Exclusive: IFS rejects SNP defence of Full Fiscal Autonomy

Written by Liam Kirkaldy on 21 April 2015 in News

IFS paper suggests gap between the finances of Scotland and the rest of the UK is likely to widen, rather than shrink, in the years ahead

The Institute of Fiscal Studies (IFS) has rejected SNP defences of its plans for Full Fiscal Autonomy (FFA), with projections suggesting that the gap between the finances of Scotland and the rest of the UK is likely to widen, rather than shrink, in the years ahead.

The SNP has defended plans for FFA, which IFS figures suggest would lead to a £7.6bn black hole in Scotland’s finances – on the basis that Scotland could use additional economic powers to grow its economy and plug any fiscal gap.

The party has also stated that IFS figures only provide a snapshot of one year, 2015/16, while FFA would require a transition period.

But a new paper from the IFS raises questions over these arguments, with future projections showing that fiscal gap growing from £7.6bn in 2015/16 to £9.7bn in 2019/20 (equivalent to £8.9 bn in today’s prices).

The paper states that, unless Scotland sees a “big and sustained” rebound in oil revenues or significantly higher growth full fiscal responsibility would likely either require substantial spending cuts or tax rises.

Closing the gap would require Scottish revenues per person to grow by more than twice as much as forecast for the UK as a whole – 4.5 per cent in real terms per year – between 2013–14 and 2019–20.

David Phillips, Senior Research Economist at the IFS, writes: “Of course if, with additional powers, the Scottish government could grow the Scottish economy more quickly than that of the rest of the UK then revenues would grow more rapidly, shrinking the fiscal gap. But there is no guarantee of such growth and assuming similar growth between Scotland and the rest of the UK is clearly the most useful baseline comparison.”

He adds: “Such a change is not impossible, but is much easier to promise than it is to deliver. As we have highlighted before, the types of policies previously outlined by the SNP as potential ways to boost growth, such as cuts to corporation tax and air passenger duty, and increases in childcare spending, would, at least in the short to medium run, cost the government money, and widen rather than shrink the fiscal gap, even if they did boost growth”.

IFS paper here.

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