SCOTLAND'S budget deficit will be around £2,000 per person higher than the whole of the UK by 2027-28, due to declining North Sea oil and gas revenues, an economic think tank has warned.

Analysis by the Institute for Fiscal Studies (IFS) has predicted that expected long-term decline would mean an independent Scotland is likely to face bigger tax rises or spending cuts than the UK as a whole unless growth in the onshore Scottish economy is boosted.

The Office for Budget Responsibility’s latest forecasts are for the UK’s oil and gas revenues to reach £15 billion this year and peak at just under £21 billion next year.

The predictions are a big change from 2019 and 2020 when revenues totalled less than £1 billion in each year.

The IFS said that depending on the exact share of the revenues that arise from Scotland’s portion of the North Sea, it means that Scotland’s underlying deficit is likely to be similar to, and in 2023–24 in particular, potentially lower than that of the UK as a whole, for the first time in over a decade.

It said that that was "a remarkable change" from its previous projections, prior to the big increases in oil and gas prices and taxation, which were for Scotland’s underlying deficit to be around 6% of GDP (gross domestic product) higher than that of the UK as a whole in the coming year.

But it warned that under current policies and economic forecasts, a bigger deficit in Scotland than the UK is expected to return soon, with oil and gas prices forecast to fall back after a few years. IFS said that even if they remain high, North Sea output was in long-term decline.

The OBR forecast a slump in oil and gas production of around 30% between 2021/22 and 2027/28.

The Herald: The Government is to review the tax regime for North Sea oil and gas.

And IFS say that on the basis of a forecast fall in UK oil and gas revenues to £15bn in 2024–25 and £8bn in 2027–28, they project Scotland’s budget deficit would increase after 2023–24.

They have projected that Scotland’s deficit would equate to around £3,000 per person in 2027–28, compared to around £1,000 per person under the OBR’s forecasts for the UK as a whole.

The deficit difference of £2,000 per person is equivalent to around 4-5% of projected Scottish GDP in that year, and means a total underlying Scottish deficit of just under 7% of GDP - compared to just under two-and-a-half percent forecast for the UK as a whole.

David Phillips, associate director at the Institute for Fiscal Studies said: "These projections are subject to significant uncertainty – stronger or weaker economic performance across the UK or in Scotland specifically, and higher or lower oil and gas revenues, could mean the UK-wide and underlying Scottish budget deficits are significantly higher or lower than set out here.

"Even if the deficit were a couple of percent of GDP lower than the 7% projected here though, this would be unsustainable on a long-term basis for an independent country.

"In the absence of faster growth, an independent Scotland would therefore likely need additional tax rises and/or spending cuts on top of those planned by the UK government over the next few years."

Scotland’s geographic share of North Sea oil and gas revenues was previously estimated to have increased almost five-fold since last year, from £800m to £3.5n- the biggest increase since 2013-14.

Previously it was predicted that if Scotland’s share of UK oil and gas revenues were maintained at last year’s levels, revenues of £14.5bn in 2022 would be enough to reduce the implicit Scottish deficit to match that of the UK.

The Herald: At an event today to mark 30 years of Zero Tolerance Scotland, First Minister Nicola Sturgeon, paid tribute to the charity and campaigners and pledged that.

Nicola Sturgeon has confirmed that the Scottish National Party would run the next general election as a “de facto referendum” after the Supreme Court ruled that her government could not legislate for a second independence vote without Westminster’s approval, which has been consistently refused.

Backing for Scottish independence has risen after Nicola Sturgeon was blocked from holding the referendum.

The Redfield & Wilton Strategies research put support for the SNP's separatist drive at 52% excluding 'don't knows' - compared to 48% who wanted to keep the union.

The figures were a reversal of their equivalent research from September last year, when 52% were against independence.

Scotland’s public finances matter because they would have a key bearing on the tax and spending choices open to an independent Scotland.

Scotland currently receives much higher levels of public spending but contributes slightly less tax revenues per person than the UK average.

For example, during the period between 2014/15 and 2019/20, spending averaged £1,550 (or 12.3%) higher per person in Scotland than the UK average, while revenues were £325 (or 2.8%) lower per person.

As a result, the implicit Scottish deficit – the gap between spending and revenues – averaged 9.2% of GDP, compared with 3.1% of GDP for the UK as a whole during this period.

A Scottish Government spokesman said: "This analysis shows the huge benefit that the UK is receiving from Scottish oil and gas, £30 billion in the next two years alone. Despite this the UK Government’s Autumn Statement did not go nearly far enough to ensure that the Scottish Government can support its people, communities and businesses through what is the most challenging financial situation since devolution.

“As an independent member of the EU, free from the damage of Brexit, Scotland would be part of the huge Single Market, which is seven times the size of the UK, and there is no reason whatsoever that Scotland could not emulate the success of comparable independent European countries that are far wealthier per head than the UK.”

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