Election controversy of the week: Scotland’s black hole

If Scotland takes full charge of public spending, financed via its own tax-raising and borrowing powers, it will end up with a deficit, warns the IFS.

If Scotland takes full charge of public spending, financed via its own tax-raising and borrowing powers, it will end up with a deficit (an annual overspend) of £9.7bn in 2020, according to the Institute for Fiscal Studies (IFS), a respected think tank.

That's still an improvement on the current position (a drop in the deficit from 8.6% of GDP to 4.6% by 2019/2020), but it's a slower improvement than the rest of the UK, which goes from a 4% deficit to a 0.3% surplus in other words, finally starting to pay off the national debt in 2019/2020 under current plans.

The latest Scottish National Party (SNP) manifesto, published this week, suggests a more gradual transition towards fullfiscal autonomy than previously suggested.

SNP leader Nicola Sturgeon, who dismissed previous similar IFS forecasts as irrelevant, according to The Guardian, argued that the latest figures were "academic projections for a status-quo situation", saying that extra power for Scotland's parliament would allow a Scottish government to "grow our economy faster, get more people intojobs, get more people paying taxes".

However, as David Phillips of the IFS notes, even "delaying a move to full responsibility for a few years would not, on its own, deal with the fiscal gap".

The IFS acknowledges that "a big and sustained rebound in oil revenues or significantly higher growth" could help, but that to keep up with the UK's rate of deficit reduction, Scottish revenue per head would have to grow at "more than twice the rate forecast for the UK as a whole", notes the BBC.

In short, "full fiscal responsibility would likely entail substantial spending cuts or tax rises in Scotland".

Recommended

Why the City should create a single financial market with the Swiss
Economy

Why the City should create a single financial market with the Swiss

A tie-up between London and Zurich, two global financial centres, could pay huge dividends for both, says Matthew Lynn.
17 Jan 2021
How to make sure your business doesn't lose out in lockdown
Small business

How to make sure your business doesn't lose out in lockdown

Money is still available via government schemes to help small companies cope with the latest Covid restrictions. David Prosser outlines what you can g…
16 Jan 2021
Leasehold reforms promise the end of a nightmare for many homeowners
Property

Leasehold reforms promise the end of a nightmare for many homeowners

Horror stories about unscrupulous landlords profiting from a legal relic of the feudal era are about to get a happy ending, says Simon Wilson.
16 Jan 2021
Plenty more Brexit arguments to be settled yet
Brexit

Plenty more Brexit arguments to be settled yet

Many important negotiations remain to be sealed in our deal with the EU. “No deal is better than a bad deal” is the way to play it, says Matthew Lynn
10 Jan 2021

Most Popular

Bitcoin: fool’s gold or the new gold?
Bitcoin

Bitcoin: fool’s gold or the new gold?

With bitcoin hitting new highs last week, and close to becoming a mainstream investment, is it really gold for the 21st century?
15 Jan 2021
Forget austerity – governments and central banks have no intention of cutting back
Global Economy

Forget austerity – governments and central banks have no intention of cutting back

Once the pandemic is over will we return to an era of austerity to pay for all the stimulus? Not likely, says John Stepek. The money will continue to …
15 Jan 2021
The MoneyWeek Podcast: bitcoin special
Bitcoin

The MoneyWeek Podcast: bitcoin special

Merryn talks to bitcoin experts Dominic Frisby and Charlie Morris to get the lowdown on the cryptocurrency to find out why it's such a huge global phe…
15 Jan 2021
Free 6 issue trial then continue to