THE so-called "black hole" in Scotland's finances, should the SNP Government's desire for full fiscal autonomy be realised, would increase by more than £2bn to almost £10bn by 2020, according to new analysis by the Institute for Fiscal Studies.

 

The respected think-tank's projection for this year - should full fiscal autonomy, now renamed full fiscal responsibility(FFR) by the Nationalists, be achieved - of a shortfall of £7.6bn, has already caused a major political row in the General Election campaign.

Nicola Sturgeon dismissed the IFS's original analysis, saying it was "not relevant because it's a snapshot one-year figure" that would vary and which took no account of the fiscal framework that would be negotiated if FFR were agreed.

But, following the First Minister's criticism and the launch of the SNP's election manifesto, the IFS has number-crunched further for a longer period and said a move to FFR, far from closing the "fiscal gap", would widen it in the next five years, so that the projected net fiscal balance would be minus £9.7bn by 2019/20.

The think-tank calculated that while the UK would have a net fiscal balance of plus 0.3 per cent by the end of the decade, Scotland with FFR would have one of minus 4.6 per cent; a difference of almost five per cent.

The analysis said that to close the gap by 2020, Scottish revenues per person would need to grow by more than twice as much as forecast for the UK as a whole - 4.5 per cent in real terms per year - between 2013/14 and 2019/20.

"Even closing the gap over a longer 10 or 15-year horizon would require a step-change in Scottish economic performance and revenue generation," noted the IFS.

"Such a change is not impossible but is much easier to promise than it is to deliver. As we have highlighted before, the types of policies previously outlined by the SNP as potential ways to boost growth, such as cuts to corporation tax and air passenger duty, and increases in childcare spending, would, at least in the short to medium run, cost the Government money, and widen rather than shrink the fiscal gap, even if they did boost growth."

The think-tank stressed that delaying a move to FFR for a few years would not alter the fact that it "would likely entail substantial spending cuts or tax rises in Scotland".

It added: "While a big and sustained rebound in oil revenues or significantly higher growth in Scotland could mitigate this, there can be no presumption that either would occur."

The SNP's opponents seized on the latest analysis with Kezia Dugdale, Scottish Labour's deputy leader, insisting that the IFS had confirmed the "SNP's manifesto means they have signed up to massive spending cuts that would make even the Tories blush".

Ms Dugdale insisted each of the Nationalists' claims in response to the think-tank's original analysis had been demolished by the IFS.

"The SNP say we could delay implementing their own plan and that would make things better; the IFS say this isn't true and would only make things worse.

"The SNP say we could grow our way out of the extra austerity caused by full fiscal responsibility; the IFS say we'd need heroic levels of growth for this to be even vaguely true.

"And the SNP say we'd have billions of pounds more in onshore taxes to close the gap in Scotland's finances; the IFS say they've already counted that and we'd still be nearly £10bn a year in the red."

Murdo Fraser for the Scottish Conservatives claimed Ms Sturgeon and her colleagues were now "in full retreat" on full fiscal autonomy, noting how they had even tried to rebrand it to full fiscal responsibility, so embarrassed were they by it.

"As the IFS has pointed out, full fiscal autonomy would create a black hole in our public finances, which would keep getting deeper. Whether this is a policy for now, tomorrow or five years from now, it would be a disaster for business and taxpayers," he added.

But MSP Kenneth Gibson for the SNP sought to accentuate the positive, highlighting how the IFS analysis showed Scotland's budget deficit would fall from 8.6 per cent of GDP this year to 4.6 per cent in 2019/20, and accused his political opponents of "constantly talking down Scotland financial abilities".

He noted how the near-halving of Scotland's deficit by the end of the decade did not factor in Scottish Government plans to boost the economy, stressing how this showed "Scotland has robust finances".