THE country’s most respected economic thinktank has likened Nicola Sturgeon’s latest independence plan to Liz Truss’s disastrous mini-budget.

The Institute for Fiscal Studies (IFS), which the First Minister quoted with approval in another context in a press conference today, also said tax rises and spending cuts were likely for several years after a Yes vote.

In a snap reaction to the plan, IFS associate director David Phillips warned it skirted round such downsides, while talking up hard-to-deliver growth.

He said: “Experience from recent weeks suggests the markets may not look favourably on fiscal plans built on the uncertain hope of a substantial future boost to growth.” 

The IFS also warned that Ms Sturgeon’s key ambition for Scotland to rejoin the EU was “far from certain” to boost growth because it would create trade barriers with a post-Brexit UK.

It followed the First Minister publishing the third part in her Building a New Scotland series, covering the economy, currency and post-Brexit border with England under independence.

Ms Sturgeon said a newly independent Scotland would borrow more using its new powers - including to invest in infrastructure - but dodged a question on tax and spending.

Scotland’s notional deficit, the gap between its tax revenue and spending, was almost £24billion in 2021/22m, or 12.3 per cent of GDP

The new prospectus said the outlook for the global, UK and Scottish economies was too uncertain to offer a starting deficit in an independent Scotland.

In a media Q&A, Ms Sturgeon was asked if the first years or decades of an independent Scotland would require tax rises, spending cuts, borrowing or a combination of all of them.

She said most governments borrowed to invest and ran deficits, and Scotland would operate under as-yet unidentified fiscal rules to deliver budget balance “over a period of time”.

She added: “And if you grow revenues, that gets you to that [balance] in a better and more sustainable way”.

She said: “For any country, it is about that balance, and we are setting out here how we think we can achieve that balance in a better way.

“Is this an easy path for any country right now, and deficits have grown across most countries because of the pandemic, is this an easy path for any country? 

“No, but it is one that we are able, doing it this way, to guide through a sensible approach, consistent with our values.”  

In its response to the plan, the IFS said the Scottish Government paper contained several economic aspirations, but did not provide further detail about them working in practice.

It said: “On the public finances, the Scottish Government says it would be committed to ‘sound public finances’, ensuring this through ‘fiscal rules informed by international best practice’, placing a limit on borrowing for day-to-day spending, and debt. 

“However, the report does not discuss what achieving a sustainable fiscal position could mean for Scottish taxes or public spending, arguing that the economic and policy environment is too uncertain to do so.

“It is true that the future path of the UK and Scotland’s public finances is currently even more uncertain than usual. 

“But nevertheless, Scotland’s much higher levels of public spending and slightly lower levels of onshore tax revenues mean that it is highly likely an independent Scotland would need to make bigger cuts to public spending or bigger increases to taxes in the first decade following independence than the rest of the UK would need to. 

“In the longer-term, the sustainability of Scotland’s public finances - and its potential to reverse some of the spending cuts or tax rises - would depend on whether aims for faster productivity and economic growth were delivered.”

It said the plan to increase immigration to Scotland to bolster the shrinking workforce would boost the size of the economy overall, but the impact on GDP and productivity per person would be “substantially lower”.

Ms Sturgeon’s plan to invest £20bn in infrastructure over a decade through a Building a New Scotland Fund based on declining oil revenues and borrowing was also queried.

“With an independent Scotland’s budget likely in substantial deficit during its first few years, even including oil and gas revenues, this fund would in reality be financed by additional borrowing,” it said.

Mr Philips added: “The Scottish Government’s new paper on post-independence economic plans makes all the right noises on how the public finances would be managed, emphasising achieving fiscal sustainability. 

“But it skirts around what achieving sustainability would likely require in the first decade of an independent Scotland: bigger tax rises or spending cuts than the UK government will have to pursue.

“This is because while high oil and gas prices means Scotland’s underlying budget deficit this year will be fairly close to that of the UK as a whole, this is likely to prove temporary: oil and gas prices are expected to fall back, and North Sea production is on a long-term downward trend. 

“Scotland’s public finances are therefore expected to weaken relative to the rest of the UK again unless onshore economic growth could be boosted to grow revenues from income tax, VAT and the like.

“That’s not impossible and the Scottish Government has rightly highlighted the UK’s poor productivity performance, including relative to many of the small northern European countries that it is suggested Scotland could emulate. 

“However, boosting productivity and growth is far from certain and would be easier said than done. Experience from recent weeks suggests the markets may not look favourably on fiscal plans built on the uncertain hope of a substantial future boost to growth.”

Liz Truss's new Chancellor, Jeremy Hunt, today erased almost all of the mini-budget his predecessor Kwasi Kwarteng and the PM produced last month, in one of the biggest U-turns and humiliations in British political history.