The National Institute of Economic and Social Research
said that while it would be ‘sensible’ for an independent Scotland to continue
to use the pound sterling, it would restrict fiscal policy because the Scottish
parliament would have no directly control over its currency.
Dr Angus Armstrong, director of macroeconomic research at
the NIESR also said that, with a pro-rata transfer of existing UK public debt,
Scotland would enter independence ‘heavily indebted’ with no insurance from
fiscal risk sharing or fiscal transfer mechanism with the rest of the UK.
‘Even with a favourable settlement on future oil
revenues, its fiscal balances are likely to be volatile with larger deficits in
some years as a result of its dependence on oil revenues,’ he added.
According to Dr Armstrong, this would mean Scotland’s
fiscal debt would be around 70% of gross domestic product, with recent fiscal
and trade deficits around 4% on average.
Independence would also require Scotland to create
provisions for its ‘lender of last resort’ facility and to have some
An independent Scotland would also set its own budget and
issue its own bonds, presumably in sterling, to finance any shortfall. Dr
Armstrong said that this raised the possibility of default as a result of bonds
having been issued without the government being able to print money to repay
Default was only likely ‘in very remote circumstances’,
he said, but the recent experience of some eurozone countries showed it was no
longer just a theoretical possibility. Currently, as a full member of the UK,
Scotland is not at the risk of this happening.
Speaking last night in Edinburgh, Scottish finance
secretary John Swinney said an independent Scotland would be able to support
‘The National Statistics publication Government
Expenditure and Revenues Scotland (GERS), estimates that over the past five
years Scotland has been in a stronger financial position than the UK as a
whole,’ he said.
‘Scotland has a tremendous assets base, the natural human
and capital resources available are substantial: remaining oil reserves with an
estimated wholesale value of £1 trillion, over £3 billion worth of whisky
exports, the wealth of exportable engineering and research and development
skills vested in Aberdeen, the oil and gas capital of Europe, or those in
Scotland’s highly diversified financial services sector; or the opportunities
available through as yet untapped wind, wave and tidal power.’
‘Independence will allow us to maximise the opportunities
available to our businesses and people, to give certainty about the tax
environment to our oil and gas industry, to use taxation wisely to attract
investment and jobs,’ he added.