Voting for a New Britain: Separate Scotland 'will put 6p on tax'

INDEPENDENCE FOR Scotland could mean income tax rises of 6p in the pound, a respected group of academics predicted yesterday.

The finding, which could prove deeply damaging to the Scottish National Party, was greeted with jubilation by Labour's election team. Scotland would be left with a pounds 1.8bn annual deficit if it broke with the UK now, according to the DTZ Pieda economic consultancy, headed by the former chairman of Scottish Enterprise, Sir Donald MacKay.

Scotland would be left with a "negative dowry" because it spends far more than it contributes to the UK budget - about pounds 1.20 per head for every pound spent in England. That deficit could be paid off only by spending cuts, tax rises or higher interest rates. Even the extra oil and gas revenue gained through independence would not cancel it, and in any case would fluctuate and would take years to realise.

There was no reason why an independent Scotland could not be viable in the longer term, the group said, though the picture was uncertain. In a further blow to the nationalists, it added that a good SNP election result would damage the Scottish economy because it would make independence more likely.

There was bad news in the report for Labour too. Even under devolution and the existing "Barnett formula" on spending, the gradual erosion of Scotland's advantage is bound to mean cuts, the report said. It also dismissed the 3p "Tartan Tax", which Labour has promised not to raise for now, as an "unsatisfactory" measure that would be crude and expensive to collect and should never have reached the statute book.

An independent Scotland would find its economy still closely linked to that of the UK, the report said. It would probably need to follow the UK into the euro rather than joining unilaterally. The pounds 1.8bn deficit created under independence could be cancelled by a 60 per cent cut in defence spending, it was pointed out.

In reality the spending gap between England and Scotland would have narrowed before independence because the change could not take place for several years. Sir Donald said no respectable economist could predict what the economy would do in the longer term.

"I'm not saying, and would not say, that in the long run you can say with certainty what the effect of independence would be. But certainly we would face some very serious short-term problems," he said. Labour seized on the report, saying it destroyed the SNP's economic credibility. Its finance spokeswoman, Wendy Alexander, said the nationalists should publish their full economic strategy. "The SNP's claims that there is no black hole in its plans for divorce have been exposed as entirely false yet again. SNP economic policy has been holed below the water line," she said.

An SNP spokesman said the party had never accepted the existence of the deficit described in the report. "Scotland in the last 50 years has lagged behind the UK economy and behind the economies of similar small countries such as Ireland, Denmark, Finland and Norway. We have not benefited from the Union. Economic policies which are drawn up and implemented in London for the benefit of the South of England do not help Scotland," he said.