Independence vote will cost Scotland dear: think-tank

Reuters/Edinburgh

Scotland will be forced to raise taxes or cut spending to maintain sustainable public finances if it votes for independence in September, a leading independent think-tank said yesterday.

The findings by the Institute of Fiscal Studies (IFS) support the British government’s position that Scotland would be worse off outside the United Kingdom, although this is contested by the Scottish secessionists.

The IFS raised its forecast Scottish budget deficit in the first year after independence to 5.5% from 5.2% of GDP, saying the weaker position compared to earlier forecasts in 2014 reflected a downgrade to projected oil revenues by the Office for Budget Responsibility (OBR).

The UK government often cites IFS forecasts of the deficit at independence, and the latest projections will strengthen its argument that Scotland’s economy is better served by remaining part of the United Kingdom.

Scotland votes in a September 18 referendum on whether to become independent from the UK, and last week the British and Scottish governments outlined contrasting views of the strength of the Scottish economy should the nation vote to secede.

The pro-independence Scottish government says the deficit will be substantially less, at 2.8%.

The debate over the size of the deficit is largely due to disagreement over areas such as expected oil revenues.

The IFS said that even if better-than-forecast oil revenues did temporarily help the public finances, volatility in the amount of money that oil brings in meant that such a scenario could not be relied upon.

“In the longer term, the eventual decline of oil revenues would likely prove a much more acute problem for an independent Scotland than it would for the UK,” it added.

The Scottish National Party (SNP), who are leading the campaign for independence and run Scotland’s devolved parliament, rejected the notion that oil was a “problem” for the nation.

“There’s something strange about the debate in Scotland, where we’re told that somehow oil is a big burden. Oil is a bonus,” Nicola Sturgeon, Scotland’s deputy first minister, said.

Noting that SNP plans call for the setting up of a Norwegian-style oil fund, she added: “It is by definition a volatile resource, which is why we’ve put so much emphasis on stewarding that resource properly.” 

Earlier former prime minister Gordon Brown sought to tempt Scots away from voting for independence by pitching the United Kingdom as the best vehicle to promote social justice and preserve welfare spending.

Striking a distinctly more positive tone than the British government which has warned Scots of the economic dangers of breaking the 307-year union, Brown said Scotland would win more powers and prosper if it stayed inside the United Kingdom.

In a passionate speech which signals the Scottish-born former Labour leader will play a more prominent role in the unionist campaign, Brown told Scots that voting against independence was the best way to guarantee their cherished state-funded welfare system.

“I’m asking you to vote ‘No’, because I’m asking you to cast a vote for social justice,” Brown, who served as Britain’s prime minister from 2007 to 2010, told activists in Glasgow.

“Social justice is not advanced by retreating into independence,” said Brown, who cautioned that “inequality would last until doomsday,” under the plans of Scottish nationalists who favour independence.

Polls show Scots are unlikely to vote to break the union, with roughly 40 percent against independence and 30 percent in favour. But there are still enough undecided Scots to swing the vote.

Since losing power in the wake of the financial crisis, Brown has kept a low profile in British politics but his intervention in the Scottish independence campaign is significant as he garners deep respect across Scotland.

Conservative Prime Minister David Cameron has conceded that his own privileged background and centre-right politics mean he isn’t the best person to win over Scots who elected just one Conservative lawmaker in the 2010 national election.

Labour was the major party in the devolved Scottish parliament until it was beaten by the Scottish National Party in 2007.