Scotland’s deficit in 2023–24 has been revised from £9bn to closer to £18bn.

In its latest forecast, the think tank says that without economic growth and a consequent increase in post-independence tax revenues, “tax increases or spending cuts would likely have to be even larger”.

The IFS warning comes after a much rosier forecast in November, when the war in Ukraine pushed up prices and oil and gas revenues were expected to hit £15bn in 2022/23 and £21bn the following year.

However, falling prices mean they are expected to hit £11bn this fiscal year and then just over £10bn.

This is still a massive increase compared to pre-war revenues in Ukraine, when tax revenues were less than £1bn in 2019-20 and 2020-21.

Still, it means the projected Scottish deficit for 2023-24 has been revised upwards from £9bn to closer to £18bn.

Last November, the IFS said the underlying budget deficit for 2023/24 could be lower than that of the UK as a whole for the first time in more than a decade.

Their forecasts assumed that Scotland’s deficit would fall from the equivalent of £4,340 per person in 2021-22 to £1,600 in 2023-24 due to an increase in oil and gas revenues.

Their latest forecasts see Scotland’s deficit falling to £3,200 per person over the same period, around £1,300 per person more than that of the UK as a whole in 2023-24.

This gap could then grow to £2,400 per person by 2027-28 if oil and gas revenues continue to fall.

This, according to the IFS, “would mean Scotland’s underlying deficit this year is just over 7% of GDP – around 5.5 percentage points higher than the figure projected for the UK.”

Their report also said that in the Union, Scotland faces a “challenging long-term fiscal outlook” as rising spending pressures “weak the UK’s overall public finances”.

In addition, the Barnett formula “is becoming less generous to Scotland over time than it has been historically”.

But independence, they add, ‘would not be a panacea for these challenges – indeed Scotland’s larger budget deficit means that tax hikes or spending cuts are likely to have to be even larger if economic growth and hence tax revenues cannot be increased.

“Therefore, economic policy and economic growth are at the heart of debates about the impact of independence on Scotland’s public finances and hence the taxes people might pay and the services they might expect after independence.”

🚨 NEW @theIFS Analysis of Scotland’s underlying fiscal position shows that the fall in oil and particularly gas prices from their 2022 peaks means Scotland’s underlying deficit is now likely to remain significantly higher than that of the UK as a whole. pic.twitter.com/BKGdnSmIDU

— David Phillips (@fiscalphillips) April 3, 2023

David Phillips, IFS Deputy Director, said: “The fall in projected oil and gas prices in particular since last autumn is welcome news for UK households, businesses and public finances as a whole.

“However, the fact that the vast majority of the UK’s oil and gas revenues come from tax activities in Scottish waters means that Scotland’s underlying public finances are set to improve much less in the year ahead than previously expected: lower prices mean lower revenues .

“As a result, Scotland’s underlying budget deficit is likely to remain significantly higher this year and next than that of the UK as a whole, contrary to what we had assumed last autumn.

“This underscores the importance of volatile oil and gas revenues in the Scottish context.

“Moreover, unless new high-yield sources of economic growth for Scotland can be found, this gap between Scotland’s deficit and the rest of the UK will continue to widen over the longer term as oil and gas production in the North Sea slowly declines.”