IFS: Independent Scotland would have to cut spending or increase taxes by £1,000 per person

Nicola Sturgeon’s economic case for independence suffered a major blow after one of Britain’s most respected economists warned taxes would have to increase or spending cut by more than £1,000 per person.

Paul Johnson, director of the Institute for Fiscal Studies, also warned that a separate Scotland is likely to face political pressure to adopt the euro as the price of EU membership.

Despite the First Minister’s claims otherwise, he also warned that Scotland faces trade barriers with England, by far its most important market, if it is inside the EU single market and the rest of the UK is outside.

The economist gave the warning only hours after Ms Sturgeon promised an “informed” debate during a second campaign. However, she refused to provide specific and answers on the currency or closing the mammoth deficit.

The Scottish Government’s most recent figures showed Scotland has an annual public spending deficit of £15 billion, or 9.5 per cent of GDP, proportionally even higher than Greece’s. There is a net transfer of around £9 billion a year from the rest of the UK to Scotland.

Mr Johnson said public spending was more than £1,000 higher per person in Scotland than in the rest of the UK, despite tax revenue being similar, and the oil price collapse had weakened the nationalists’ economic case since 2014.

He said: "So what that means is that there is a big transfer of money from the rest of the UK to Scotland and, obviously, if Scotland were to become independent it would have to either reduce its spending by more than £1,000 per head or increase its taxes by more than £1,000 per head."

Mr Johnson told BBC Radio 4's World At One that Scotland would have a “significant fiscal problem going forward”.

Ms Sturgeon has set up a commission to examine how the deficit could be closed and which currency a separate Scotland should adopt. The UK Government rejected the nationalists’ plan for a sterling currency union in the 2014 referendum.

Mr Johnson said: "It would clearly be more difficult to maintain the pound if the UK was outside the EU and Scotland was inside and the pressure on Scotland politically from the rest of the EU to join the euro would be significant.

"But in the end that would be a political, as much as an economic, choice."

The economist said Ms Sturgeon’s plan to stay in the single market would help Scottish firms gain access to European markets “but potentially hinders it very badly in terms of its access to the UK market.”