Fiscal Sustainability of an Independent Scotland – IFS Report

The IFS has published another report, this time looking at the financial situation of an independent Scotland.

Of course, this has made quite a stir, with both sides leaping on the reports findings. The No campaign delights in Scotland having to deal with a higher gap between spending and revenue than the UK, whilst the Yes campaign is quick to blame this fact on Westminster’s policies and claim that this wouldn’t have happened if Scotland was independent.

Personally, I think that every country is unique, and faces circumstances unlike any other country. As such, there is little to no point trying to compare one country’s performance with another.

What is more important for me is that the report shows up a number of the issues that need clarifying. The economic health of Scotland will depend, among other things on:

How much of the UK’s debt Scotland receives.

How much interest Scotland will have to pay on that debt.

Population dynamics, including age and immigration rates.

Of course, with these issues, they’re not Scotland’s problems alone. The UK as a whole is struggling with debt, age and immigration*. If the UK as a whole can deal with these, Scotland alone should be able to meet the challenges as well.

Scotland’s population dynamics are a problem. Since the SNP has previously revealed plans to lower the age of retirement, Scotland’s aging population and declining youth population will be a major factor, and represents a major challenge to the “fiscal gap” Scotland faces in its budget. Encouraging immigration will be important to an independent Scotland, and shows up the important of Scotland remaining in the EU.

The only point of difference between the UK and Scotland here is its credit worthiness. Whilst the UK as a whole has long lost its AAA rating, one would assume that Scotland would receive the same rating as the rest of the UK. However, there has been little word on what Scotland’s potential rating would be. This may suggest that the SNP is nervous about Scotland’s potential rating. However, a vote of confidence from the credit agencies, especially if Scotland could secure the coveted AAA would be a major coup for the Yes campaign. A good indication of Scotland’s potential credit rating will go a long way to informing voters.

This graph shows how Scotland’s tax per head compares to the UK as a whole. What is immediately apparent is how important oil and gas revenue is to Scotland.

All said and done, this report attempts to predict Scotland’s finances 50 years into the future, based on unchanged policy. I’m having enough trouble predicting what the world will be like one year into the future. Whatever challenges the future brings, I am confident Scotland, the UK and the world will be able to deal with them.

*Before anyone asks, I don’t mean immagents takin’ are jerbs, I mean skilled and unskilled migrants filling holes in our economy and people emigrating, taking useful skills out of the country.

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