The first thing to be said about the Institute for Fiscal Studies’ latest assessment of an independent Scotland’s long-term fiscal well-being is that the IFS’s assessments of the UK’s long-term vitality are also pretty gloomy. Neither is terribly pretty. Much the same, of course, could be said of France and, in fact, most other western countries. An Age of Plenty is being replaced by an Era of Making Do. Reality stings.
So the difference between Scotland and the rest of the UK is one of degree not kind. Moreover, it would be wise to remember that these are projections, not predictions, and that they are largely based on present trends and assumptions. These have a habit of changing. So, for that matter, does policy.
Nevertheless, there is no escaping the fact that the headline figures are pretty dreich. An independent Scotland would need “significant additional fiscal tightening” in addition to measures currently proposed by the British government. Failure to impose some Tartan Austerity would see debt climb above 100% of GDP by the early 2030s.
And that analysis is based upon some generous assessments, the most significant of which is the presumption an independent Scotland could borrow money at interest rates no higher than those enjoyed or endured by the UK government. I suspect that, at least in the early years of the new nation, that is improbable.
Even so, the IFS warn, an independent Scotland would need to cut spending or raise taxes by £6bn a year (in current prices) by the early years of the next decade. That’s not a trifling sum. It might, for instance, be met by increasing VAT to 28%. Or by sharply increasing income taxes.
Since neither of those are attractive options, cutting spending might – even amidst the howling of special interests – prove more palatable. It might even help economic growth.
In fact, an independent Scotland’s fiscal policy might begin to look a little like that urged upon George Osborne by his critics on the Tory right. There may be little immediate prospect of a Tory revival in Scotland but Scotland might nonetheless become a testing ground for right-wing economics. Not, admittedly, through choice, but for want of affordable options. At this point you may sound your irony klaxon.
So, from a dispassionate right-wing perspective that’s shorn of fealty to the British idea, today’s report is not as gloomy as some would have you believe. Independent Scotland might spend less and tax less too.
That is the theory, at any rate. Granted this is not a theory to which many mainstream Scottish politicians subscribe and nor is it the prospectus upon which independence is being sold. Those difficulties are not trifling either.
But it is another reminder – should you need it – that Scotland’s early years might require some deft navigation and, more importantly, that though the destination is ultimately unknowable it may yet surprise us all.
It would, however, be a fresh start. Notionally, an independent Scotland would, as the IFS stresses, be able to create a more sensible, more efficient taxation system than that pertaining in the present United Kingdom. This would, in theory, make squaring the fiscal circle a less daunting proposition. So projections are not necessarily destiny.
It is true – and again this is not new – that Scotland needs more people. The IFS’s calculations are based on projections that Scotland’s population will grow much more slowly than that of the UK as a whole. This has economic and fiscal consequences, most of them troubling.
So an independent Scotland would need more, not less, immigration if only to offset the costs of a population ageing more rapidly than that of the UK as a whole. I’d consider that an opportunity more than a threat or a problem to be managed. (A couple of hundred thousand hard-working immigrants would help dilute the regrettable Scotchness* of the place too.)
Tomorrow’s papers will mostly focus on the Bad News for Scotland aspects of this report. Which is fair enough. The Bad News is real and not to be wished away by a fresh set of heroic assumptions.
Nevertheless, there is a real difficulty. Scotland’s economic health will unavoidably be heavily reliant upon oil revenues. That’s fine for the time being but if oil revenues decline faster than predicted and if they are not made up for by something else then it will be times to revive the old Scotch on the Rocks jokes.
But still: there is less in this report to be worried about if you are on the right than there is if you are on the left. If you should be careful what you wish for lest you receive it there are also times when one should second-guess one’s worries lest they prove less well-founded than one suspects.
And if enough people can be convinced Scottish independence offers the chance to do things differently and better then, well, the game changes again.
*Kidding. Sort of.
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