IFS warns that the decline in North Sea revenue will cause a shortfall of up to £4,100 per person.
The Institute for Fiscal Studies has warned that Scotland will face a much larger deficit than the rest the UK due to the drop in oil prices .
According to the IFS, Scotland will have a larger shortfall in revenue and expenditure in 2023-2024 than the rest the UK.
The decline is due to the fall in energy prices and a drop in North Sea oil revenues.
The IFS stated that the uncertainty surrounding oil and natural gas revenues makes Scotland’s public finances more volatile than the rest of the UK.
Holyrood’s borrowing and revenue are managed by Westminster. This would be a problem if it became fiscally autonomous or independently.
David Phillips, IFS Director, said: “What it really means is that the Scottish Government would need to see a substantial increase in onshore economic growth if they did not wish to be forced to make substantial tax rate increases or cut public spending.”
According to the analysis, Scotland’s projected deficit in 2023-2024 will be around £23bn (roughly £4,100 per capita). The shortfall in revenue and expenditure for the rest of Britain is approximately £1,650.
In the face of falling gas prices, IFS pointed out that official projections for North Sea revenues by the Office for Budget Responsibility have been reduced three times since November 20, 2022.
This comes after oil and natural gas revenues reached £10bn between 2022 and 2023, and they are expected to reach £5bn by 2023-24. These figures are far below the initial estimates of £15bn or £20bn.
The IFS stated that a combination of higher taxes and tighter public spending would push the deficit per capita in the UK down throughout the decade. In Scotland, it is expected to barely move.
By 2028-29 the shortfall per Scotsperson will only have marginally decreased to £3,640, while it is expected to drop to £560 in the UK as a whole.
The deficit in Scotland will therefore be equivalent to £18 billion , or £3,100 per person.
According to the IFS, oil and gas revenues in Scotland would have to reach around £20bn annually by 2028-29 to equal the UK’s net fiscal position per person.
This would be four times what they expect to earn in the fiscal year about to close.