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IFG - Confronting the reality of a large fiscal deficit – the cost of leaving the United Kingdom

With just days until critical elections in Scotland and Wales, and with support for independence growing in both nations, a new Institute for Government calculations show that breaking away from the UK would leave Scotland, Wales and Northern Ireland facing sizeable fiscal deficits.

Even in 2018/19, before the Covid pandemic, Scotland ran a deficit of over 7% of GDP – well over twice the 3% level mandated for those hoping to join the EU, and far higher than the English deficit in that year of 0.3% of GDP. The deficits in Wales and Northern Ireland were higher still at 18% and 19% respectively. Put differently, each person in England on average benefitted from public spending worth £91 more than the taxes they paid: in Scotland, Wales and Northern Ireland the figures were £2,543, £4,412 and £5,118, respectively. All four nations’ deficits have worsened since, not least because of the Covid pandemic.

The Fiscal Position of Scotland, Wales and Northern Ireland examines levels of public spending and revenues in the UK’s four nations. It sets out the likely fiscal position of Scotland, Wales and Northern Ireland if they left the union and stopped benefiting from the UK’s redistribution of resources.

An independent Scotland or Wales, or a reunited Ireland, could pursue their own policies to boost economic growth, incomes and tax revenues – but this would not happen quickly enough to avoid difficult tax and spending choices. While Scotland’s GDP per head and tax revenues are similar to England’s, it spent over £1,700 more per person on public services. How to maintain this would be an early, burning question for a newly independent Scotland.

An independent Wales would face a different – and greater – challenge: GDP per head is lower in Wales than in Scotland and it is the recipient of considerable sums from elsewhere in the UK. Increased taxes would be unavoidable if an independent Wales were to target current levels of spending, which would leave this higher relative to its GDP than any other advanced nation.

Dr Gemma Tetlow, IfG chief economist and report author said: “Any advocates for breaking away from the UK must address the reality of the nations’ current fiscal imbalances and the difficult policy choices these would necessitate after secession. The larger the deficit that they have, the harder the case for breaking away from the union becomes.”

Notes to editors

  1. The full report can be found on our website.
  2. The Institute for Government is an independent think tank that works to make government more effective.
  3. For more information, including data to reproduce any charts, please contact press@instituteforgovernment.org.uk / 0785 031 3791.

Associated projects: 

Original article link: https://www.instituteforgovernment.org.uk/news/latest/fiscal-deficit-uk

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