Financial News

  • 5 June 2014, 10:46

Solo Scotland 'Faces Cuts Or Tax Rises'

An independent Scotland would be forced to bring in a range of austerity cuts or tax rises to balance its budget, a leading economic research group has warned.

The Institute for Fiscal Studies (IFS) said new calculations suggest that, in its first year of independence, Scotland would have a budget deficit of at least 8.6bn.

Using forecasts from the Office for Budget Responsibility (OBR), the IFS said the deficit calculation was based on a deficit of 5.5%, were it to inherit a population share of the UK's national debt.

The London-based independent research group said this level of debt burden would "not be sustainable for any prolonged period".

A White Paper from the Scottish government had suggested 400m cuts in defence spending and abolition of certain personal and business tax schemes.

Yet, the IFS concludes, spending commitments made by Alex Salmond, including additional child care to help women back to work, would require either tax rises or spending cuts in other areas.

At the root of its assessment is an appraisal of North sea oil and gas revenues provided by the OBR.

The Institute said any oil revenue benefit would probably be short-lived, creating a more acute long-term problem for an independent Scotland than it would for the economically diversified United Kingdom.

"One thing that the Scottish Government, the UK Government and the UK opposition have in common is the lack of detail they have provided as to how they would finish the necessary fiscal repair job from April 2016," IFS senior research economist David Phillips said.

"Our calculations suggest that an independent Scotland could expect to be running a deficit of around 5% of GDP in 2016/17, which would be larger than that facing the UK as a whole, and would necessitate tax rises or spending cuts."

Yet the Scottish government has said record investment in the oil and gas industry would mean increased output and revenues.

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