The fiscal position of Scotland, Wales and Northern Ireland

This report from UK think tank the Institute for Government looks at the size of the fiscal deficits facing the home nations.

With just days to go until critical elections in Scotland and Wales, and with support for independence growing in both nations, this report shows that breaking away from the UK would leave Scotland, Wales and Northern Ireland facing sizeable fiscal deficits. Even in 2018/19, before the Covid pandemic, Scotland ran a deficit of over 7% of GDP – well over twice the 3% level mandated for those hoping to join the EU, and far higher than the English deficit in that year of 0.3% of GDP. The deficits in Wales and Northern Ireland were higher still at 18% and 19% respectively. Put differently, each person in England on average benefitted from public spending worth £91 more than the taxes they paid: in Scotland, Wales and Northern Ireland the figures were £2,543, £4,412 and £5,118, respectively. All four nations’ deficits have worsened since, not least because of the Covid pandemic. The report examines levels of public spending and revenues in the UK’s four nations. It sets out the likely fiscal position of Scotland, Wales and Northern Ireland if they left the union and stopped benefiting from the UK’s redistribution of resources. An independent Scotland or Wales, or a reunited Ireland, could pursue their own policies to boost economic growth, incomes and tax revenues – but this would not happen quickly enough to avoid difficult tax and spending choices. While Scotland’s GDP per head and tax revenues are similar to England’s, it spent over £1,700 more per person on public services. How to maintain this would be an early, burning question for a newly independent Scotland. An independent Wales would face a different – and greater – challenge: GDP per head is lower in Wales than in Scotland and it is the recipient of considerable sums from elsewhere in the UK. Increased taxes would be unavoidable if an independent Wales were to target current levels of spending, which would leave this higher relative to its GDP than any other advanced nation.

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