Higher tax and lower spending warning
● Economic report warns Holyrood would have to raise taxes, cut spending and borrow more to manage growing shortfall
An independent Scotland would need higher taxes, lower spending and continued borrowing to achieve economic “equilibrium”, according to new economic analysis.
The latest Scottish Trends report said Scotland will be running an £11 billion deficit – minus 6.5 per cent of GDP – when the UK comes close to balance in 2019-20.
The difference amounts to around £1,700 per person, the analysis by Professor John Mclaren warns.
A combination of raising taxes, cutting spending and continued borrowing would be required by an independent Scotland to manage its multibillion-pound deficit, according to newly published economic analysis.
Scotland will be running an £11 billion deficit by the time the UK comes close to balance, according to the latest Scottish Trends report outlining worsening economic conditions since the last referendum.
Analysis by economist John Mclaren shows that Scotland’s deficit will still be minus 6.4 per cent of GDP when the UK’S deficit comes to -1 per cent of GDP in 2019-20. The difference amounts to around £1,700 per person.
It comes as legislation to trigger Article 50 of the Lisbon Treaty and begin the formal process of the UK’S exit from the EU was expected to receive royal assent this monring.
The report blames the “virtual disappearance” of North Sea tax revenues since 2014 for the difficult economic outlook.
The report warns that the differential between the Scottish and UK deficits is unlikely to change under current tax and spend patterns “as neither the Scottish nor the UK governments expect North Sea revenues to return to anything like past peaks”.
With Nicola Sturgeon gearing up for a second independence referendum, Prof Mclaren warned that higher taxes, lower spending and continued borrowing would be required to manage the shortfall.
“The political challenge that remains is for pro-independence parties to illustrate this themselves, something that, by and large, they avoided at the time of the first referendum,” the report said.
The analysis also suggested the argument for joining the euro was “stronger now” than it had been in 2014.
“With many economists predicting economic woes postbrexit, then sterling may not be the safest place to hitch your wagon.
“While the euro also has its on-going, unresolved, difficulties, it may turn out to be a more reliable and stable currency than sterling in the long run. It may well be that the euro becomes the preferred choice, due to the ease of transition and the inheritance of a track record and the benefit of being part of such a large currency zone,” it said.
It also warned that the Scottish economy has suffered a “worrying slowdown” since the first independence referendum. Over the past year the Scottish economy has grown by 0.7 per cent while the UK economy has grown by 2.4 per cent.
“To be in such an economically weak position does not bode well for the Yes campaign over the coming debate and this may be exacerbated if it affects Scottish spending levels in light of the new retained income tax power,” it said.
Scottish Conservative shadow finance secretary Murdo Fraser said: “The SNP might like to pretend everything has changed since Scots voted decisively No in 2014. But as this research shows, if anything, a separate Scotland’s prospects have only worsened. The fiscal position is less favourable, North Sea oil is in a significantly worse way, and our economy lags badly behind the rest of the UK.”
A Scottish Government spokesman claimed that Brexit was the biggest risk to the economy.
“The claims made about Scotland’s fiscal position in the event of independence miss a central point,” he said.
“The implied deficit for Scotland reflects the existing UK economic model and assumes a future Scottish Government would continue with the same policy choices or expenditure plans, such as Trident.”