There is no question that an independent Scotland could run a sustainable budget. But like the UK, an independent Scotland would face major fiscal challenges both in the short and long run. Based upon the latest data, an independent Scotland is likely to face greater challenges than the UK as a whole (at least in the short-term).
For the best part of 50 years – from the finding of North Sea Oil and the creation of the Barnett Formula through to the 2014 referendum and beyond – fiscal policy debates have shaped the independence question in Scotland.
‘Fiscal policy’ in this sense includes both the policy choices over tax and public spending as well as the balance between the two, that is, the fiscal deficit. In 2014, the ‘No’ side – supported by the Conservative-Liberal Democrat coalition Government – argued that Scotland would face an immediate fiscal challenge. According to a UK Treasury report, large tax rises and expenditure cuts would be required if Scotland became independent (HM Treasury, 2014). The ‘Yes’ side – supported by the SNP-led Scottish Government – countered that Scotland would be fiscally better off under independence, which was laid out in its White Paper on independence, Scotland’s Future (Scottish Government, 2013).
We revisit these debates and assess if – and how – they have changed. We argue that, like many other aspects of the independence debate, recent events have turned on their head many of the arguments used by both sides in 2014. Brexit, a collapse in oil revenues and the fiscal costs (both now and in the future) from the Covid-19 pandemic all mean that the outlook for an independent Scotland – and Scotland’s future within the UK – now looks quite different.
But the conclusions are remarkably familiar. There is no question that an independent Scotland – like many other small nations around the world – could run a sustainable budget. But like the UK, an independent Scotland would face major fiscal challenges both in the short and long run. Based upon the latest data, an independent Scotland is likely to face greater challenges than the UK as a whole (at least in the short-term). Of course, there are many aspects of the UK fiscal landscape that an independent Scotland could improve upon.
The key challenge for proponents of independence is setting out a credible plan to move from the ‘status quo’ to a sustainable fiscal position in time. We discuss these issues but begin with an overview of the key publication on Scotland’s finances: Government Expenditure and Revenue Scotland (GERS).
Page 91-101 in "Scotland’s new choice Independence after Brexit" Edited by Eve Hepburn, Michael Keating and Nicola McEwen