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.

18 thoughts on “Warning taxes could go up 21% after No vote”

  1. Congratulations. I just wrote exactly the same article for Rev Stu on Wings earlier today.

    Great minds and all that!

    Its truly shocking they expect us to believe that an independent Scotland would have to fill our deficit overnight yet the UK has no such issue.

    What’s worse is that this is from a ‘supposedly’ neutral source.

    1. Your WoS article is has been published now, I noticed.

      I must say you’ve covered this issue in much more detail than I ever attempted here, and it’s a very good read, too!

      I totally agree that it’s shocking that people aren’t comparing like with like. I’ve no issues at all discussing the size of Scotland’s debt, but it should definitely be compared to what we’ll be dealing with if we stay in the Union, not seen in isolation.

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