IFS warns on independence finances

Nov 19 2012

Independence could leave Scotland facing "starker" economic choices than the rest of Britain in the longer term, a leading think tank has warned.

A new report by the Institute for Fiscal Studies (IFS) examined the fiscal consequences for Scotland if it were to leave the UK.

It said an independent Scotland, in common with all countries, would "face constraints and would have to make, sometimes uncomfortable, choices".

The report argued that if North Sea oil and gas revenues were allocated on a geographical basis, then in the short term the "outlook for an independent Scotland looks as if it might be no more uncomfortable than that for the UK as a whole".

But it highlighted the higher spending on public services north of the border and the volatility of oil and gas revenues, and warned: "In the longer term, the choices may be starker."

The IFS said public spending in Scotland was about £1,200 higher per person than in the UK as a whole, at about £11,800 north of the border in 2010-11, compared with £10,600.

The report said spending in Scotland was "especially high on personal social services for older people, probably reflecting, in part, the Scottish Government's policy of free personal care for the elderly".

It noted that overall "spending per capita is significantly higher in Scotland than in the rest of the UK while household incomes are very similar".

But the IFS said if Scotland received a geographic share of oil and gas revenues, this would be large enough to slightly more than offset these higher levels of public spending.

David Phillips, one of the authors of the report, said in an independent Scotland "in the short run its higher public spending than the UK average could be covered by oil and gas revenues if these are assigned on a geographic basis". But he stated: "In the longer run the loss of these revenues would lead to tougher choices than those faced by the UK as a whole."