Standard but Poor
With the publication of the 2012/13 GERS figures this morning, the fiscal case for Scottish independence has ‘collapsed’. Or so says Iain Gray, Scottish Labour’s shadow finance secretary.
The reality, as ever, is rather different.
GERS shows that North Sea oil revenues declined by 41 per cent over the last year, falling from £11.3bn to £6.5bn. Clearly, this has consequences for Scotland’s public finances. Where Scotland used to have a smaller deficit than the UK as a whole, it now has a larger one (8.3 per cent for Scotland compared to 7.3 per cent for the UK). Where Scotland used to generate more tax than it received in spending, it now generates marginally less (9.3 per cent expenditure to 9.1 per cent revenue).
None of this is good news for the Yes campaign. It makes it harder to argue that Scottish public services are not subsidised by English taxes. It makes it harder to argue that Scotland would have greater room for fiscal manoeuvre outside the Union. It means there will be a flood of gloating Daily Mail / Daily Telegraph / Times editorials claiming Scotland is, as suspected, a ‘mendicant’ nation.
However, behind the hysteria, all the GERS figures really tell us is that the strength of Scotland’s public finances relative to the rest of the UK depend quite heavily on oil revenues – and that oil revenues fluctuate.
But here’s the thing: oil revenues have always fluctuated. In the mid-1980s, North Sea tax receipts hit a high of more than £12bn (at 2009/10 prices) per year. By the early 1990s, they were down to two or three billion a year. By 2011/12, they were back up to £11.3bn.
Gray and co present these fluctuations as a devastating challenge to Scotland’s capacity to manage its own economy.
Yet, putting aside the fact the oil accounts for just 16 per cent (approximately) of annual Scottish public revenue (well below the 25 per cent ‘instability’ threshold set by Standard and Poor’s), it isn’t helpful to look at North Sea resources on such a short-term basis. They should be looked at over a five to ten year stretch. Why? Because low revenues one year can be – and frequently are – compensated by high revenues the next.
In 2011, Alex Kemp, professor of petro-economics at Aberdeen University, estimated that North Sea production was likely to generate between £50bn and £100bn in tax over the next ten years. His projections were dismissed, indirectly, by the OBR and the IFS as being too optimistic.
In fact, they have proved remarkably accurate so far. In 2010/11 revenues were £8.8bn, in ‘11/12 they were £11.3bn and in ‘12/13 they were £6.5bn.That amounts to an annual average, over three years, of £8.7bn, which is at the (very) high end of Kemp’s estimates.
If this trend continue, Scotland’s overall fiscal position is likely to be stronger than the rest of the UK’s over the decade from 2011 to 2021.
Between 1976 and 2011, total North Sea oil and gas tax revenues amounted to £285bn, of which Scotland’s share – according to a median line division of North Sea territory – was £257bn. According to unionist logic, an independent Scotland wouldn’t have benefited from this enormous sum because it didn’t arrive in a consistent stream of £7.3bn every year for 35 years.
That is obviously a very silly argument. But it is precisely what the No campaign is saying about future revenues.
The No campaign,conveniently overlook the reason for the decline in oil revenues,namely yet another tax raid by Westminster.
Doesn’t the £14bn North Sea investment from various oil companies over the last 12-18 months have anything to do with lower tax receipts ? Are the oil companies able to offset investment against taxes ?
Also, we should be mentioning the volatility of ‘City’ receipts. 10% of UK tax receipts come from the city. Now tell me, which industry has been more volatile over the last 5 years, banking or oil ?
Darling created a 260 billion deficit in just 3 years propping up the banking sector from 2007 to 2010. One could argue that this was an “investment” to stabilise the finance industry. So far, we have yet to see a return. BofS is unlikely to pay for itself for years to come, if ever. But the Oil & Gas industry will definitely produce a return because the oil is definitely there. And OPEC just announced that they expect prices to rise due to increasing demand. The primary reason for the drop in revenues is a huge and increasingly large tax grab from The Treasury combined with record levels of investment. Westminster is sucking the life out of the industry. We must relinquish the Union in September & provide a stable tax regime for the oil & gas sector. Only then can we consider a national wealth fund. If we don’t achieve independence, they will kill it, just as they did with the banking sector.
And who calculates which areas of the sea bed are Scottish, bearing in mind that Labour ‘gave away’ 6000 sq miles of our sea, taking in 6 oilwells in the process. An act of piracy which has still not been challenged by our own SG
Back to the too poor argument then.
The problem with North Sea oil is that the tax take for the Scottish Government – a future government – won’t be as high as it could be as currently oil companies pay remarkably little in direct tax in comparison to profit. They also are notoriously bad at investing and tend to up sticks when profits fall, leaving governments to bribe them to remain and produce, subsidising heavily any investment. A Scottish National Oil company would be a way to ensure profits follow from investment. Oil companies in many ways are like children, they do what they do because they can.
It may not be as high because of the massive increase in taxes applied to extraction. I looked at the UK’s own tax receipts from Oil & Gas & its shockingly high. This has made some well head uneconomic, hence the reduction in activity. But there has been record investment too and the loss of a platform. But it is the tax framework that has hit the industry hardest.
The cynic in me is asking, why now, why are things suddenly so bad.
Then I remember Dennis Healy saying last year ( my words cos I can’t remember his ) ” well we just had to lie to the people of Scotland because we needed the oil money ”
Is it possible that there has been a wee bit of juggling going on with the GERS numbers to scare the people into voting NO, Don’t get me wrong, I’m not saying for one minute that the Westminster parties might employ some scare tactics to frighten people, that would be way below them !