18/11/2013 Newsnight Scotland

you confident the Government will go ahead and implement that in full?

I'm confident that the spirit is willing. We have to make sure that

the flesh doesn't weaken. Thank you very much

Tonight on Newsnight Scotland, higher taxes or swingeing cuts to

make the budget balanced in an independent Scotland, but does the

ISS reports suggest that we should stick with the union or that the

whole UK should shake up its tax system more Roddick clique? Good

evening. The Institute for Fiscal Studies has a reputation as being

the gold standard amongst number crunchers. Today's report at first

reading seems like a fillip for the prounion campaign, but could the

report be used to argue that both Scotland and the UK need a shake-up

to their tax system? We will hear from a director for the ISS in a

moment at first this report. From stone to Shetland, ask anyone what

they think one of the most important issues in the referendum is and they

would save the economy. Which is why today's report from the Institute

for Fiscal Studies is attracting so much attention. It says an

independent Scotland would need to cut spending or increase taxes to

survive. At the moment, public spending per head of the population

is higher in Scotland than the rest of the UK, but money from north Sea

oil revenues more than makes up for this. However, these will decline

and ultimately leave Scotland with a fiscal gap, the difference between

what you get and what you spend. As part of the UK, this gap would be

0.8%. If Scotland were to leave, it would be double. One of the authors

of the report said an independent Scotland would face tough choices.

