Forecast from the Institute for Fiscal Studies says a collapse in oil prices has left a growing gap between Scottish spending and tax income

A fresh economic forecast released to coincide with the day Scotland was to become independent has warned the country’s deficit has deepened, projected to be more than three times greater than the UK.

The Institute for Fiscal Studies figures were released as Nicola Sturgeon launched the first phase of the Scottish National party’s campaign for the Holyrood election in May, urging her party’s 129 candidates to fight harder than ever to secure a second successive majority government.

If Scotland had declared independence on 24 March – the day chosen by then SNP leader Alex Salmond before he lost the 2014 referendum campaign, its population would be facing an overall deficit of £2,850 per head in the 2016/17 financial year compared with £850 per head across the UK, the IFS said.

With the recent collapse in oil prices, its analysis showed that if Scotland’s geographical share of oil tax receipts was included, the black hole in its annual accounts would reach £12.2bn in 2020 and then to £12.8bn in 2021, some 6% of its GDP.

In its previous forecast, the deficit for 2020 was predicted to be £9.7bn. By contrast, according to the latest Office of Budget Responsibility predictions using projected spending cuts at Westminster, the UK would see a surplus of 0.5% of GDP in both those years.



The fall in oil revenues during 2014 and early 2015 has left a growing gap between Scottish spending and tax income The fall in oil revenues during 2014 and early 2015 has left a growing gap between Scottish spending and tax income

However, with the polls putting the SNP 30 points ahead of its nearest rivals Labour, Sturgeon is on the cusp of leading her party into its second majority government – an outcome undreamt of 10 years ago. It will be her first Holyrood campaign as leader and she enjoys record approval ratings: the polling organisation TNS gives her a net positive rating of plus 39, vastly better than any rival.

On Wednesday, Holyrood’s MSPs were piped out of the parliament chamber by the SNP MSP Stuart McMillan, now a candidate hoping to take the once impregnable Labour seat of Inverclyde, as the devolved parliament was dissolved for the election.



Buoyed by repeated Scotland-wide opinion polls which suggest McMillan and about 70 other SNP candidates will comfortably win their contests, Sturgeon was in buoyant mood. Scotland had had “a political reawakening” during the independence campaign two years ago, she said.

“And we, the SNP, should be very proud of the part we have played in that. With the independence debate, we led the most exciting and politically engaging discussion in Scotland in living memory,” she added. The county was more confident; its electorate more demanding. The SNP’s candidates had now to fight for every vote until polling on 5 May.

Scotland's finances 'difficult' in referendum year, admits Sturgeon Read more

With some commercial polls putting support for independence above 50%, the authoritative annual survey by the independent Scottish Centre for Social Research (ScotCen) this week put backing for independence at a 39% – the highest it has recorded.

It found other evidence that popular support for greater Scottish autonomy within the UK are growing too: it found 81% of Scots want Holyrood to control every tax and policy area except defence and foreign affairs.

The IFS did cautiously qualify its deficit forecasts, acknowledging that independence might improve Scotland’s finances. It could cut its debt costs by negotiating a favourable deal with the UK and could see its economy grow faster than within the UK, with greater freedom to tax and spend differently.



The IFS data added to gloomy data from the Scottish government’s own figures, however, and other analysis of future oil-related revenues. Two weeks ago, the annual Government Expenditure and Revenue Scotland (GERS) confirmed that in 2014/15, the gap between overall spending and tax revenues had grown to £15bn.

The fall in oil revenues since late 2012 has shown how heavily Scottish tax income relies on North Sea oil The fall in oil revenues since late 2012 has shown how heavily Scottish tax income relies on North Sea oil

That has left Scottish public spending running at £1400 more per head than the UK average for the third year running. These figures reflected falling tax revenues before oil prices had plunged in late 2015 to $30 a barrel – their lowest level in recent years and less than a third of the $110 figure used by Salmond during the last referendum.

Including oil revenues, the gap between day-to-day spending and tax income was £11.9bn, or 7.8% of Scottish GDP – more than double the UK’s in-year deficit of 3.3%, GERS showed. If oil was excluded, the deficit rose to nearly 10% of GDP. Including capital spending, the deficit hit £14.9bn once oil revenues were included; without them, the gap jumped to £16.9bn.

Aware of how difficult the oil crisis has left Scotland’s finances and the case for independence, Sturgeon made only a brief reference to the yes campaign’s defeat in 2014.



A steep fall in oil revenues will dig a deep hole in Scotland's future finances A steep fall in oil revenues will dig a deep hole in Scotland’s future finances

Sturgeon is preparing her party for a second push this summer to again build the case for independence. She told her party’s spring conference earlier this month that she and the SNP would “patiently and respectfully seek to convince [pro-UK voters] that independence really does offer the best future for Scotland”. It would be a future shaped “by our own choices and our own endeavours” rather than Tory governments in London rejected by Scottish voters.

Robin McAlpine, an influential thinker and policy-maker in the wider independence movement, said there was wide agreement that economic case had to be dealt with, chiefly on an independent Scotland’s currency. He thinks the summer campaign is designed to keep activists engaged.

“There are concerns that the strategic leadership towards the next referendum is not there,” he said. “When you have a very mobilised and active campaign group behind you like the SNP does, you can’t stand them up and down for nothing.”

For Alistair Darling, the former Labour chancellor and chair of the pro-UK Better Together campaign in the referendum, the latest economic data ought to kill off any realistic case for independence.

“I don’t believe Nicola Sturgeon wants to see a referendum again any more than I do,” he said. “The economic case two years ago was threadbare. It’s now shot to bits and there’s absolutely no denying it.

“Two years ago we were accused of ‘project fear’ when we quite rightly pointed out that oil prices were volatile. We were assured they were taking a conservative view and sadly, as we predicted, oil is now at a very low level, of $30 to $40. We simply made the case that the strength of the UK means you can weather a storm like that. It also shows that ‘project fear’ was nothing of the sort. It was a reality check.”

• This article was amended on 24 March 2016. An earlier version referred to a “debt of £2,850 per head”, where “a deficit of £2,850 per head” was meant, and had a headline that referred to debt where deficit was meant.