Independent Scotland’s growth could offset UK losses, says IFS economist

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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” to gain control of policy areas currently reserved for Westminster.

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

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

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

READ MORE: GERS figures ‘are widely misinterpreted and should be abandoned’, says leading economist

However, Phillips said the more likely situation was that an independent Scotland would pay off some of the UK’s debt “in order to secure the co-operation of the UK Government in other important areas necessary for an orderly transition to ‘independence”.

The IFS economist relied heavily on the GERS figures throughout his article, saying their aim is to show Scotland’s “implicit budget deficit under current institutional arrangements”.

He said that, according to GERS, the funding was “relatively generous”. “Between 2014/15 and 2019/20, spending was on average £1,550 (or 12.3%) more per person in Scotland than the UK average,” he said.

Phillips argued that under the current GERS forecast, Scotland’s “deficit would still be around 6% of GDP in the mid-2020s”. He said it would be unsustainable in the long term.

He said that “smaller economically developed countries – what an independent Scotland would be – tend to have lower budget deficits than larger countries”. As such, Scotland, after a Yes vote, may want to cut its deficit even more than expected.

However, David Simpson, founding director of the Fraser of Allander Institute, argued in The Sunday National that GERS figures should stop coming out. He said they were “imagined by the British government 50 years ago with the specific intention of undermining Scottish independence”.

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

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

He also said greater public confidence in the Scottish government “could give it a greater ability to make the sometimes politically difficult decisions that growth-enhancing reforms may require”.

“It is not clear whether this confidence would be maintained after independence,” he continued.

“What is clear, however, is that to prevent higher taxes or lower spending from continuing in the longer term, stronger growth would be needed after independence to compensate for the loss of income transfers from the rest of the UK which Scottish residents currently enjoy.”

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