IFS observation states: “The latest OBR forecasts for the UK’s public finances imply a slightly stronger fiscal position for a potentially independent Scotland in the medium-term than their previous forecasts suggested, although with higher borrowing over the next couple of years.

“This is good news but would require the government of a newly independent Scotland to continue with the spending squeeze currently planned by the UK’s coalition Government.

“The latest OBR forecasts also illustrate the sensitivity of Scottish public finances to oil revenues.

“Neither the OBR nor the Scottish Government can know for sure what will happen to these revenues.

“What is clear is that fiscal decisions in an independent Scotland would need to be taken in the context of considerable uncertainty over this very important part of the budget, and in the context of long term pressures both on these revenues and arising from an ageing population.”

It added: “Some forecasters take a very different view from the OBR on the prospects for oil revenues over the next few years.

“In particular, the White Paper published by the Scottish Government in November presented figures for Scotland’s fiscal position based on a forecast that Scottish oil and gas revenues would be somewhere between £6.8 billion and £7.9 billion in 2016-17.

“We estimate that the OBR’s forecast at the time implied revenues for Scotland of just £4.5 billion and that their latest forecast implies revenues of just £3.3 billion in that year.

“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, that their forecasts for this year also look to be too optimistic.

“It remains to be seen whose forecasts might be more accurate going forwards.”

Reaction

Better Together chief Alistair Darling said: “The IFS has been clear that there would need to be big spending cuts and tax increases in a separate Scotland just to pay for independence. The last thing struggling families need is more cost and more cuts just to pay for independence.

“The experts also criticise the SNP’s unrealistic estimates for oil and gas. This means big cuts to the budget for our schools, hospitals and pensions and big tax rises for working people.

“Oil cannot pay for everything as the nationalists pretend and while independence would be forever, oil will run out.”

Labour finance spokesman Iain Gray said: “The SNP’s whole case for an independent Scotland’s prosperity is predicated on oil revenues. The reality is that even though there may be plenty of oil left, the cost of recovery and the fluctuation in price means it’s not credible to build the economy of a nation on one income stream that isn’t stable or sustainable.”

Conservative finance spokesman Gavin Brown said: “The SNP needs to publish its latest oil forecasts as a matter of urgency and explain what it would do in a separate Scotland if the OBR figures turned out to be accurate. Would the Scottish Government tax more, cut spending, or increase borrowing?

“The IFS also points out that a spending squeeze would be required in a newly independent Scotland. With that in mind, it’s disappointing the Scottish Government’s White Paper only contains a single year of figures.”

Liberal Democrat leader Willie Rennie said: “As the IFS makes clear, an independent Scotland would face tough decisions as a fifth of its revenues would rely on a source which is falling, volatile and unpredictable. This report shows that there is a £4.6 billion black hole between the Scottish Government’s most optimistic prediction and the OBR’s prediction.

“That is more than the entire education budget. What if the SNP’s predictions are wrong? They need to tell us if they would balance the fall in revenues through higher taxes, more borrowing or cuts to public spending.”