Both sides in the battle over Scottish independence are using North Sea oil to boost their case. But how important is this?
The Better Together campaign has been celebrating what it sees as the collapse of the economic case for independence, courtesy of none other than SNP Finance Secretary John Swinney.
In a discussion paper presented to the Scottish Government last year, and leaked to the press this month, Swinney appeared to raise questions about the affordability of pensions in an independent Scotland given the volatility of oil prices. He also proposed saving a billion pounds from the nominal Scottish defence budget of £3.3bn, leading to accusations that Scotland would be left defenceless.
Swinney didn’t actually say pensions were unaffordable. The headline writers said it for him: ‘SNP dossier reveals pensions could be cut’, said the mass circulation Daily Record. ‘An explosive secret dossier leaked from deep within the SNP government blows apart the financial case for independence,’ it went on. Alistair Darling, the former chancellor leading the No campaign for the independence referendum, said the SNP had been caught ‘saying one thing in public and another thing in private’.
In fact, the UK government has been saying something very similar. A presentation in July 2012 by the Office for Budget Responsibility raised exactly the same issues of public debt, oil price volatility and affordability of public services. The UK has been dependent on North Sea Oil for the past three decades and the problem is what to do as it runs out. ‘The public finances’, the OBR concluded, ‘are likely to come under pressure over the longer term primarily as a result of the ageing population.’
Swinney’s ‘secret dossier’ was based on OBR forecasts that oil revenues would fall from £7bn this year to £4bn by 2017/18. The finance secretary was advising the Scottish Government that an independent Scotland would have to be sure that its numbers added up and it could afford all its commitments. The nationalists’ big ambition is to place a large proportion of oil revenues into a sovereign wealth fund, like the Norwegian government’s, which is now worth $500bn. This is looking unlikely.
However, since the Swinney document was prepared, the situation in the oil industry has been transformed. The industry body, Oil and Gas UK, forecasts an increase in oil production from 1.5 million barrels a day to 2 million as a result of an investment boom in the North Sea. This would be enough to generate a further £3bn in revenues in 2017/18, yielding more than £10bn. So the Scottish Government has a legitimate argument that the OBR oil projections were too conservative.
But there is a wider point here. Better Together has managed to present Scotland’s oil industry as a negative rather than a positive, by focusing on the unpredictability of the oil price. Most successful small countries in Europe, like Finland, have no oil reserves, nor 100,000 people employed in oil-related industries.
However you look at it, the £1.5trn value left in the North Sea would be a substantial endowment for Scotland, which is anyway doing pretty well right now. Its deficit, according to the UK government’s own figures, is significantly lower than the UK’s.
But the future is another country, and the problem for the SNP is how to combat worries about the risk of going for independence ‘in a dangerous world’. Looked at objectively, Scotland’s economy is probably about as sound a bet as you are likely to find in Europe at the moment. But the leader of the Scottish Conservatives warned Scots about taking – ‘a massive punt with a dodgy bookie who’s fixing the race’. Meaning First Minister Alex Salmond. A lot of voters seem inclined to agree.
Iain Macwhirter is political commentator on the Sunday Herald. This article first appeared in the April Edition of Public Finance
