SNP claims that tax rises and spending cuts would be avoided by growing the economy if Holyrood was responsible for raising all its own cash are a "red herring", according to one of Scotland's leading economists.

 

Professor Brian Ashcroft of the Fraser of Allander Institute at Strathclyde University, said that "stratospheric" annual growth increases of at least 6.5 per cent would be needed under full fiscal autonomy just to keep debt at current levels if public spending and tax takes remained the same.

At a debate hosted by the institute, ministers also faced calls to spell out clearly how they planned to grow the economy.

Professor Ashcroft called for a greater emphasis on attracting overseas investment to Scotland and for a more focus on boosting the economic potential of the country's cities.

He also commented on devo-max, which the SNP has pushed to be included in the Scotland Bill - but has been ruled out by David Cameron.

Professor Ashcroft suggested that to stabilise the debt-to-Gross Domestic Product (GDP) ratio in a fiscally independent Scotland growth of up to up to eight per cent a year may be needed.

Since the 1960s, the economy has grown at an average of around two per cent, roughly in line with UK levels.

He added: "In my view, you can't get away from the fact that full fiscal autonomy will require an increase in the tax burden and a lower spending ratio. The argument that faster growth can secure the policy of full fiscal autonomy, without higher tax and lower spending, is a red herring."

The Scottish Government's economic strategy, published in March and placing a strong emphasis on links between a stronger economy and reducing inequality, also came under scrutiny for failing to spell out how growth would be achieved.

Professor Ashcroft said that rather than spelling out policies, ministers often "fell back on pleas for more powers" and that the document was so general it could have applied to the US, Russia or Iceland. He suggested that the "overarching priority" for the Scottish economy should be placed on attracting overseas investment, while calling for a greater focus on in cities. He highlighted the 'northern powerhouse' agenda in England as a potential threat to Scotland's economy.

His comments were backed up by most of the other panellists, with Jeremy Peat, former Group Chief Economist at The Royal Bank of Scotland who until recently was director of the David Hume Institute, saying it was "very clear" that full fiscal autonomy would introduce a "substantial challenge" for public finances if introduced.

He added: "Eight per cent is not achievable. What could one do to get to three or four per cent growth to help a transition? I would love to see more focus on the hows - what policies that are or could be devolved in order to harness growth, and growth that is relatively equitable."

Paul Brewer, partner with responsibility for our public sector work in Scotland for PwC, said that high levels of growth were achievable in the short term but they were not sustainable. He later said that businesses were open to the First Minister's aspiration of the private sector paying a leading role in helping reduce inequality, but remained wary about practicalities.

Will Dowson, the Bank of England's agent in Scotland, declined to comment on whether he agreed with Professor Ashcroft's analysis of full fiscal autonomy.

However, in comments that chime with the First Minister's agenda, he said that economic growth could serve as the foundation for a fairer society, after Professor Ashcroft pointed out that of 31 countries analysed, only Ireland and Chile had higher rates of inequality than the UK before re-distributive measures such as taxation and welfare payments were taken into account.

Mr Dowson added: "I don't think it will be a quick solution... but the sense is that people are less willing to tolerate extreme inequality. It seems it's going to be an issue for a while, it's hard to turn around quickly, but I also get the sense that it's hard to continue in the current direction.

"The recent economic story has magnified that, just in the way that those with assets have done better in the last few years than those without. I think we're at an interesting inflection point and on an interesting journey on this and I don't think it's going to go away."

Deputy First Minister John Swinney said: "Scotland already more than pays its way, with more revenue generated per head than the UK for every one of the last 34 years, and we believe being in control of all our nation's finances is the best way to fulfil Scotland's potential.

"But we need significant new powers over policy areas such as welfare, business taxes, the minimum wage, employment and equality laws if we are to make the most of our nation's potential, grow the economy and create a fairer society.

"I will discuss more powers for Scotland further with the Secretary of State for Scotland in the coming months."