‘Deficit need not be a barrier to Scotland joining the EU’

David Phillips, associate director of the Institute for Fiscal Studies, told The National the decision to allow the country to join the bloc would be a political rather than an economic one.

He made the point after the Government Expenditure and Revenue Scotland (GERS) report, published yesterday, revealed the deficit is 7% of the country’s gross domestic product (GDP).

The European Union’s Excessive Deficit Procedure rules state: “EU countries must demonstrate sound public finances and meet two criteria: their budget deficit must not exceed 3% of gross domestic product (GDP); public debt (government debt and that of public agencies) must not exceed 60% of GDP.”

Referring to Scotland’s notional deficit for 2018/19, Phillips said: “EU countries are meant to keep their deficit below 3% and Scotland’s is currently about 7% so there could be issues there.”

But he added: “I’m not sure whether [the deficit] would necessarily be a binding thing as ultimately the decision about whether Scotland could join would be a political one rather than economic.”

Phillips also argued that the EU would take account of whether Scotland had a credible plan to reduce the deficit when it came to assessing whether the EU would agree to an Scotland becoming an independent member.

The economist also considered the possible impact of Scotland becoming an EU member when the UK had left the EU. He said the short term economic situation could be difficult but this could be outweighed by longer-term prosperity.

READ MORE: Fact Check: What the deficit means for Scottish independence and Europe

READ MORE: Fact check: Is Scotland responsible for half of the UK deficit?

“Potentially, the bigger issue about joining the EU is the extent to which ... yes there would be low trade barriers with the EU, but there would be trade barriers with the UK. How that played out could be quite important,” he said.

“In the short term that could make things harder for the economy of Scotland but in the long term it could increase Scotland’s integration with the rest of EU and it could make up for the bigger barriers with the UK by becoming an English language hub with the EU. These are open questions, and probably the more significant ones than the deficit one.”

Phillips underlined that the public finance figures showed Scotland as the most prosperous nation in the UK outside England, with a budget deficit per person around £2300, compared to £4200 per person for Wales and £4700 per person for Northern Ireland and was among the more prosperous parts of the UK.

He said: “Ranking the nations and regions in order of prosperity or GDP, it would be London and the south-east, then east of England and then Scotland. Then you would have south- west, east Midlands and north-west, with Wales and Northern Ireland at the bottom.”

“Scotland is quite unusual in that it is about average in terms of its economy, but it has a much bigger deficit than average and that’s because government spending is quite high, some of it because of high need, some of driven by historically high levels of funding because the way the funding system works ... Scotland has a deficit but it is not because Scotland is poor, it is because public spending is high.”

Phillips added: “These figures do mean that unless growth were to pick up very substantially quite quickly, the Scottish Government would have to engage in a degree of spending restraint ... unless there is a step change ... the Scottish Government would need to take measures to tackle its deficit by either raising taxes or holding down spending growth and that would mean difficult choices.”