Scotland's chelation is projected to age more rapidly than the UK as a

whole which would put pressure on health and pensions, but also for

Scotland at the moment revenues raised from activity in the North

Sea make up a significant proportion of revenue. Over the longer term we

will see the revenues declining as the reserves from the North Sea

deplete, and as a result independent Scotland would have to think

carefully about how it could raise similar amounts of money elsewhere

or cut levels of spending. The IFS forecast there would have to be cut

of 8% in spending or a rise in tax, the equivalent of VAT going up to

28%. But it is not all bad news, Scotland could also have the chance

to create an optimal tax system, leading to some taxes being lower

than the rest of the UK. John Swinney believes it underlines the

case for Scotland going it alone. It is outpacing the UK and we have to

make sure the other powers we would acquire on business taxation, the

ability to integrate tax legislation, the ability to ensure

we have a more streamlined system of getting people into employment, all

of these are tools which are not available under devolution now. He

points to the continent as an example of countries that get it

right. If we had the same growth rate of small European countries,

our economy would be larger up to ?4.5 billion. Having the ability to

create better economic opportunities for the country. In every year in

the last 20, we have spent more than we got in bar the last year. If you

look at the UK, Scotland has grown faster, second only to London and

the south-east, so the idea we are being held back is nonsense. If you

look at countries like Norway and Denmark, they say look at them but

they have higher taxes. The report is being seen by those against

independence as a warning of choppy waters ahead. Those for saying it

underlines the need for change. Tomorrow is the Scottish

Government's turn to make its case. I'm joined now by the director of

the Institute for Fiscal Studies, Paul Johnson. Your message today was

increase taxes or cut spending to balance the books. That could easily

have been your message to the UK Government who are in the same

position. There are similar pressures facing the whole of the

UK. The population is ageing, we are starting from a difficult fiscal

situation so some consolidation is required. The difference for an

independent Scotland would be twofold. First its population is

ageing somewhat more quickly. The proportion of older people will grow

more quickly than for the UK as a whole, and secondly spending levels

in Scotland are significantly higher than spending levels and the rest of

the UK, currently made up for by North Sea oil revenues, which are

volatile or will fall over time. We know that George Osborne says

austerity needs to continue for some time, that the debt levels need to

be brought down. If there was an independent Scotland in 2016, do we

have any reason to believe that in the early years of independence

Scotland would not still be in the same position? It would need to do

something about the level of debt it would inherit. There is uncertainty

about how the negotiations would end up about the level of debt, but the

UK at that stage would have debt at something like 80% of national

income. That would be a very high level of debt for a new nation to

take on so the fiscal situation for Scotland, at least as much as the UK

as a whole, would be difficult in the first few years. If independence

arrives, it will be in the middle of the current consolidation the UK

Government is going through. Where an independent Scotland to continue

that through, that... The point you make about the unknown is as regard

to the debts, to some observers is the problem with this report. You

are looking at a 50 year timespan here. We know from chancellors in

recent years that predicting what will happen with an economy a few

years into the future is not an exact science so how can you give

these figures? What we are not doing is predicting, we are trying to

illustrate the scale of the choices that we will need to make in order

to stop running into problems. The report follows precisely the

methodology of the Office for Budget Responsibility and what they do over

a 50 year period... Their projections have not been altogether

accurate. This is looking over 50 years and saying what you would need

to do to avoid running into trouble because we know for sure there will

be an ageing population, and we know for sure spending on health and

pensions is higher in a population like that, and this is saying that

in order to avoid problems down the road you need to make changes in the

short run. These are plausible changes, smaller than has happened

over this current period, but it is setting out a series of challenges

which would face an independent Scotland. With regards to dealing

with those challenges, they could be offset by higher immigration figures

for instance, and for instance oil revenues could be higher than

predicted at the moment so that could balance out some of the

issues. There are all sorts of things that may happen differently.

We have tried to look at a range of scenarios, even on our most

optimistic scenarios which have levels of oil revenues at the level

the Scottish Government is suggesting they might be, even on

that scenario the Scottish situation looks a little bit worse than that

for the rest of the UK, but this is not unusual among developed

countries. Developed countries as a whole are facing these challenges,

what this is setting out is the kind of response you would need to put in

place. Things may turn out great, and that would be fantastic, but you

cannot plan on the assumption that things will turn out like that. You

need to have some idea of how you will respond on a more cautious

assumption. We are going to get a response from the Scottish

Government because on Tuesday they will be talking about some of the

economic levers they would use. We are told we will get details on

corporation tax, attracting new business and new jobs, could those

measures mitigate against the issues you have described? The UK tax

system is a bit of a mess, not near what an optimal tax system would

look like. There are opportunities for a newly independent country to

sort out some of those problems which would allow you to raise as

much money more efficiently, or raise more money, so there are

certainly opportunities which are probably available to a newly

independent country for radical change in a way which is more

difficult for the UK as a whole, where the tax system has evolved

over such a long time. Opportunities certainly exist but they are not

easy. If you are going to cut corporation tax, you probably need

to raise other taxes in the short-term. Some of the changes you

need to make to the tax system would involve radical change to levels VAT

for example, to the way petrol is taxed, and these are not easy

changes but they are easier for a new country than one which is mired

in its history. Do you form a view on plans for the oil fund? Or is

there a difficulty in saving and spending at the same time? There is

a difficulty in using the oil fund if you need that money to make up

the difference between current spending and current revenues. It is

correct to say that you do need to treat revenue from oil taxation

differently from other revenues because it is so volatile. It jumps

around by 100% over a couple of years. You can see it halved between

2009 and 2010 for example and changes rapidly. You need to

essentially tried to balance the budget before you have even taken

account of the oil revenues. The chances of using the revenues as a

separate fund while balancing the rest of the budget, or if you were

to try to do that, then the scale of fiscal change you would need to make

to achieve that in terms of higher taxes elsewhere would be even more

significant than those we set out in our report. I am joined by Stuart

Hussey from Westminster, and by Ian Gray from Edinburgh. 6% spending

cups -- cuts or 9% rises, which? They say you have either to raise

taxes or cut spending. They never focus on policies for growth. It is

the policies for growth that will be empowered by the Scottish Government

having access to the fiscal levers we currently do not have. Which

particular levers do you want and how much growth would be produced?

