Why Scotland can't afford the EU

In the immediate aftermath of the EU Referendum the SNP reopened the issue of Scottish independence, arguing that since Scotland voted to remain, it should become independent and continue its membership of the EU. It's since become clear that automatic continuation would not be permitted, so Scotland would have to apply from scratch. However, any application would expose a fundamental problem - that its economy and public finances are in no fit state to join.

All new applicant countries must accept the 35 chapters of the EU acquis, including a commitment to join the Euro at some point, and adherence to the Growth and Stability Pact. That imposes two fiscal rules – that government deficits are kept below three percent of GDP, and government debt below 60 percent. Scotland fails both tests. Its deficit last year was 9.4 percent of GDP, over three times the limit, and substantially higher than any existing EU member including Greece. Its debt was around 90 percent, less excessive but still be way too high.

True, other countries have been admitted to EU membership and the Euro despite being in breach of the Pact. Cyprus and Malta were in breach of both rules when they joined, and before that Italy, Spain, Portugal, and Greece all joined the Euro while in breach. However, subsequent events have highlighted the risk of such concessions, both to the applicant country and to existing members. On top of that, Scotland's fiscal record since devolution has been abysmal, with deficits every single year – even when the oil price was at record highs.

The reality is that Scotland is living well beyond its means and its finances have only been propped up by its continuing subsidy under the Barnett Formula. To have any chance of EU membership an independent Scotland would first need to balance the books. And whereas a rebound in oil prices might once have helped, the North Sea is now heavily depleted with production down by two-thirds since its peak. Onshore tax increases are a possibility, but the required scale would be deeply damaging to the economy (eg a doubling in VAT or the standard rate of income tax). More realistically, Scotland could and should cut its high level of public spending, which continues to run 20 percent above English levels.

Of course, the situation would be transformed if Scotland's economy could be strengthened, and the SNP have appointed a Growth Commission to come up with proposals. It should start by recognising that the burden of public spending needs to be reduced, and that needs to happen whether or not Scotland seeks independence and EU membership.

For more detail see Scotland's Overspending Problem, TaxPayers Alliance, October 2016