North Sea Contortions
The SNP is in a mess over oil.
For 50 years, from the late 1960s onwards, the party argued that oil was good and would make Scotland rich.
That position had the advantage of being clear.
Maximum economic extraction of North Sea resources would fire the industrial development of an independent Scotland, fund its public services, and temper its fiscal gap.
Then came the global oil price plunge of 2014 – 2016 and a partial rethink of nationalist economics.
In 2018, Andrew Wilson’s (largely dreadful) Sustainable Growth Commission report made one welcome recommendation.
Oil was too volatile a commodity on which to base the economic case for a separate Scottish state.
Future North Sea revenues should therefore be excluded from Scotland’s annual fiscal projections and all funds from the carbon economy be managed, in Wilson’s words, “solely as a bonus” – seed money for a Scottish sovereign wealth fund.
The report itself framed this shift in terms less concise but no less emphatic:
“Looking forward it is our judgement that windfalls such as those that occur from the depletion of scarce natural resources should be treated as windfalls and not depended upon for recurring annual commitments.” (Section B, page 3.)
The Sustainable Growth Commission report wasn’t advisory.
The SNP adopted its recommendations at the party’s annual conference in April 2019, which, in turn, presumably, made them policy.
In 2018, Nicola Sturgeon commended the “candour” of the report and contrasted it to the “fictions peddled by the Brexiteers.”
But the SNP didn’t stop there.
Late last year, with the global spotlight trained on Glasgow for the COP26 climate conference, Sturgeon finally accepted the logic of her own green rhetoric.
The development of the controversial Cambo oil field west of Shetland “could not pass any rigorous climate assessment” and should not go ahead, the first minister announced on 16 November, days after the summit had concluded.
In addition, Sturgeon said, “I don’t think we can go on extracting oil and gas forever and I don’t think we can continue to give the go-ahead to new oil fields.”
According to Sturgeon, after Cambo, the days of “it’s Scotland’s oil” were over: maximum economic extraction was dead and, with it, the dream of Scotland’s oil-fired economic rebirth.
But now, nine months later, the SNP’s shift away from oil and gas has stalled.
Wednesday saw the release of a fresh set of GERS figures.
As expected, GERS showed a sizeable discrepancy between what Scotland spends on services and what it raises in tax, based on current tax and spend arrangements within the UK.
Last year, Scotland’s fiscal gap was 12.6 per cent of GDP; the year before, it was 22.4 per cent of GDP.
Part of the reason Scotland’s notional deficit shrank during those 12 months is that North Sea oil and gas revenues rose, from £0.8 billion in 2020 to £3.5 billion in 2021.
That increase, as the BBC noted, reflected a global trend “driven by Russia’s invasion of Ukraine, which increased competition for supplies as countries attempted to switch away from Russian oil and gas.”
Not a huge amount to celebrate, then.
Unless, of course, you happen to be John Swinney.
After the publication of GERs, the SNP deputy first minister posted a thread on Twitter.
“GERS 21/22 shows that Scotland’s fiscal position is recovering faster than the UK’s – a huge fall in the annual deficit thanks to the largest increase in revenues on record,” he wrote.
“This is before the full impact of the rise in oil prices that we’ve seen more recently, which is likely to see Scotland’s deficit fall faster than the UK’s again next year, with oil and gas revenue set to grow to £13 billion this year.
“Indeed, GERS shows how the UK’s response to the cost crisis is being built on Scotland’s natural resources – not least with its windfall tax on the North Sea.”
What, precisely, is Swinney doing here?
He is lauding the positive impact North Sea oil and gas is having, and will have, on Scotland’s balance sheet.
He is accusing the UK government, through its windfall levy on energy companies, of using Scottish oil to arrest the slide in British living standards.
And he is, in effect, rolling back the last four years of SNP evolution on both the economics and the ethics of Scottish resource extraction.
Swinney was evasive when appeared on GMS this morning to be grilled on the GERS numbers.
At first, he doubled down on the ‘contribution’ Scotland’s offshore energy sector made to the British economy and UK finances.
Then, when asked if future oil revenues should be spent or put into a trust, he said Scotland would have to be independent in order to make that decision and he “certainly [wanted] to make sure Scotland was independent.”
Swinney also erroneously insisted that the debate over net-zero – the achievement of which, according to the International Energy Agency, will require winding down existing North Sea projects and instigating no new ones – was a “completely different argument” to the “public finances argument that we are pursuing today.”
None of this adds up.
In 2018, the SNP decided that oil and gas revenues should not be included as part of Scotland’s day-to-day spending or used to cover Scotland’s fiscal shortfall.
In 2021, the party disavowed future North Sea oil and gas developments as incompatible with Scotland’s climate commitments and the survival of our natural world.
Neither position can be reconciled with an approach that places oil at or close to the centre of Scotland’s public finances.
So where did Swinney’s radically unhelpful intervention spring from?
One theory is that the deputy first minister couldn’t resist the lure of short-term political point-scoring and media management that descends every time a new GERS report comes out.
Another is that he represents the fossil fuel wing of the SNP and is jockeying for control of the public narrative against Sturgeon and her SGP outriders.
Yet another is that the old pro-carbon instincts of Scottish nationalism were always lurking beneath the surface and have, with the slightest of prompts, just vigorously reasserted themselves.
Either way, one thing is clear.
If the SNP is even half-serious about living up to its world-beating, gold-plated, record-breaking climate targets, it must remove oil and gas money from its independence prospectus – and do so now, conclusively.
Anything less would be a fudge, a guddle, a painful, unconvincing compromise.
If that’s the look Mr Swinney was going for – well, congratulations, he got it in one.