New
calculations – based on forecasts from the Office for Budget
Responsibility (OBR) – suggest that an independent Scotland would face a
budget deficit of 5.5% of GDP (£8.6 billion in today’s terms) in
its first year of independence were it to inherit a population share of the
UK’s national debt. This would not be sustainable for any prolonged
period. Any upside surprise on oil revenues would help, for a while, but as
recent experience demonstrates, these revenues can also disappoint. And in the
longer term, the eventual decline of oil revenues would likely prove a much
more acute problem for an independent Scotland than it would for the UK. Thus,
while independence would bring more choice about how to deliver further fiscal
consolidation beyond April 2016, it is unlikely to mean that further austerity
could be avoided.
The
Scottish government’s White Paper suggests a £400 million cut to
defence spending, and the abolition of the new transferable tax allowance for
married couples and the ‘shares for rights’ scheme. But, the
spending increases and tax cuts planned or hinted at are more numerous and more
costly. Implementing such a net giveaway would require bigger cuts to other
public services or benefits, or increases to other taxes.
These are among the main conclusions of two new IFS
reports, funded by the Economic and Social Research Council (ESRC), which
update our medium-term forecasts for an independent Scotland’s public
finances and consider the Independence White Paper in the context of these
forecasts. Other findings of the report include: