SCOTLAND’S shrinking population could mean more money per head because of the Barnett Formula, according to a new report from the Institute for Fiscal Studies. 

The research by the thinktank comes after two separate reports this week forecast a significant drop in the number of people living here. 

The first, from the Scottish Fiscal Commission (SFC), suggested the number of people living here could fall by almost a fifth over the next 50 years.

Its projection is for Scotland’s population to fall from the current peak of 5.5million to 4.6m, a drop of 900,000 or 16 per cent between 2022 and 2072, with low birth rate the key driver.

In comparison, the Office for Budget Responsibility predicts the UK’s population will fall by just 2% over the same period, from 67.1m to 65.9m.

Meanwhile, the National Records of Scotland (NRS) estimates that the number of people in the country will peak in 2028 at 5.48 million and then fall by 1.8% by 2045.

They say the drop will be driven by a reduction in net migration - the number of people entering Scotland minus the number of people leaving.

In his analysis, David Philips of the IFS said this could be “beneficial to the Scottish Government’s long-run fiscal sustainability.” 

However, it could result in tough choices when it comes to policies aimed at attracting migrants and boosting birth rates.

Under the Barnett formula, the size of the Scottish Government’s block grant is equal to its previous year’s funding plus its population share of the change in funding for ‘comparable services' in England.

While changes to the population share affect the size of any increase to funding, it does not apply to funding rolled over from the previous year.

The IFS say this means the amount of funding received per person “grows by more when the Scottish population is falling by more.”

Mr Phillips said: “Most people would probably assume that a large projected fall in the Scottish population over the coming decades would damage the Scottish Government’s finances by undermining revenues.

“However, under current constitutional and funding arrangements, that’s not true: a smaller population means more funding per person from the UK Government.

“This has important implications for the policy trade-offs the Scottish Government faces as it seeks to both support the economy and improve the long-term sustainability of its budget.

“Successfully attracting more migrants and boosting birth rates would benefit the economy, but may make managing the Government’s budget harder than easier as funding per person from the UK Government is cut.

“This stands in contrast to the situation the Scottish Government would face under independence, where boosting immigration and birth rates would not only help address labour and skills shortages, but also address the long-running fiscal challenges facing the country.

“However, it is worth remembering those fiscal challenges would likely be significantly greater in an independent Scotland unless it could boost growth.”

A Scottish Government spokesperson said: “The projections for Scotland’s falling population over the next 50 years starkly illustrate the social and economic costs of the Scottish Government not being in control of immigration policy – something that has been hugely exacerbated by Brexit.

“Independence will give Scotland the full range of economic and other policy tools to take decisions based on our own needs, and will allow us the chance to replicate the success of many neighbouring countries which are more prosperous, productive and fairer than the UK.”