Fiscal deficit at 25% of GDP warning

Scotland’s fiscal deficit could be as high as 25% of GDP as a result of the pandemic, a think-tank has warned.

In an analysis published yesterday, the Institute for Fiscal Studies (IFS) said spending could have outstripped revenue north of the border by between 22% and 25% in 2020-21, an increase from 8.6% the previous year.

While the deficit is not as large as previously projected by the IFS, nor does it reach the same levels as in Wales or Northern Ireland. The figure for the UK as a whole is just 16%.

Higher levels of public spending in Scotland are, according to the IFS, paid for from fiscal transfers from the south of England.

David Phillips, an associate director at the think-tank, said: “Our latest projections for Scotland’s implicit budget deficit in 202021 are lower than those we made last summer, reflecting the fact that the deficit for the UK as a whole is now estimated to have been not quite so high as then feared.

“But the gap between Scotland and the UK as a whole is very similar and is structural rather than cyclical. Even if the UK’S public finances were in balance we would expect Scotland’s deficit to be around 6% of national income.”

It forecasts Scotland’s deficit to rebound in a similar way to the UK’S, dropping to just under 10% in 2025-26.

The economic side of the debate around independence regularly focuses on the deficit, which critics say is too high and would require austerity to rectify after independence.