Independent Scotland would need to increase taxes or cut spending

An independent Scotland would need to increase taxes or cut spending to maintain a sustainable economy, the Institute for Fiscal Studies (IFS) has warned.

In 2011-2012 Scotland raised more revenue per person (£11,079) than the UK average ((£9,342), but this Scottish figure assumes a geographic share of North Sea oil revenues. These oil revenues made up 18.6% of Scottish revenues for the period, but just 2% of the UK revenues, and so Scotland would be much harder hit with oil price fluctuations if independent. Moreover, with oil revenues expected to decline from the North Sea in coming years, this would leave a notable gap in Scottish finances.

Whilst the gap between spending and revenues is currently less than in the UK, the dependence of an independent Scotland on declining oil revenues, led the IFS to predict that Scotland’s borrowing will decline much more slowly than the UK as a whole, with the Scottish fiscal gap double that of the UK’s by 2017-2018.

Along with demographic pressures of an aging population, and a fair share of the UK’s national debt at independence, the decline in oil revenues would mean that Scotland would need to increase taxation or cut spending by 4.1% of the Scottish national income by 2020-2021 to avoid debt spiralling out of control according to IFS predictions. This compares to a need to increase taxation or cut spending by 0.8% for the UK.