Today’s Herald and Scotsman report that the Glasgow-based Centre for Public Policy for Regions (CPPR) has published a research paper on the implications of oil and gas revenues for UK and Scottish public finances which has raised serious doubts over SNP plans to both create a “Scottish Oil Fund” and to maintain public service levels.The paper says:
Applying its entire geographical share of North Sea tax revenues in recent years would greatly reduce Scotland’s overall fiscal deficit, but it does not eliminate it. Assuming Scotland’s public sector net fiscal balance is reasonably accurate, rising North Sea tax revenues are also required to help support Scotland’s public finances. However, these revenues can be highly variable in nature and so difficult to predict.A few thoughts:
1. The nationalists always like to highlight the huge size of Norway’s oil fund. But such comparisons, unfortunately, are little but wishful thinking. Norway’s proven oil reserves, production and revenues are all in the region of double the UK’s.
2. The SNP said in a November 2006 press release, and John Swinney confirmed the following January, that their proposed oil fund would, within ten years, grow to £90 billion and then produce annual investment revenues of £5.5 billion. That corresponds to a 6.1% return on capital and would require the allocation of around £6.6 billion per year for the first ten years after independence.
3. GERS 2007, published under this SNP administration, found a fiscal deficit for Scotland of £2.7 billion, including a similar geographic allocation of North Sea revenues to Scotland as might occur under independence.
4. So we could be staring down the barrel (no pun intended) of a combined fiscal deficit of around £9 billion per year for the first decade. That’s about 10% of GDP, even before factoring in our per capita share of UK public debt. Where’s the scope for the kind of corporation tax cuts that the SNP like to tell us could stimulate rapid economic growth? That huge fiscal gap would have to be filled through some combination of additional taxes, public service cuts and/or government borrowing.
5. Contrary to many nationalists’ peak oil delusions, prices can fall as well as rise. From $147 last month, Brent crude is today at $117 a barrel. (Mind if I gloat?) The media is awash with $100 predictions. Lehman Brothers is suggesting $93 for next year, as OPEC increases its supply and the slowing global economy squeezes demand. The CPPR’s estimate was based on a seemingly reasonable $84, although extremely high by historic standards.
6. To pre-empt any misunderstanding of this post, I’m not saying that Scotland couldn’t be a successful independent country, at least in the medium-to-long term, but I don’t think we should be under any illusions about how painful it would be in the short-to-medium term.
You once said to me, although Thatcher had destroyed Scotland’s infrastructure, it had been necessary for the for the growth and prosperity we now enjoy.
I don’t think that the transition to Independence would be nearly as bad for Scotland as those years were.
A Tory government in Westminster will see a rise in the SNP vote AM, it’s inevitable.
Good afternoon Conan.
That wasn't quite what I said, but perhaps on a personal level there would be parallels, assuming a non-stratosferic oil price.
As for your contention about a Conservative Government, no doubt the SNP will seek to spin that to their advantage. Here's an interesting analysis which suggests that their rhetoric will have limited effect.
It was a pre-deregistration post, so it WAS quite what you said.
NOT what you answered with.
Of course I can't prove it...
I think we may be in a situation were you inferred something which I didn't, actually, imply. I would never have said that Thatcher "destroyed Scotland’s infrastructure".
Anyway, please let's not fall out over it!
Regards
AM