Wednesday, 9 April 2014

Scotland has not received one penny of cash from the North Sea

I woke on the morning of 11th March 2014, and reached out with a lazy arm and switched on BBC Radio Scotland to hear the words –

"Later today we will hear how much further Scotland has fallen into debt".    

I sat bolt upright realising that the BBC and the Unionist controlled right-wing media were going to have a field day attacking Scotland's drive for Independence because of this year's temporary fall in oil revenues.  Needless to say, my thoughts proved to be no exaggeration.

The latest Government Expenditure and Revenue Scotland (GERS) figures showed that North Sea oil revenues had fallen by £4.4 billion.  This was seized upon with glee by the ‘No’ campaign to use this figure to try and prove that an Independent Scotland could not survive on its own, with such right-wing newspapers like the "Scotsman" (should it be renamed the "Englishman"?) leading the charge on 12th March with its front page heading "Scotland's cash from the North Sea drops by £4.4 billion".  

But wait a minute.  Is it not the case that Scotland has not received one penny of cash from North Sea oil revenues for the last 40 years?  That cash has all gone straight into the coffers of the London Exchequer to do with it whatever it wishes (a total of approximately £300 billion).  The GERS figures will not affect a single person north or south of the border, all that it will result in is that the London Exchequer will have to borrow extra cash on top of the approximate £115 billion it has to do every year, simply to balance the UK budget.  

Below the Scotsman main heading came a further set of news grabbing headlines.

"Oil and gas shortfall in 2012/23 means Scotland is £12.1 billion in the red".   What it did not say was that the UK deficit is now £114.8 billion, so I know which side of the border I would wish to live on, following Independence.  At least the newspaper did try and give part of the reasons for the decline, quote …

“A major downturn in North Sea receipts, which dropped to £5.6bn in 2012-13 from £10bn the year before, was behind the rising deficit, as well as a spending push on building projects to boost Scotland’s economic recovery. [N.B. What it did not say was that, in contrast, Westminster had slashed its capital spending.] A gas leak and evacuation at the vast Elgin oil field in the North Sea a year ago, which led to an 11-month unplanned shutdown, was by far the biggest cause of the slump in oil and gas production. The closure of the oil field, which accounted for around 5 per cent of the UK’s total oil and gas production before the accident last March, knocked an estimated 0.2 percentage points off the UK economy in 2012. It resumed production earlier this week but is not expected to reach full capacity until 2015.”

This is exactly the reason why an Independent Scotland will set up a small Oil Fund, into which a percentage of oil revenues will be paid every year to cover the lean years.

But what the Scotsman conveniently forgot to tell us, and what accounts for almost £2 billion of the fall, was the huge investment in new plant (much of which was given as allowances on taxable earnings).  This more efficient and modern equipment is now ready to meet the challenges ahead.  The total money invested was £14.4 billion, the highest for 30 years.   So, far from the ‘No’ campaign’s claim of doom and gloom that would result from Scottish Independence, this proves exactly the opposite.

As Douglas Fraser, business and economy editor of BBC Scotland put it –

"John Swinney welcomed new figures from the OECD club of developed economies that point to Scotland being "the 14th wealthiest nation in the world" positioned on a table between Belgium and Finland, with Luxembourg and Norway atop the table and Ireland at seven.    Using the data from 2012-13, this compares with the UK ranked 18th (between France and Japan) out of 34 countries included.   You can see why that's quite a useful assessment from a 'Yes' campaigner's point of view".  

Douglas Fraser makes some further interesting points.

“The latest year for GERS saw hardly any cut in the UK government's deficit, though the economy grew a bit, so its share of GDP was down. It wasn't helped by a reduction in offshore oil and gas receipts from UK waters from £11.25bn the previous year to £6.6bn.

“In that previous year, 2011-12, the tax Scotland contributed, including Scottish oil and gas, showed it was more than paying its way in the UK, and could justify roughly 10% higher spending per head.

“After such a sharp one-year cut in oil and gas revenue, the tax take per head in Scotland remains higher than the UK. But it's harder to make the case that Scotland is punching above its weight.

Much of this is based on estimates. How much is spent per Scot by the Ministry of Defence in London? How much on the Foreign Office's services around the world? We can only make informed guesses, or equalise across the UK.

“How much income tax is paid by Scots for work in Scotland, when there's nowhere in your tax form that says where you earned it? How much corporation tax can be attributed by Britain-wide firms to their activities in Scotland?

“We don't know. The statisticians have to guess. Only on things like stamp duty or council tax, because these are property based, can you tell precisely how much tax is raised and where.”

So, in my mind, I cannot but suspect the accuracy of the UK figures.   Earlier Treasury figures to support the various "scare stories" have not stood up to close scrutiny.  As the current GERS figures are so close to the date of the Referendum, I cannot but be suspicious of how the various estimates are arrived at.

Forecasts tell us that oil production will increase by 14% between 2013 and 2018, and of course, still to be exploited reserves of oil west of Shetland will, far from seeing production reducing, increase output and revenues, lengthening the period of productivity at least for the next 50 years, and, as investment in the new equipment shows, the oil companies are all geared up ready for this.

As a former budget specialist, on analysing the figures over the last five years, I have found that even during the deepest economic downturn since the 1930s, Scotland's finances have been healthier than those of the UK to the tune of £8.3 billion, or nearly £1,650 per person in Scotland.  

The figures show that, over the past 5 years, Scotland has generated 9.5% of UK taxes but received just 9.3% of UK spending. Whereas Scotland ran a current budget surplus in 2005-06, 2006-07 and 2008-09, the UK last ran a current budget surplus in 2001-02. Furthermore, Scotland has generated more tax per head than the UK as a whole for every single one of the last 33 years.

Having worked on the preparation of UK National Budgets for most of my working life, it irks me when I hear the likes of Danny Alexander spouting forth figures condemning Scotland to financial disaster if it votes for Independence. All that a UK politician needs to be is a good actor. Danny Alexander has no life experience of producing these figures, he is simply reading from a script given him by his Tory chumsHe is the puppet, they pull the strings. In fact I once met a Chancellor of the Exchequer who could not even work out the PAYE tax for his domestic employees. The only reason why he didn't get someone else to do it was that he was ashamed of how little he was paying them! 

Amidst all the claims and counterclaims being thrown around at the moment, I am sure of one thing – if Scotland votes for Independence on the 18th September, those living north of the Border will not lose out.  

Only with a ‘Yes’ vote can our finances be used for the benefit of all the people of Scotland.

[Footnote below added 4 September 2014]

A new expert report from Investec Economics has confirmed that North Sea oil is a bonus and not the basis of Scotland’s economy.  The paper, from Investec Economics, says that – even without North Sea output – Scotland and the rest of the UK’s economies are “roughly equal”, and adds that overall, Scotland’s GDP per head is “about 10% higher” than the rest of the UK’s. This report backs what I have always said about North Sea oil – it is a fantastic bonus for Scotland’s economy, and not the basis of it. And it confirms that Scotland is significantly wealthier per head than the rest of the UK, meaning our economy has a very sound basis to start life as an independent country.

See also:  More blogs by John Jappy

1 comment:

  1. Thank you John. Very informative & well writing.