Cipfa Scotland head forecasts Scotland’s financial position whether it votes for independence or not
More from: Assessing Scotland's balance sheet
In the next few months Scotland is being asked to make a fateful choice: should it remain part of the UK or should it become independent?
Whatever the decision, the Chartered Institute of Public Finance & Accountancy believes that it is far too important to be made without all of the facts. We believe that the public deserves more transparent and understandable data on Scotland’s finances and the choices that an independent Scotland would face.
That’s why we have produced our report: The Scottish Referendum: Scotland’s future in the balance. This examines Scotland’s current financial position and future financial sustainability to address tough questions about the financing both of an independent Scotland and continuation under a devolved arrangement.
To start to tackle the issue we believe we need to ask three simple questions.
First, we need to know Scotland’s current devolved financial position.
As a devolved nation, Scotland’s public sector is part of the UK financial reporting framework. This means there is no Scottish public sector balance sheet. So to be able to estimate this balance sheet we used the audited financial statements of more than 100 public bodies in Scotland and found that a devolved Scotland would have assets of about £84bn versus liabilities of about £100bn.
While liabilities do exceed assets, it is common for governments to have a ‘negative equity’ position. The combined UK balance sheet shows the UK as a whole has assets of £1,263bn versus liabilities of £2,893bn. Of course the UK balance sheet includes all UK debt of about £1,000bn but there are basic but similar characteristics: both a devolved Scotland and the UK have liabilities that exceed assets.
Second, what would be the impact of change? The reality is that the most significant impact on ‘Scotland’s public sector balance sheet’ will come from Scotland’s share of the national debt, possibly up £120bn, and from public sector pensions, which currently stand at about £75bn.
However, the combination of a lack of Scotland-only financial information and the fact that negotiations will not commence until after the referendum means that a definitive opening balance sheet for an independent Scotland is incredibly hard to accurately identify.
Finally, we addressed whether an independent Scotland’s public services would be financially sustainable. Looking at 2016-17, potentially the first year of an independent Scotland, we estimated that public spending would exceed tax revenue by about £4bn or about 6%. This is comparable with the UK forecast for that same year where public expenditure is estimated to be £753bn with forecast tax revenue of £671bn.
So where does this leave the Scottish public? Well overall, we see that similar challenges on financial sustainability will be faced whether Scotland is independent or part of the UK.
However, we need a starting point that would help voters to understand clearly where Scotland’s finances are now, but also where further information needs to be provided.
Irrespective of the referendum result, Cipfa sees a pressing case for a balance sheet that clearly demonstrates the financial position of Scotland’s public sector.
Don Peebles, head, Cipfa Scotland