Would independence, we would have all of the fiscal levers. -- with

independence. I know there were previous figures published on a

modest cut to corporation tax. That means an additional 20,000 jobs over

the medium term. One small measure like that announced in advance,

phased-in, would give you 1.5% in GDP over that period. That is

precisely the kind of thing an independent Scotland will be able to

do. Can you give us any guarantees on tax and spending in the UK after

2015? People have been asking for an impartial look at what would happen

after independence. Would Scotland be better off or worse off? Now we

have got a report from an impartial think tank which looks at a range of

scenarios, even bills in the SNP's own predictions. -- bills in. It is

unequivocal about what Scotland would face over and above the UK tax

increases and spending cuts. He figures that you used in your

introduction were the most optimistic scenario. The worst

scenario involved more than a quarter, 27% cuts, in public

spending. This is the information that many people have said they

want. It is an impartial judgement. They are projecting 50 years into

the future. In 1963, was anybody predicting where we would be this

year? Yes, but the SMP themselves are happy to predict 50 years into

the future in terms of other revenues. The fact that the matter

is, if you actually read the report, these choices about tax increases

are cuts in public expenditure, are not 50 years in the future. They are

at the end of this decade. The impact would be devastating. And it

would be very quick after Scotland separated from the rest of the

United Kingdom. As for a long-term forecast, Stuart has just quoted the

forecast on the impact of corporation tax, which is based over

a 30 year period. The truth is, that cut in corporation tax, a windfall

for the banks and the energy companies who have been raising

their prices that everyone pays, that would have to be paid for. Paul

Johnson made that point. It would have to be paid for by more

increases in tax and cuts in public expenditure. The SMP are actually

suggesting they would make things worse. John Swinney said he would

balance the books in an independent Scotland. Your party has been

calling for more borrowing. Or the power to borrow. Surely that will

just add to the debt you inherit from the UK? We need that power as

every independent country on the face of the planet has that. You

inherit some debt from the UK and you will borrow as well? The UK will

be borrowing for the next 50 years. You are telling us that things will

be better in Scotland? The last five years, our deficit has been lower

than the UK's. The rate at which our debt has risen would be better than

the UK's. We are digressing. This is predicated on a pole looking 50

years into the future, leaning heavily on demographic changes. Is

anybody really suggesting that in 1963 we could have forecast the

collapse of the Berlin Wall, the European Union as we know it, and

massive migration from former countries of the Soviet bloc? The

ISS are also talking about 2015 and 2017, to be fair. Tomorrow we will

get details from John Swinney about plans to help small businesses,

medium-sized businesses, to cut corporation tax, attract new

business, create new jobs. What is wrong with that? We will have to pay

for that in public spending cuts and higher taxation in the same way we

have two pay for John Swinney's other plan to set up an oil fund.

But if jobs are created, taxation will rise, so that could offset

those tax cuts? Well, this is an economic theory that no serious

country in the world believes any more. It goes back to the days of

Ron Reagan. Let's go back to the beginning. What we have is an

impartial report on what economic choices and independent Scotland

would face. It says that no matter how much optimism they have built

into their model, it always meant that we would face either tax

increases or public spending, or a combination of both. First Stuart to

suggest that will not happen because something that we cannot yet

imagine, like the fall of the Berlin Wall, will happen sometime in the

future, is just absurd. We have to make this judgement on whether this

proposition will be better or worse for Scotland on the basis of what we

know. One of the things we know, as Paul Johnson said, is that the

population is ageing. We have to pay for that. 20% of Scotland's economy

would be based on oil. We know that oil revenues decline. They will

decline. We will face this choice. Tax cuts or cuts in public

spending? It is incumbent on John Swinney to tell us what tax

increases are planned, or what cuts on public spending are planned. The

powers of independence are to grow the economy and create jobs and

prosperity, not to stick to the Tory spending plans, which this forecast

is predicated on. Will plan include any tax rises? He spoke about oil

being volatile. I remember one year Alistair Darling suggested revenue

would be 6 billion. They were doubled at 12 billion. I'm always

struck by how fast Unionists want to cling onto bad forecasts for

Scotland. Use the powers of independence to grow the economy, to

get the GDP growth we have lacked as part of the UK, to deliver jobs and

prosperity for everybody rather than clinging onto 50 year forecast which

talks Scotland down and revel in that in the way that Iain Gray is

doing. Thank you very much indeed for joining us.

A quick look at a couple of newspapers. The Daily Mail focusing

on the report exposing the SMP economic gap. The front page of The

Daily Telegraph focuses on the ?6 billion blow from that study. The

front page of the Scotsman has a story about Denis MacShane being

found guilty of fiddling expenses. That is all from me. Gordon is back

tomorrow night. I will be back in the morning. Good night.

Good evening. A lot more sunshine around tomorrow. But the cold air is

with us. Some ice around. There could be snow for a north and west

in Scotland, the hills of Wales. A few rain, hail and sleet showers

towards parts of Yorkshire, Lincolnshire and North Yorkshire --

Norfolk. A lot sunnier for the bulk of England. A few wintry showers in

the Midlands in the afternoon. Most of us will have sunny skies. Still a

few showers across West Devon, Cornwall and Cardigan Bay in Wales.

That could give a slight covering of snow over the high ground. For most,

rain, sleet or hill. More cloud in the north-west in the afternoon.

Through Scotland as well. A chilly day in prospect. Sunshine in the

afternoon.