Scottish independence: the fiscal context
Carl Emmerson
Presentation for ESRC seminar on “Future of the UK and Scotland”,
House of Commons, London, 12 June 2013. http://www.ifs.org.uk/projects/408
© Institute for Fiscal Studies

Scottish independence: the fiscal context
• The UK faces significant fiscal challenges from both the recent financial crisis and longer-term public finance trends
© Institute for Fiscal Studies

Financial crisis & associated recession did significant damage to the UK’s fiscal position...
15
10
5
0
-5
-10
Primary balance (LH axis)
Public sector net debt (RH axis)
60
50
40
30
20
10
0
100
90
80
70
Notes: Data prior to 1955–56 are calendar rather than financial year. Data
© Institute for Fiscal Studies exclude Royal Mail and APF transfers.
Source: ONS; OBR.

...and ageing projected to create a further challenge, albeit over a longer time-horizon
15
10
5
0
-5
-10
Primary balance (LH axis)
Public sector net debt (RH axis)
60
50
40
30
20
10
0
100
90
80
70
© Institute for Fiscal Studies
Notes: Data exclude Royal Mail and APF transfers.
Source: OBR, Long-term fiscal report, July 2012 .

Scottish independence: the fiscal context
• The UK faces significant fiscal challenges from both the recent financial crisis and longer-term public finance trends
• Scottish spending per capita higher than, and non-North Sea tax per capita similar to, the UK
– in recent years a geographic share of North Sea oil revenues would have been enough to finance the higher public spending per head in Scotland
© Institute for Fiscal Studies

Net fiscal balance % of GDP, UK and Scotland
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
UK, 100% of North Sea oil
Scotland, including population share of North Sea oil
Scotland, including geographical share of North Sea oil
© Institute for Fiscal Studies
Notes & sources: See Figure 9 of Phillips, D. and Johnson, P. (2012), Scottish independence: the fiscal context , (http://www.ifs.org.uk/publications/6444).

Scottish independence: the fiscal context
• The UK faces significant fiscal challenges from both the recent financial crisis and longer-term public finance trends
• Scottish spending per capita higher than, and non-North Sea tax per capita similar to, the UK
– in recent years a geographic share of North Sea oil revenues would have been enough to finance the higher public spending per head in Scotland
• More important is the longer-term where the public finance challenges facing an independent Scotland if anything appear greater than those facing the rest of the UK
© Institute for Fiscal Studies

Tax & spend issues for an independent Scotland
• Tax
– opportunities arise from the fact that the UK tax system has much that can be improved upon
– specific Scottish differences should impact on design: more equal wage distribution and different labour market
– very open economy: may make it harder to raise revenue
• Spend
– potential opportunities from higher spending per head: for example should defence spending be higher than most other small countries
– careful choices would need to be made on basis of clear analysis of priorities over short and long term
– Scottish population is older and is projected to age faster than rest of UK, has greater reliance on disability and sickness benefits at all ages
© Institute for Fiscal Studies

Scottish independence: the fiscal context
• The UK faces significant fiscal challenges from both the recent financial crisis and longer-term public finance trends
• Scottish spending per capita higher than, and non-North Sea tax per capita similar to, the UK
– in recent years a geographic share of North Sea oil revenues would have been enough to finance the higher public spending per head in Scotland
• More important is the longer-term where the public finance challenges facing an independent Scotland if anything appear greater than those facing the rest of the UK
© Institute for Fiscal Studies

Scottish independence: the fiscal context
Carl Emmerson
Presentation for ESRC seminar on “Future of the UK and Scotland”,
House of Commons, London, 12 June 2013. http://www.ifs.org.uk/projects/408
© Institute for Fiscal Studies