Warning taxes could go up 21% after No vote

Tax Form

Tax Form, a photo by 401(K) 2013.

The Herald has today published an article about the new IFS report:

The IFS also makes clear a ­breakaway Scotland would probably need to undertake some fiscal tightening.

“But to give a sense of possible scale,” the report says, “previous IFS research has found £2 billion of tax rises or spending cuts would be needed during 2016/17 and 2017/18 to match the UK Government’s plans. If a Scottish government also wanted to offset the decline in oil revenues by 2017/18 as forecast by the Office for Budget Responsibility, another £3.4bn would be needed.” This would mean an independent Scotland would begin life needing to find £5.9bn.

The report continues: “We estimate a one percentage point increase in all rates of income tax, or in the main rate of VAT, would raise around £430 million in Scotland,” and adds: “Making a substantial contribution to a possible fiscal tightening would require significant tax increases.”

Mr Adam calculated filling the fiscal gap by tax hikes alone would mean a rise of 13.7%.

Andy Lythgoe has used GERS figures to repeat Mr Adam’s calculations and done the same for the UK. The results are very interesting:

Scotland Revenue incl. North Sea £56,871m
Scotland Total Public Sector Expenditure £64,457m
Fiscal Deficit -£7,586m
Fiscal Deficit as % of Revenue 13.34%
UK Revenue £572,636m
UK Total Public Sector Expenditure £693,599m
UK Fiscal Deficit -£120,963m
Fiscal Deficit as % of Revenue 21.12%

An independent Scotland will thus only need to put up taxes by 14% in the same sense as the UK will need to put taxes by 21%.

In other words, an independent Scotland will be able to lower taxes by about 7% compared to the taxes we will incur if we remain in the UK.

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