Referendum :  Big Fiscal Gap Looms for an independent Scotland while Mr Salmond tries to re-define what a "Yes" vote means

Lesley Brennan

 

24 November 2013

During the Referendum campaign, SNP Ministers have attempted to present Independence as an easy path to a happier future where there are no real difficult decisions to be made, where oil revenues will be there to provide the money for housing. health and education, where older people could retire a year earlier and with a higher pension, and where according  to Alex Salmond , a large tax cut for big business could spark a " jobs boom."

However, the impartial, respected Institute for Fiscal Studies ( IFS) has already described Mr Salmond’s 3 per cent cut in corporation tax for big business as requiring "strong assumptions and a large dose of guesswork"

Other parties have called it a “race to the bottom” where the losers are workers whose wages are cut, and the public services which would see millions and millions of pounds cut from their budgets for health and education.

In its report "The fiscal implications of an independent Scotland", the IFS has examined the various medium and long-term economic futures that Scotland could have, and the measures that it would need to take beforehand in the near future.

The IFS states :

"An independent Scotland would require a significant cut in spending or increase in taxes, over and above that already announced by the UK government, in order to put their long-term public finances onto a sustainable footing.

"The scale of this fiscal tightening is likely to be greater than that required for the UK as a whole. "

The fiscal tightening is to reduce the fiscal gap which is the difference between what a government takes in from taxation from the individual, businesses, industry, and in our case, North Sea Oil and what it spends on public services such as education, health, and housing.

The extra pressures on Scotland's public spending can be attributed to the extra money that will be needed to fund public services because of the faster rate at which the population is ageing in Scotland compared with the rest of the UK.

Nicola Sturgeon denies this :

"Those who try to perpetuate the myth that Scotland's population is somehow uniquely ageing or ageing faster than that of the rest of the UK are simply wrong "

However, the Deputy First Minister appears to be unaware that the Scottish Government body, the National Records of Scotland (formerly the office of the Registrar-General of Scotland) told the Scottish Parliament’s Finance Committee  earlier this year :

“The age structure of Scotland’s population means that it is projected to age more rapidly compared to the UK.

 “The proportion of Scotland’s population that is of pensionable age is projected to increase by 2.9 percentage points between 2010 and 2035, compared with a 1.7 percentage point rise for the UK.”

 

On the size of the fiscal gap, the IFS forecast , that even in the most optimistic circumstances favourable to the SNP's case with a high level of oil revenues, "this would still leave a deficit of £3bn – equivalent to a 9 per cent hike in income tax or 8 per cent cut in public services. "

It continued , 

“As a result, to ensure long-run fiscal sustainability, an independent Scotland would need to cut public spending and/or increase other tax revenues more than would be required across the UK as a whole."

The IFS has already forecast that in the event of a "Yes" vote next September, an independent Scotland would face cuts of £2.4 billion in its first 2 years if it sought to meet present-debt reduction targets.

If predictions about the fall in oil revenues are correct , then a further £3.5 billion of cuts is in store.

However, Mr Salmond has nothing to say on the difficult and necessary decisions that his independent Scotland would have to make on tax rises and public spending cuts to fill the fiscal gap. 

Unfortunately for him, Channel 4's Fact Check has examined the IFS study.

From its verdict in its headline  " IFS hurts case for Scottish independence" it moves on to describe the IFS 's work as : "  a heavyweight intervention with a largely pessimistic message for Scottish nationalists.

and it concludes :

"If the nationalist strategy is to convince voters that the risks of staying in the Union outweigh those of an abrupt exit, the IFS may have left them with something of a mountain to climb today."

What would Mr. Salmond’s kind of independent Scotland look like ?

Dave Watson of UNISON has made this judgement of the SNP’s policies which can be measured alongside John Swinney’s promise  not to raise taxes on the wealthy or on the multi-national oil companies operating in the North Sea  :

“I remain sceptical that the independence on offer indicates a radical shift in policy. Scottish Government support for the Scottish Living Wage is a positive indicator that they get the importance of increasing disposable income, although their reluctance to use procurement to extend the scope is a big negative.

“The broader case for a rebalancing of the economy doesn't feature much in SNP thinking and their economic polices remain firmly in the neo-liberal camp.

“The language on welfare reform is positive, but there is no indication that they are prepared to take any radical action on tax to pay for it.

“In fact quite the opposite.

“Their actions in government, such as the regressive Council Tax freeze and post-independence tax announcements indicate a low tax economy.

“You simply can't have Scandinavian levels of welfare and public services unless you are prepared to have a difficult conversation on tax with the people of Scotland.”

This coming week sees the launch of the SNP Government’s independence White Paper that will deal with the issue of the future of £

This has been a particular difficulty for Mr. Salmond’s hopes hope that an independent Scotland could strike a deal with the rest of the UK (rUK) after independence that would allow Scotland to retain the £ and form a currency union with rUK.

However, in the currency union, Mr. Salmond's independent Scotland would require to have the agreement of this new foreign country- the Rest of the UK - on how much money a Scottish Government could raise in tax in Scotland , how much it could it could spend in Scotland – a far cry from the rhetoric of the Referendum campaign. 

There are no details yet of an alternative Plan B to these fading hopes of retaining the £, but the SNP Government has embarked on a face-saving exercise.

Clear signals have been given that Mr. Salmond would interpret a “Yes” win in the referendum as a victory both for independence and for Scotland continuing to use the £ after independence.

Not only is this ludicrous, it is logically false.

There is only one question in the Referendum –“Yes” or “No” to independence; decisions about the future of the £ is not a question in the Referendum, and these were to be the subject of negotiations after the referendum 

It is also a clear sign that Mr. Salmond is losing the argument , with or without the unwelcome news from the Institute for Fiscal Affairs.

 

Image : how the media reported the IFS study

 

 

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