An independent Scotland would have to find a whopping £8.5bn in additional savings upon leaving the Union, a new report from the Institute for Government has found.
Before Covid-19 struck, the Scottish deficit stood at 8.0 per cent, but the IfG warned that it was unlikely that Nicola Sturgeon’s government would be able to borrow at a rate of more than 3.0 per cent per year.
In order to make up the funding gap, Holyrood would therefore face implementing spending cuts or tax rises “over and above the savings the SNP has already identified”.
The IfG warned that it would not be possible to close the gap simply by spending less on defence.
The report comes just days after delegates voted to bring draft legislation for a second independence referendum before the Scottish parliament.
In addition, the IfG said that it would “almost certainly be more expensive for Scotland to borrow than for the
UK, as higher interest rates would be needed to attract investors”.
“Initially, Scotland’s lack of a track record could be a source of a substantial premium – that is, higher borrowing costs – because investors would take time to be reassured that Scotland would repay its debts”, it said.
Scotland’s choice of currency post-independence could also play a role, the report warned, “as investors may need to be compensated for possible fluctuations or devaluations against the major global currencies”.
Liz Smith, the Scottish Tories’ shadow finance and economy secretary, told the Telegraph that the report “only increases the concerns about the economic costs of independence”.
She said: “The SNP has never provided clarity about what new currency would be used in an independent Scotland nor has it ever acknowledged the additional debt and borrowing costs that would accompany it.
“The economic case for independence has always been inherently weak. This report just confirms that and why the attention of the Scottish Government should be on economic recovery from the pandemic and not on preparation for a second independence referendum.”