There’s no shortage of think tank reports emanating from south of the Border determined to portray the finances of an independent Scotland in as dismal a light as possible, all the better to convince us that a vote for independence would be economically disastrous.
The latest has just been published by the Institute of Government and, true to form, it has been seized on by union supporters as a harbinger of doom for independence. According to the leader of the Scottish conservatives Douglas Ross the report suggests that ‘plans for another referendum would smash Scotland’s fragile economic recovery into pieces’.
The Tory leader’s comments are another example of the habit he has established during the election campaign of talking complete nonsense. This report does no such thing. Here are five reasons why the IoG report cannot be interpreted as bad news for an independent Scotland.
1: It is based on Scotland’s fiscal position as a member of the UK. The current financial arrangement is determined by Westminster, the distribution of UK resources is decided by Westminster and control of the major economic policies which affect Scotland are the preserve of Westminster. These could and would change in an independent Scotland, as the report itself admits. It states: 'Over time, different policy choices made by an independent Scotland ... could affect [its] economic growth and so change the fiscal pressures.'
The Scottish government must balance its budget each year. It is expressly forbidden from running a deficit
2: The portrayal of Scotland’s ‘deficit’ is false. The Scottish government must balance its budget each year. It is expressly forbidden from running a deficit. Indeed, as Believe in Scotland and Business for Scotland have consistently argued, Scotland has been subsidising the rest of the UK for decades.
It has been paying interest on UK debt which it is has not incurred and which has been apportioned by Westminster with no reference to where the money borrowed has actually been spent. How much- if any - of the UK’s debt which would be shouldered by an independent Scotland – has still to be agreed.
3: The portrayal of Scotland as a country spending more than it contributes to the UK is false. The report itself says that in 2008/09, the UK government received £10.6bn (in cash terms) in revenues from the North Sea. The vast majority of this (£8.9bn) was estimated to have been generated by oilfields that were apportioned to Scotland by the Scottish Adjacent Waters Boundaries Order 1999. As a result, revenues per person in Scotland exceeded those of any of the other UK nations.
As an independent nation, a Scottish government could also have chosen to smooth out the revenue fluctuations by saving revenues in good years
That has consistently been the case until oil revenues fell more recently, although they have since recovered to generate £1.2bn for the UK government.
The report also admits: ‘As an independent nation, a Scottish government could also have chosen to smooth out the revenue fluctuations by saving revenues in good years and borrowing more in lean years.’
4: The focus on the so-called deficit is in any case misleading. The report states: ’It is not essential for countries to run surpluses every year – or, indeed, at all. The UK government has run a surplus in only 12 of the years since the end of the Second World War. Countries typically grow from year to year and so can afford to borrow some money now since the burden of repaying that debt will be lighter in future when the economy is larger.’
The report also suggests there is a case for the rest of the UK to make payments to an independent Scotland to meet costs which would be classed as above being of benefit to Scotland itself.
And, of course. there is the huge potential for Scotland as a key provider of renewable energy.
5: The calculations on the fiscal position of an independent Scotland takes no account of the effects of the economic policy of a future Scottish government on economic growth. It’s a fairly sure bet that such a government would avoid such catastrophes as Brexit and would agree alternative routes to Covid recovery other than the austerity threatened by the Tory government at Westminster.
Again, the report states: ‘The fiscal arithmetic becomes easier if the economy grows faster – taxes generate more revenue and spending can be squeezed relative to the size of the economy without requiring cash or real terms cuts to spending levels.’