THE Institute for Fiscal Studies (IFS) has warned the SNP that their plans to delay full fiscal responsibility would not “on its own deal with the fiscal gap”.
The SNP manifesto states that “the transition to full fiscal responsibility (FFR) – and agreement of the detailed fiscal framework that would underpin it – would take a number of years”.
The economic research group warned that the gap between Scotland’s finances and the rest of the UK will grow from £7.6 billion in 2015/16 to £9.7 billion in 2019/20.
The IFS analysis says that to close the fiscal gap by 2019/20, Scottish revenues per person would need to grow by more than twice as much as forecast for the UK.
Even closing the gap over 10 or 15 years would require a “step-change” in Scottish economic performance, the analysis claimed.
The report concludes: “Delaying a move to full responsibility for a few years would not on its own deal with the fiscal gap, though. Indeed, if anything, given current spending and revenue forecasts, the gap would likely grow rather than shrink over the next few years. It would remain the case that full fiscal responsibility would likely entail substantial spending cuts or tax rises in Scotland.”
Commenting on the IFS analysis, Scottish Labour deputy leader Kezia Dugdale said: “Each of the SNP’s claims has 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.”
But the SNP pointed out that the IFS analysis showed Scotland’s budget deficit decreasing from 8.6 per cent of Scottish GDP in 2015/16 to 4.6 per cent in 2019/20.
SNP MSP Kenneth Gibson said the opposition parties were “talking down” Scotland’s finances. Gibson, who is the convenor of the Scottish Parliament’s finance committee said: “These figures – showing Scotland’s deficit almost halving as a share of GDP by the end of the decade, without factoring in the measures we propose to boost the economy – underline that Scotland has robust finances. The Westminster parties are doing themselves no good by constantly talking down Scotland financial abilities.”
Gibson continued: “As implementation of the 2009 Calman Commission proposals and the Scotland Act 2012 have demonstrated, the transition to full fiscal responsibility – and agreement of the detailed fiscal framework that would require to underpin it – would take several years to complete, even if the other parties supported it.
“As the IFS acknowledge, these figures are before the end of the austerity that we want to see in order to grow the economy faster.”
Gordon MacIntyre-Kemp, the chief executive of Business for Scotland, laid out a robust defence of the policy: ‘‘Currently there are billions removed from Scotland’s block grant that Scotland just is not responsible for. Under FFR would Scotland continue to pay almost billions via a population share of UK (non-international) defence spend that comes nowhere near Scotland?
“If Scotland was fully responsible for spending then we would have to look at the current average £4 billion a year of interest payments for UK debt built up over 34 years when Scotland would not have borrowed at all under FFR. Debt repayment negotiations would surely reflect Scotland’s historic surplus.
“Secondly, the IFS forecast assumes that oil prices won’t recover for five years, frankly that is finger in the air ridiculous. Oil prices are incredibly difficult to forecast right now as the reason for the fall is geopolitical rather than structural and a change in OPEC policy could see the price sky rocket. The mistake here is in not including several scenarios one of which would include oil prices rising.
“There are scenarios that may involve some extra borrowing in the short term to active sustainable fairer longer-term growth. In the medium term this will mean Scotland’s fiscal position will turn positive and accelerate away from the UK’s.’’
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