North Sea oil and gas is good for Scotland's economy. It sustains thousands of jobs, especially in the North East.
Being part of the UK allows us to maximise the North Sea's potential, for example we share the massive costs of decommissioning old fields with the rest of the UK. We also share the costs of the tax relief that makes it economical for oil companies to squeeze the last drops out as oil fields begin to run out. We have the best of both worlds - we get the benefit of this natural resource whilst having the stability and security of being part of the larger UK economy.
There is, however, a high degree of uncertainty around future North Sea revenues, reflecting considerable volatility in production and oil prices. North Sea tax receipts account for a much larger share of tax receipts in Scotland than in the UK as a whole.
The words in the last paragraph aren't my own. They are a quote from the SNP Finance Minister John Swinney in a secret paper he prepared for Scottish Government ministers. We weren't supposed to know that what the SNP say in private is very different from what they tell us in public. It was only when this report was leaked did the Scottish people get to find out what SNP ministers are secretly telling each other.
Despite admitting in private that an independent Scotland would rely heavily on oil tax receipts, John Swinney now says that it would just be a bonus. 15% of your wages isn't a bonus, it's a significant part of your income. What the nationalists are saying just isn't credible.
In 2009-10, North Sea oil and gas revenues halved. If Scotland was independent we would have had to make £6billion worth of cuts or increase borrowing by the same amount - equivalent to half of our health budget.
It is important to realise that the money from tax on North Sea oil is already spent on public services here in Scotland. The SNP Government's own figures admit that Scotland has been running a deficit for years. But the SNP have said that an independent Scotland would set up an oil fund, where instead of spending the taxes we get from the North Sea on the day to day things we rely on like pensions and welfare, we should put the money away for a later date. Exactly when they think this should happen is in some doubt.
In July, the SNP's energy spokesperson Fergus Ewing said: "The criteria, is fairly obvious, when we are in a position with a substantial surplus of oil taxation revenue over budgetary requirements."
Yet this week Alex Salmond said "the time is now to establish an oil fund."
So which is it? If he thinks we can set up an oil fund now, the First Minister must explain which budget would be cut to allow us to put the North Sea revenue into that fund. Would it be the budget for hospitals? Or would we see the schools budget slashed? Would the money we spend on welfare have to be cut to allow Alex Salmond to set up an oil fund?
The nationalists repeatedly compare Scotland with Norway. Yet an analysis of Norway's experience in a Treasury paper published on Tuesday makes the following key points:
- Norway only contributes revenues to the fund when its overall public finances are in surplus. Despite creating the fund in 1990, it was not until May 1996 that any contributions were made, reflecting the fact that Norway ran a budget deficit over this period.
- If an independent Scottish state were to adopt the Norwegian model and only contribute to a fund when it has a budget surplus, it would face a difficult set of fiscal choices. Scottish Government figures show that after the oil peaks of the 1980s, Scotland has run a fiscal surplus only once. The average position from 1999-00 to 2011-12 is a deficit of 3.7 per cent of GDP, even assuming a geographical share of oil revenues.
- The gap that Scotland faces to achieve fiscal balance (neither surplus nor deficit) and start a fund can be quantified in various ways:
1) As set out above, Scotland's average fiscal position since devolution is a deficit of 3.7per cent of GDP, or £5.2 billion.
2) A fiscal consolidation of £5.2 billion equates to reducing public spending in Scotland by fully eight per cent from current levels. Or, equivalently, increasing onshore tax revenues by 11 per cent; and
3) The Centre for Public Policy for Regions (CPPR) has produced medium-term projections for the Scottish public finances as part of the UK. In 2016-17, they project a deficit for Scotland (including a geographic share of oil revenues) of 5.1 per cent of GDP, or £8.4 billion in real terms. That implies spending cuts of 13 per cent from current levels, more than three-quarters of what the Scottish Government spent on health last year, or onshore tax rises of 18 per cent.
The sums just don't add up. Alex Salmond knows it and the experts know it too.
- The impartial think-tank CPPR has said that in an independent Scotland we would need all North Sea oil revenues to help pay for our public services and we'd still have a considerable fiscal deficit. The paper states: "no such revenues would be available to build up a Sovereign (Oil) Fund, or at least not without tax increases
- Professor Gavin McCrone, former chief economic adviser to the Scotland Office, has said setting up an oil fund would not be possible "for quite some time" given the current economic climate.
- Even the SNP's own Fiscal Commission has pointed out that Scotland is currently running a budget deficit and "would therefore have to use North Sea revenues to fund current public services and reduce public sector borrowing."
- Professor Brian Ashcroft has said that in effect Scotland has already had an oil fund since public spending here is on average £1200 higher than in the rest of the UK.
The First Minister knows that his sums don't add up, and that for every pound he puts in an oil fund just now would be a pound less to spend on pensions, schools and hospitals. Yet he still wants us to vote for independence anyway.
If Alex Salmond wants to cut public spending to set up an oil fund he must be honest with the Scottish people about the consequences of this choice.
It is increasingly clear that Alex Salmond will say and do anything to get us to vote for independence. For months we have heard him say that there is £1.5trillion worth of reserves remaining in the North Sea. Yet this week it emerged that this is based on dodgy figures which show a fundamental misunderstanding of the sector. This is a blatant attempt to cook the books in order to fool the Scottish people.
North Sea oil and gas is good for Scotland, but the best way to take full advantage of this is working together across the whole of the UK. As part of the UK we share energy resources, risks and rewards for the benefit of us all.
There is no sense in taking such a big gamble.
Alistair Darling is the Chair of Better Together and Labour MP for Edinburgh South West - this blog first appeared on the Better Together campaign blog, and can be read here
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