An independent Scotland would face difficult choices over higher taxes, lower spending or further borrowing to help close a financial black hole of around £1,700 per person, a detailed economic analysis warned yesterday.
Professor John McLaren said Scotland’s finances had worsened since the 2014 referendum thanks to the "virtual disappearance" of North Sea tax revenues and none of the options for closing the gap are “easy or without consequences.”
He predicted that Scotland is likely to be running a deficit of about £11 billion (6.4 per cent of GDP) by the time the UK has come close to balance in 2019/20, a difference equivalent to about £1,700 per person.
His intervention came as Scotland’s seafood industry attacked the “double uncertainty” caused by Nicola Sturgeon’s demand for an independence referendum conducted at the same time as Brexit.
The Scottish Salmon Producers' Organisation told MSPs the British market is “absolutely crucial to our future” and warned against erecting trade barriers with the rest of the UK. Experts have warned this would happen under Ms Sturgeon’s plan to stay in the EU single market.
Prof McLaren published his analysis as Andrew Wilson, the head of a commission charged by Ms Sturgeon with improving Scotland’s sluggish growth rates, rejected reports that he warned her it would take a decade for the economy to recover from the shock of independence.
Writing for his Scottish Trends website, Prof McLaren said the difference between Scotland’s deficit and the UK’s is unlikely to change much as no one expects oil revenues to “return to anything like past peaks."
His report said: "With some combination of higher taxes, lower spending and any remaining shortfall being made up by continued borrowing, a new equilibrium position might be reached in a manageable way that does not lead to a dramatically different country.”
Prof McLaren challenged the nationalists to present more "realistic" outcomes to voters and admit that "difficult decisions" need to be made. In the long term, he said it may possible for a separate Scotland to adopt similar tax and spend levels as other developed countries.
The eminent economist argued that Scotland’s defence spending cut be cut from £3 billion at present to around £500 million if it adopted an “unarmed” approach similar to Iceland’s or Luxembourg’s.
He said Brexit makes a sterling currency union less likely for a separate Scotland and the oil collapse makes starting a new currency more difficult. However, he said the case for the euro has strengthened since 2014.
Ian Murray, Scottish Labour’s Westminster spokesman, said: “The SNP can only offer Scotland a toxic cocktail of false hope and division. The Nationalists still cannot answer any of the fundamental questions from 2014 and they are planning to mislead the poorest people in our country again.”
Murdo Fraser, the Scottish Tories’ Shadow Finance Minister, said: “This is exactly why people don’t want independence, and why they don’t want to be dragged into a divisive campaign to return that verdict again.”
Michael Bates, group manager at the Scottish Seafood Association, complained about the additional political uncertainty created by Ms Sturgeon’s referendum announcement on Monday and argued it should be delayed until after Brexit.
Bertie Armstrong, chief executive of the Scottish Fisherman's Federation, said leaving the controversial Common Fisheries Policy offered a "gigantic, game-changing opportunity for the seafood industry of Scotland" which, if well-handled, would "keep the lights on in coastal communities round the whole of the UK".
Dismissing Prof McLaren’s report, a Scottish Government spokesman 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.”