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Warning taxes could go up 14% in independent Scotland

TAXES would have to rise almost 14% if they were the sole method used to fill the fiscal black hole facing the government of an independent Scotland, Britain's leading economic think-tank has warned.

The author of the latest report by the Institute for Fiscal Studies (IFS) on independence has said using this single option to fill the fiscal gap is unlikely to be successful, and that it would probably require a mix of tax hikes and spending cuts.

Senior IFS economic researcher Stuart Adam said: "This gives people a sense of the scale of the fiscal challenge facing an independent Scotland."

Earlier this year, John Swinney, the Scottish Finance Secretary, said he did "not envisage increases in personal taxation in an independent Scotland", stressing how lower business taxes would help "grow the economy and thereby grow the tax base".

The IFS presents the tax and ­spending pros and cons of Scotland breaking away from the United Kingdom.

It says there would be "plenty of scope for an independent Scotland to improve its tax system" and tailor it to its own specific needs.

Because Scottish income distribution is more equal, there would be less need to redistribute through higher income tax rates and because there was less congestion on Scottish roads, motoring taxation would be lower.

The IFS also makes clear a ­breakaway Scotland would probably need to undertake some fiscal tightening.

"But to give a sense of possible scale," the report says, "previous IFS research has found £2 billion of tax rises or spending cuts would be needed during 2016/17 and 2017/18 to match the UK Government's plans. If a Scottish government also wanted to offset the decline in oil revenues by 2017/18 as forecast by the Office for Budget Responsibility, another £3.4bn would be needed." This would mean an independent Scotland would begin life needing to find £5.9bn.

The report continues: "We estimate a one percentage point increase in all rates of income tax, or in the main rate of VAT, would raise around £430 million in Scotland," and adds: "Making a substantial contribution to a possible fiscal tightening would require significant tax increases."

Mr Adam calculated filling the fiscal gap by tax hikes alone would mean a rise of 13.7%.

Yes Scotland said: "It shows that a Yes vote will give us important powers to build a better tax system and place Scotland on a firm and fair foundation."

The Better Together campaign claimed the report and another by the Centre for Public Policy for Regions, claiming spending would have to be slashed if an independent Scotland was to establish an oil fund and maintain services, were a blow to the cause and showed the SNP's economic credibility was in tatters.

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