IFS: Scotland is a 'rich country' which could become independent

David Phillips, an associate director at the Institute for Fiscal Studies (IFS), spoke about the prospect of Scotland leaving the Union as he launched an analysis of the country’s finances.

While describing Scotland as “relatively rich”, he claimed the nation would face a significant budget deficit if it voted Yes and suggested Holyrood would have to cut costs to replace Westminster funding.

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Phillips was asked about the public finances of an independent Scotland during an IFS briefing ahead of the election on May 6.

He said: "It's clear than an independent Scotland would start life with a large deficit. It would need to get that down, and that would mean difficult choices.

"That doesn't mean Scotland can't afford to be independent. Scotland's a relatively rich country.

"But it would need to make sure that it cut its cloth to fit the size of its own purse, rather than having fiscal transfers from the rest of the UK."

The IFS chief said Scotland’s notional deficit has been “relatively weaker than the UK as a whole” since a steep drop in oil prices around five years ago.

"And that's because spending on public services and benefits is higher in Scotland than it is in the rest of the UK, but the taxes raised are actually slightly lower than in the rest of the UK,” Phillps commented.

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"You can't deny the fact that an independent Scotland would start life with a relatively high budget deficit, substantially higher than the rest of the UK.

"The SNP's Growth Commission, three years ago now, recognised this and set up a plan to bring that deficit down by holding down growth in spending.”

But the IFS director said there have been two significant changes since the Growth Commission report was published in 2018.

The pandemic has "blown a hole" in Scottish and UK finances, he stated, adding: "That would mean we're having to do a fiscal tightening at a UK level. Scotland would have to do that added on top of the one that was already there.

"The other thing that's changed is it's become clear that Brexit is a harder Brexit than we thought, and I think that means the issues around the Border have become more tricky since 2018 as well."

Scottish Finance Secretary Kate Forbes commented: "When it comes to the finances of independence, as the IFS has said, Scotland is a rich country. However, we don't yet have full control over those many resources.

“The Tory response to the last recession was to impose a decade of austerity on Scotland, and then at the height of the pandemic they imposed a hard Brexit on Scotland against our will – that shows that Scotland simply cannot afford to leave the key powers in the hands of Westminster.

“The SNP is the only party putting forward a serious programme for government for serious times – and by giving both votes to the SNP on May 6 people in Scotland can elect a first minister and a government absolutely committed to leading Scotland through the pandemic and into a sustainable, long-term recovery."

Last night the First Minister hit back at the conclusions, denying Scotland would need to pursue an austerity agenda.

“I don’t accept the use of the word austerity in relation to the Growth Commission, I never have and I don’t now,” she said. “The last year means the figures in the Growth Commission are no longer current ... Pretty much every country in the developed world has a massive deficit right now and are shouldering massive debts.

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“The UK debt is more than £300 billion roughly, 15% of GDP. The UK debt is in excess of two trillion pounds. But as countries, rightly in my view have borrowed to help businesses and individuals through the pandemic debt and deficits have increased.

“So Scotland, if we were independent right now, would not be in a materially different position to countries the world over and there are no credible economists suggesting the situation is to impose austerity and to impose cuts."

She added: “Scotland’s fiscal position right now is a reflection of our position within the UK, it’s not a reflection of the decisions an independent government would take.

“So, if the argument that Scotland, with all the riches and resources and attributes that we’ve got is in a relatively worse fiscal position than the UK overall, then that strikes me as an argument for independence to get our hands on the levers of decision making so we can make better decisions than ones that have been made on our behalf for quite some time.”