Scotland’s Economy Hit By Oil Price Collapse, Says Thinktank
Institute for Fiscal Studies report suggests Scotland’s deficit will rise to £13bn, as SNP launches campaign for Holyrood election
Scotland’s deficit will jump to nearly £13bn by the end of this decade after the collapse in oil prices, according to the Institute for Fiscal Studies.
The IFS released its updated assessment as Nicola Sturgeon, the Scottish National party leader, launched her party’s campaign for May’s Holyrood election, urging its 129 candidates to campaign harder than ever to secure a second successive majority government.
With Labour and the Conservatives holding parallel events in Edinburgh after the Scottish parliament was dissolved for the election, Sturgeon said she was relishing the campaign.
“The responsibility on the SNP to offer positive ideas and vision for Scotland’s future has never been greater,” the first minister said. “Scotland needs a government and first minister which will resist Tory austerity at every turn – and stand stronger for Scotland.”
The SNP is heading into the Holyrood election, its first with Sturgeon as its leader, buoyed by a lead over its rivals that is likely to insurmountable. Polls suggest it is on course to win about 70 of Holyrood’s 129 seats, consigning Labour to a difficult battle with the Tories for second place.
But in a further blow to her ultimate goal of independence, the IFS said Scotland’s economic situation was now about £3bn worse than the previous forecast, leaving it facing a deeper overall deficit by 2020 when the UK as a whole is expected to be in surplus.
The dissolution of Holyrood came the day before that nominated as Scotland’s independence day by the then SNP leader Alex Salmond’s during his unsuccessful 2014 referendum campaign. Sturgeon made only an oblique reference to that defeat in her speech, reminding her party’s election hopefuls that despite recent gains in new tax and welfare powers, the Edinburgh parliament is “not as powerful as we wanted it to be”.
The IFS said that if Scotland had declared independence this week, its population would be facing an overall debt of £2,850 a head in the 2016-17 financial year compared with £850 a head across the UK.
Scotland’s fiscal position was worse, the IFS said, because of the hefty tax cuts and increased subsidies for North Sea oil and gas producers in George Osborne’s last budget. Those changes cut tax revenues from oil even further and were in addition to Scotland’s population share of the UK’s debts.
With the collapse in oil prices, the IFS said that if Scotland’s geographical share of oil tax receipts was included, the black hole in its annual accounts would reach £12.2bn in 2020 and then £12.8bn in 2021, some 6% of GDP.
In its previous forecast, the deficit for 2020 was predicted to be £9.7bn. By contrast, according to the latest Office for Budget Responsibility predictions based on projected spending cuts at Westminster, the UK would see a surplus of 0.5% based on its projected GDP in both those years.
Although Scotland’s spending was currently protected by the UK’s comparatively healthier finances, the IFS warned that its wider economy was still suffering. “Declines in oil and gas prices, profits and investment also means that Scotland’s economy has grown less quickly than previously projected. This means that a given cash deficit represents are larger share of the now smaller economy,” its report said.
The IFS added that independence could improve Scotland’s finances. It could cut its debt costs by negotiating a favourable deal with the UK and could see its economy grow faster than within the UK, as well as allowing its ministers greater freedom to tax and spend differently.
But it said its current deficit and finances would mean much deeper cuts or tax rises than the current Scottish and UK governments were planning. A weaker performance – which might be expected in the short term – would tend to push up Scotland’s deficit.
