Independent Scotland's fiscal growth 'could offset losses of UK transfers', top economist says

·3-min read
Scotland's economics post-independence have been put under the spotlight
Scotland's economics post-independence have been put under the spotlight

FASTER economic growth in an independent Scotland could “more than offset the loss of fiscal transfers from the rest of the UK”, according to a leading economist.

The expert also said there are “undoubtedly opportunities” in taking control of policy areas currently reserved to Westminster.

However, David Phillips, an associate director at the Institute for Fiscal Studies, warned that rapid economic growth and complementary policies are “easier to promise than deliver”.

Writing for Economics Observatory, Phillips noted that “despite devolution, the majority of Scotland’s tax revenues and a hefty part of its public spending is pooled with the rest of the UK”.

“This means that there is no overall Scottish budget deficit or surplus, or accumulated debt,” he added.

READ MORE: GERS figures 'are widely misinterpreted and should be scrapped', top economist says

However, Phillips said the most likely situation was that an independent Scotland would pay a portion of the UK’s debt “in order to secure co-operation from the UK Government in other important areas needed for an orderly transition to independence”.

The IFS economist leaned heavily on the GERS figures through his piece, arguing that their purpose is to show Scotland’s “implicit budget deficit under current institutional arrangements”.

He said that, according to GERS, funding was “relatively generous”. “Between 2014/15 and 2019/20, spending averaged £1550 (or 12.3%) higher per person in Scotland than the UK average,” he said.

Phillips argued that, under current GERS forecasts, Scotland’s “deficit would still be around 6% of GDP in the middle of the 2020s”. He said this would be unsustainable in the long run.

He said that “small, economically developed countries – which is what an independent Scotland would be – tend to run smaller budget deficits than larger countries”. As such, Scotland after a Yes vote might want to reduce its deficit even further than has been assumed.

However, David Simpson, founding director of the Fraser of Allander Institute, argued in The Sunday National that GERS figures should cease publication. He said they had been “dreamed up by the UK ­Government 50 years ago with the specific ­intention of rubbishing ­Scottish ­independence”.

The IFS associate director further said there were “undoubtedly opportunities” for an independent Scotland to improve on policy in areas which are currently reserved to Westminster.

Phillips said these include taxation, which is currently “both unnecessarily complex and economically distorting”, immigration, welfare reforms, and changes to regulation.

He also said that a greater public trust in the Scottish Government “may give it greater ability to take the sometimes politically difficult decisions that growth-enhancing reforms can require”.

“Whether that trust would be sustained post-independence is unclear,” he went on.

“What is clear though is that to avoid higher taxes or lower spending continuing in the longer term, stronger growth would be needed post-independence to offset the loss of revenue transfers from the rest of the UK that Scottish residents currently benefit from.”

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