New analysis by the Treasury, using IMF and other external figures, shows that an independent Scotland would have the second highest fiscal deficit of all advanced economies in the first year of independence.
Independent forecasts expect Scotland to have a fiscal deficit of 5.5 per cent in 2016-17, equivalent to £9.5 billion, or £1,760 per head. This would be around £1000 greater than the UK’s deficit per head in the same year.
Only the US would have a larger fiscal deficit than an independent Scotland in 2016, and only just. While holding the world’s reserve currency enables the US to sustain higher than normal fiscal deficits, the experience of the euro area crisis shows that financial markets would be unlikely to have such confidence in an independent Scotland with such a high deficit.
The figures are based on new global fiscal forecasts released yesterday by the IMF in their fiscal monitor, and the Centre for Public Policy Research’s (CPPR) forecasts for the Scottish fiscal position – the most up-to-date independent estimate.
This estimate is supported by Citigroup, who following the Budget, also forecast a deficit of 5.5 per cent in 2016-17.
These independent forecasts are in stark contrast to the Scottish government’s own estimates in its white paper, which understate the likely size of the deficit in the first year of independence by over 2 percentage points of GDP.
Danny Alexander, Chief Secretary to the Treasury, said:
A range of independent experts, including the IFS, CPPR, Citigroup, and now Fitch all show that the broad shoulders of the UK mean lower tax bills and higher spending on public services in Scotland.
Our analysis of the IMF’s data shows that an independent Scotland would have the second highest deficit of any advanced economy in the first year of independence and more than £1,000 per person higher than the UK’s deficit. This would be a great risk to the Scottish economy, and would mean higher tax bills and cuts to public services to balance the books.
All these reports confirm that both the UK and Scotland would be worse off apart. Being part of the larger UK economy provides Scotland with jobs, stability and security. Independence would mean higher taxes and lower spending on public services.