Scottish independence: ‘Raise taxes or face cuts’

An independent Scotland would be left with a £3 billion black hole in its public finances and faced with the prospect of harsher cuts than the current “climate of austerity”, a leading think tank has today claimed.

A projected fall in oil revenues in the long term will lead an independent Scotland to either make drastic cuts or raise taxes. Picture: PA

The London-based Institute of Fiscal Studies (IFS) says that Scotland would have to raise taxes after a Yes vote to get its finances in order – or face further spending cuts over and above those imposed by the UK Government in recent years.

It warns that even under the most optimistic scenario, the long-run ‘fiscal gap’ in Scotland would be 1.9% of national income - about £3 billion - compared to 0.8% of national income for the UK as a whole.

The report’s co-author Gemma Tetlow, a Programme Director at the IFS, said: “An independent Scotland would face even tougher choices than those faced by the UK over the longer term.

“In 2011–12, higher public spending per person in Scotland was more than matched by higher revenues from activity in the North Sea.

“However, over the long-term, revenues from the North Sea will probably decline and official population projections suggest that the average age of the Scottish population will increase more rapidly than for the UK as a whole, putting greater upward pressure on many areas of public spending.

“As a result, to ensure long-run fiscal sustainability, an independent Scotland would need to cut public spending and/or increase other tax revenues more than would be required across the UK as a whole.”

The outlook for public borrowing in Scotland after independence also looks gloomy because of the country’s ageing population and the likely decline of revenues from the North Sea over the longer-term.

The new IFS research, which was launched in Edinburgh today, was funded by the Economic and Social Research Council (ESRC).

The research uses a model of the UK’s and Scotland’s long-run public finances to project levels of public revenues and spending over the next 50 years, taking into account projected changes in the size and demographic structure of the population, in order to examine the long-term public finance challenge that would face the UK and Scotland.

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