Weekly tax brief

Can Scotland afford its independence?

11 May 2021

The results of the election of the next Scottish Parliament are now in, after a longer than usual count due to Coronavirus restrictions. Contrary to most of the polls in the run up to the election, the SNP failed to secure a majority in the new Parliament. Winning 64 seats left them frustratingly short of an overall majority by just one seat in the 129 seat Parliament. However, taking into account the eight seats won by the Green party, there is a clear and increased majority of MSPs representing pro-independence parties. 

As expected, there have been further calls for another referendum on Scottish Independence and there is an ongoing debate on the legitimacy and wisdom of the UK Prime Minister’s continued refusal to consider allowing a new ballot. Many believe that it is only a matter of time before he will have to concede on that point.

If the polls on the current view of independence are accurate, there seems to be a fairly even split for and against independence, with those in favour taking a slight edge at 46 per cent to those opposed at 45 per cent. In the 2014 referendum the result was 55:45 in favour of remaining in the Union. On both sides of the debate, there are significant numbers with entrenched opinions and the undecided 9 per cent could therefore be key in a new vote.

All parties during the campaign confirmed that recovering from the pandemic must be the first priority of the new Parliament and the First Minister has indicated that she would intend a referendum to be held by the end of 2023 at the latest.  

Scottish taxpayers will need to fully understand the financial implications of independence. Scottish Government figures for 2019/20 show that public spending is £1,633 more per person than the UK average with tax revenues generated at £308 less per person than the UK average, even after including a share of North Sea oil revenues. Including the effects of pandemic spending and Brexit, those figures will surely get worse and raise doubts as to the affordability of independence.

So far there has been little presented to demonstrate the economic argument for independence and there are many questions to be answered about the practicalities of an independent Scotland, particularly one that desires to be part of the EU. The UK divorce from the EU has given a taste of some of those issues, not least the effect of a border between countries that rely heavily on each other for trade.

Both campaigns will be battling for the hearts and minds of the Scottish electorate, but we can expect that the economy will be much higher up the agenda than in the parliamentary election.