IFS: Scottish budget deficit worse than previously thought

Posted On: 
23rd March 2016

The Scottish government will face worse budget deficits in every year of this parliament than previously estimated, according to new post-Budget forecasts from the Institute of Fiscal Studies.

The thinktank said the downgrade in its projections was due to the collapse in the global oil price, which means oil and gas will now actually be a net negative for both the UK and Scottish treasury.

The IFS estimates that in 2016-17 the “fiscal gap” between the UK and Scottish deficits will be as high as 6.5% of GDP

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In cash terms that equates to £10.6bn or £2,000 per person in Scotland, on top of their share of the overall UK deficit.

David Cameron has seized on the collapse in the oil price as evidence that an independent Scotland would have been in a severe financial black hole.

The Government Expenditure and Revenue Scotland figures published earlier this month showed the Scottish government ran up a £15bn in 2014-15, equivalent to 9.7% of GDP, compared to 4.9% for the rest of the UK.

Pro-unionists claimed this showed SNP leader Nicola Sturgeon's claims about the future value of oil and gas to the Scottish economy had been inflated. 

Forecasts last year had the overall UK revenues from North Sea oil and gas at around £700m, but the global price fall combined with tax cuts means that has now slumped to a -£800m on average between 2015-16 and 2019-20.

“Given that the majority of these revenues would have come from operations in Scottish waters, the impact of these further declines on the Scottish deficit is proportionately much larger than that on the deficit of the UK as a whole,” the IFS said in its observation.

‘SEPARATION DAY’

At Prime Minister’s Questions today Mr Cameron mocked the SNP’s Westminster leader Angus Robertson, who had asked him a question about charities lobbying government ministers.

“We're of course only one day away from what would have been separation day for Scotland. Had that happened, there wouldn't be money for charities, there wouldn't be money for anything!” Mr Cameron replied.

However the IFS research points out that the projections on Scottish finances are predicated on a number of assumptions that would change if the country became independent.

Among the different factors weighing on the Scottish budget position would be how much of UK national debt an independent nation would have taken on.

An independent Scotland might also have taken tax-cutting measures to boost economic performance, which could have increased revenues.

But the IFS points out that a deficit “anything like that in our projections” would have meant the Scottish government being forced to cut spending or raise taxes to shore up the public finances.