Scotland warned of substantial tax rises

Scotland would need to make "substantial" tax rises or spending cuts if it won full control over taxation and spending, a respected think-tank has warned, undermining claims by the Scottish National party it would be able to bring austerity to an end.

The Institute for Fiscal Studies has estimated that a Scottish government could face a hole of up to £10bn if it were given responsibility to balance its books over the course of the next parliament. This is equivalent to nearly 5 per cent of Scottish gross domestic product.

"It would remain the case that full fiscal responsibility would likely entail substantial spending cuts or tax rises in Scotland," said David Phillips, the author of the IFS study.

Nicola Sturgeon, SNP leader and Scottish first minister, unveiled her party manifesto on Monday promising to deliver "a real alternative to the pain of austerity". The SNP opposes further spending cuts and has instead proposed spending increases of 0.5 per cent above inflation in each year of the next parliament.

The SNP remains committed to securing independence for Scotland and wants the parliament in Holyrood to win full control over its tax and spending decisions - a policy known as "full fiscal autonomy".

But the party played down this pledge in its manifesto this week, relegating mention of the topic to the document's final pages and saying it would take a number of years to obtain what it now calls "full fiscal responsibility".

Under this regime, Scotland would raise all its own taxes while transferring some funds to the UK government to cover shared costs such as defence and debt service.

The IFS shows that in the event of full fiscal autonomy, a Scottish government would face a budget deficit ranging from 8.6 per cent of Scottish gross domestic product in 2015-16 to 4.6 per cent in 2019-20. This would make its fiscal position worse than the UK as a whole by about 5 percentage points.

The IFS estimates that filling this hole would require £7.6bn in 2015-16, rising to £9.7bn in 2019-20. Alternatively, Scottish revenues would need to grow by more than twice as much as forecast for the UK as a whole to close the gap by the end of this parliament.

"Such a change is not impossible, but it is much easier to promise than it is to deliver," Mr Phillips said.

The SNP is on course to scoop the vast majority of Scotland's 59 parliamentary seats in the May 7 general election, according to the most recent polls. With neither the Conservatives nor Labour expected to win an overall majority, the SNP could hold the balance of power in Westminster.

The Labour party has seized on fiscal autonomy as a vital weakness in the SNP case. The fall in oil prices, which have halved since June, has made the position of a fiscally independent Scotland much harder to support.

"With full fiscal autonomy, the SNP have signed up to bigger cuts than the Tories," said Jim Murphy, Scottish Labour leader.

The IFS calculations assume that Scotland's share of UK public spending would remain at 9.2 per cent, while non-oil revenues would grow by 1.9 per cent per year in real terms over the course of this parliament. Scotland's oil and gas revenues are assumed to constitute 83.8 per cent of the UK total.

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