INDEPENDENCE could provide Scotland with a “range of opportunities” to improve its economy, according to a think tank's new financial report.
The Institute for Fiscal Studies (IFS) study says Holyrood can afford to leave the Union. But it concludes the country’s notional deficit, the difference between how much the state spends and how much revenue it generates, could have reached as high as 22-25% in 2020-21 – up 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, it is higher than the figure for the UK as a whole (16%).
Higher levels of public spending in Scotland are, according to the IFS, paid for from fiscal transfers from the south of England.
Unionists insist the findings about the nation’s spending destroy the economic case for independence as it means the Government would have to impose austerity measures to balance the books.
Nicola Sturgeon, however, has argued that austerity cuts would not be necessary, adding that Scotland being in a worse fiscal position than the whole of the UK is an argument for independence, not against it.
READ MORE: 'Deficit' is good argument for independence, says Nicola Sturgeon
David Phillips, an associate director at the think tank, said: "Our latest projections for Scotland's implicit budget deficit in 2020-21 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."
Under the current trajectory, the IFS forecasts Scotland's deficit to rebound in a similar way to the UK's, dropping to just under 10% in 2025-26.
The IFS also considered the implications its report would have on the independence debate.
The report stated: "The fiscal transfers made to Scotland, Wales and Northern Ireland (and indeed the North and Midlands and of England) are normal within a fiscal union – but would cease under independence or 'full fiscal autonomy'.
"To offset the end of these fiscal transfers, some combination of tax rises or spending cuts would be needed, unless faster economic growth could be quickly delivered in an independence or full fiscal autonomy scenario."
READ MORE: FACT CHECK: Would an independent Scotland 'start out with a large budget deficit'?
It concludes that Scotland would be able to afford to leave the UK.
"None of this means that Scotland cannot afford to be independent, nor that there aren't a range of opportunities for better policy to improve performance and better address Scottish needs and preferences,” the IFS stated.
"If such policies can be developed and implemented, this could in the longer term allow more to be spent on public services and more to be kept in Scottish people's pockets.
"The same is true for Wales and Northern Ireland – although the extra growth that would be required to offset the loss of fiscal transfers from (the south of) England in these cases would be several times greater.
"And saying you are going to boost economic performance through better policy making is, of course, easier than designing and implementing the necessary policies."
READ MORE: Experts counter claim EU will reject Scotland over budget deficit
Finance Secretary Kate Forbes said the research highlights how Scotland is being dragged down by Westminster.
She said: "This latest update from the IFS shows that with the right plan in place, Scotland's economy could grow faster - but deep Tory cuts to Scotland from Westminster risk destroying any progress made by the Scottish Government.
"Only the SNP has a track record in office of using the Scottish Parliament's current financial powers – and only the SNP has the serious plans required to drive the post-pandemic recovery which is needed.
"On the finances of independence, as the IFS has said, Scotland is a rich country but 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 Labour did nothing to stop it, and then at the height of the pandemic they imposed a hard Brexit on Scotland against our will."
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