The economic outlook for an independent Scotland looks better than previously forecast provided it continues with the UK chancellor’s spending squeeze, according to economists.
The Institute for Fiscal Studies (IFS) has issued “good news” for an independent Scotland compared with its more cautious forecast last year, but said it must continue with the spending cuts which have been unpopular with the present Scottish Government.
It has also warned that official UK oil forecasts are now less than half the revenue expected in the Scottish Government’s least optimistic forecast.
The UK Office for Budget Responsibility (OBR) has revised its oil forecast downwards from £4.5billion to £3.3billion in 2016-17, meaning the SNP’s forecasts of between £6.8billion and £7.9billion “look to be too optimistic”, the IFS said.
The IFS observation states: “The latest OBR forecasts for the UK’s public finances imply a slightly stronger fiscal position for a potentially independent Scotland in the medium term than their previous forecasts suggested, although with higher borrowing over the next couple of years.
“This is good news but would require the government of a newly independent Scotland to continue with the spending squeeze currently planned by the UK’s coalition government.
“The latest OBR forecasts also illustrate the sensitivity of Scottish public finances to oil revenues.
“Neither the OBR nor the Scottish Government can know for sure what will happen to these revenues.
“What is clear is that fiscal decisions in an independent Scotland would need to be taken in the context of considerable uncertainty over this very important part of the budget, and in the context of long-term pressures both on these revenues and arising from an ageing population.”
It added: “Some forecasters take a very different view from the OBR on the prospects for oil revenues over the next few years.
“It looks like the Scottish Government’s forecasts for revenues under these scenarios have been too optimistic in 2012-13 and, with the vast majority of payments already having been made for 2013-14, that their forecasts for this year also look to be too optimistic.
“It remains to be seen whose forecasts might be more accurate going forwards.”
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