By Ainsley Thomson
Scotland's public finances would be viable in the short term if
it were to gain independence from the U.K. thanks to its oil and
gas revenues, but its economic position would become challenging
over the longer run as those resources run out, a new study said
Monday.
The Institute for Fiscal Studies, an economic think tank that
carried out the study, said the question of how to allocate oil and
gas revenues if Scotland gains independence in the 2014 referendum
would be hugely important to the country's prospects.
The institute said that if revenues from North Sea oil and gas
fields were allocated on a geographical basis--which would see
Scotland get about 90% of revenues--an independent Scotland would
be able to finance its high public spending--GBP1,200 more per
person than in the rest of the U.K.
But if the revenues were allocated on a population basis--which
would see Scotland get around 8.4% of them--there would be a
significant gap between spending and tax receipts.
The IFS also warned that if, as expected, oil and gas revenues
fall over the longer run, Scotland would face a greater fiscal
challenge than the rest of the U.K.
"Independence would provide Scotland with an opportunity to set
its own fiscal course," said David Phillips, one of the report's
authors. "In common with all countries, it would face constraints
and would have to make sometimes uncomfortable choices."
Last month, U.K. Prime Minister David Cameron and Alex Salmond,
first minister of Scotland's semi-autonomous parliament, signed an
agreement for a referendum on Scottish independence to be held in
two years.
Mr. Salmond, whose Scottish National Party has advocated
withdrawal from the U.K. since the 1930s, is campaigning to
persuade Scots that their nation, rich in natural resources and
entrepreneurial spirit, can join the ranks of other small, rich
European countries if only it loosened the shackles binding it to
London. Advocates of maintaining the union are playing on the
uncertainty about Scotland's economic prospects after
independence.
The financial crisis that brought down investment bank Lehman
Brothers in 2008 and triggered a global recession was particularly
hard for the small countries Mr. Salmond had hoped Scotland could
emulate, like Iceland and Ireland.
Scots departing the U.K. can also expect to be presented with a
bill from London for bailing out Royal Bank of Scotland Group PLC
(RBS.LN) and Bank of Scotland, now part of Lloyds Banking Group PLC
(LLOY.LN), at the height of the crisis. Nor is it clear whether an
independent Scotland would automatically qualify for membership of
the European Union, or what currency it would use.
Write to Ainsley Thomson at ainsley.thomson@dowjones.com
(Paul Hannon and Jason Douglas contributed to this report)