Independence could cost Scottish taxpayers £1k a year

The Treasury claim that an average basic rate taxpayer in Scotland could face a £1000 year tax increase by the end of the decade if Scotland were to become independent. The new Treasury analysis based on recent Institute of Fiscal Studies (IFS) work shows. The new calculation is revealed in a letter sent by Chief Secretary to the Treasury Danny Alexander to First Minister Alex Salmond based on the IFS's most optimistic independent assessment of an independent Scotland's finances.

The IFS report last week said that even under its most optimistic assessment of Scotland's population profile and Oil revenues, an Independent Scotland would require a fiscal adjustment - i.e cuts or tax rises - of 1.9% of GDP or around £3billion in today's prices.

In his letter the Chief Secretary Chief Secretary says:

"One week ago the independent Institute for Fiscal Studies (IFS) projected that under independence Scottish public sector net debt could rise above 100% of national income by the early 2030s and above 200% of national income over 50 years. This is not a sustainable position. Even under the most optimistic scenario the IFS considered, in 2021-22 an independent Scotland could have to find permanent tax increases or spending cuts that would be equivalent to £3 billion in today's terms. This is a very stark reminder of why it is in the interest of Scotland to pool these risks not go it alone." 

"The IFS said it would require policy action equivalent to around an 8 percentage point increase in the basic rate of income tax. I asked Treasury officials to look at this. They calculate that an 8 percentage point rise in the basic rate of income tax would mean an average increase for basic rate tax payers in Scotland of around £1,000 per year. " 

The Treasury analysis also exposes the growth rates required to meet the Finance Secretary's claim that an independent Scotland's fiscal problems will be overcome through increased growth. Mr Alexander said on that issue:

"I was surprised to hear that the very next day the Scottish Government proposed cuts to tax rates in the event of independence. Your Finance Secretary explained that an independent Scotland's fiscal problems would be fixed through additional growth. Treasury officials calculate that, all else equal, an independent Scotland would need to grow at almost 2% per year more than the UK for the next 50 years to get back to the IFS's projection for the UK's debt position. No European country has managed the required average growth rate over the last 50 years."