06 June 2008
Spiralling oil prices may not be doing much for the economy but they're giving a political boost to Alex Salmond. The first minister is cleverly using the crisis to divert attention from his little local difficulties
Talk about having it both ways. First Minister Alex Salmond is arguing that the oil price hike is both a blessing and a curse. On the one hand, it confirms that North Sea oil remains a valuable resource, even though production has dwindled; on the other, it is driving trawlermen and road hauliers out of business. Either way, the Scottish National Party benefits politically.
The nationalist administration in Holyrood had been getting into real difficulties over its plans to replace the Private Finance Initiative/public-private partnerships with a Scottish Futures Trust and to replace the council tax with a local income tax. Both policies have been heavily criticised by academic experts and by the UK government.
But the oil crisis has come along at precisely the right moment to divert attention from those little local difficulties. It has allowed Salmond to do what he does best: stand up for Scottish interests against 'London misrule'.
The first minister's statement to Parliament about the oil situation was a masterpiece in oil-fired populism: 'I think the mood actually is becoming one of fury in Scotland,' he said, 'that we and we alone among the oil-producers of the world, producing ten times our consumption of hydrocarbons, should be faced with an extraordinary position that... what's left for the people of Scotland is paying sky-high prices at the pumps and the industries of Scotland facing escalating costs.'
Salmond has written to the prime minister demanding a tenth of what he calls the oil price 'windfall' — around £500m — to be placed in an oil fund for the future benefit of Scotland. That has received a dusty response from Number 10, which of course does not subscribe to the view that it is Scotland's oil, but believes it is a UK national resource to be used to benefit the whole country.
The SNP leader has also demanded that the chancellor compensate rural communities by cutting VAT on fuel and halting increases in fuel duty. He might be luckier there, since it is widely expected that Alistair Darling will postpone this autumn's 2p rise.
Salmond's case is that Scotland is the only country to have discovered oil and not benefited in any direct form. Norway set up an oil fund ten years ago, which is now worth around £150bn. Provinces such as Alberta in Canada also have oil funds, and even Shetland received direct benefit from oil wealth from the Sullom Voe terminal. Since the North Sea began pumping in 1975, it has contributed some £250bn in oil revenues to the UK exchequer.
The UK government response, however, is that Scotland already gets much of this back in the form of our old friend the Barnett Formula, through which Scotland supposedly receives around 20% more per head than England. Like all taxation, oil revenues are redistributed through public spending. This is controversial, of course, but there is no doubt that Scotland does get a higher per head share of identifiable public spending.
However, in the past, the UK government has always argued that Barnett is simply a fair way of allocating spending in relation to need. Other parts of the UK, including Northern Ireland and London, also receive higher spending per head. The chancellor will have to be careful not to appear as if he is arguing that the Barnett Formula includes compensation for North Sea oil, for then the whole debate would be radically altered. Why should spending in Northern Ireland be higher than in Scotland?
But Darling's main rebuttal of the SNP case involves rejecting the very idea that there is any windfall as a result of the oil price rising above $130 a barrel. As Salmond himself concedes, higher oil prices damage industry and employment and increase the cost of running the NHS and schools. If prices continue at over $135 a barrel, there could be a recession, which would reduce tax receipts and destroy any oil revenue windfall to the UK Treasury.
The arguments are complex. But there is no doubt that the SNP's simple message of 'we was robbed' is getting across where it counts. The press may be sceptical, but the trawlermen who are paying £1,000 a day for fuel while they fish over the North Sea oil fields are undoubtedly listening, as are the rural communities immobilised by petrol costs.
Salmond is expecting a renewal of the fuel protests of 2001, when Grangemouth was blockaded by lorry drivers. Only this time he wants to lead the campaign against fuel duties, not follow it. The government of Scotland isn't supposed to take sides, but the SNP is promising a 'summer of discontent'.
All of which makes a change from the complexities of local authority finance, PPPs and bond issues. Leading populist campaigns is what the SNP does best, and it is determined to play the oil card for all that it is worth. The slogan 'It's Scotland's Oil' was one of its great successes from the 1970s, and it sees no reason why it shouldn't replay one of its greatest hits.
Iain Macwhirter is political commentator on the Sunday Herald
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