Oil is not a Bonus – Never was never will be
4 Replies
For me the outcome of the independence referendum was always going to be driven by one thing; economics.
In every election I’ve ever seen (and there have been quite a few)
it’s been the politicians who’ve convinced the electorate they can
manage the economy best who win; simply put ALL political promises are
vacuous if the electorate don’t believe you will deliver the economic
conditions to deliver them.
It was clear early on the Nationalists held a nirvana like view of
independence (and still do); that somehow the act of independence alone
will transform Scotland into a ‘better’ place if only we could escape
the evil clutches of the demon Westminster.
Most sensible people in the end look at the evidence and the evidence
told me (and eventually the majority of Scots) if Scots voted yes they
would find themselves living in a country that was poorer than the one
they had voted to leave indeed one where the levels of austerity we are
going through now would pale into insignificance in comparison.
David Smith (@dsmitheconomics) the resident economist at the Sunday Times summed it up brilliantly in this article in September just prior to the referendum:
‘A vote for independence will be a vote for a Scotland that is
poorer, more unstable, and will require deeper cuts in public spending
than if it remains part of the UK’.
If the economics of independence were to say the least dubious in
September then with the collapse of the oil price since, independence is
now quite simply a non starter (except in the minds of the 20% or so
who would vote for independence at any cost to Scots).
The unionists made a lot of mistakes during the independence
campaign: they ceded the question (no = negative), the timing (who on
earth agreed to a 2+ year campaign), the franchise (although that did
backfire on the Nats) but in my view the biggest mistake we made was
allowing Alex Salmond to perpetuate two fundamental economic myths which
still pervade to this very day:
‘Even with a geographic share of oil revenues, and even in a
period when North Sea production was at a peak, Scotland has run a
bigger deficit than the whole of the UK. This, in fact, has been the
position for the past 25 years’.
In respect of the second untruth however if twitter is anything to go
by Nats continue to believe oil ‘is a bonus’ some even believe we
should still be creating an oil fund.
The most common Nat comment on the oil price collapse has been to
dismiss it as a temporary aberration and that ‘we weren’t due to be
independent until 2016 anyway’ Frankly this is like telling a woman in
labour she’s not had the baby yet. The markets would have had a field
day at both Scotland’s and the UK’s expense.
Remember the independence public finances were based on an oil price
forecast from the SNP of $113 and the resultant tax take. The OBR
forecasts according to Salmond were ‘scaremongering in the extreme’.
Today the price of oil is hovering at around $56, so Alex Salmond’s
conservative $113 oil price ended up being 100% out even the
‘scaremongering’ OBR proved to be over optimistic. They at least have
amended their forecasts the SNP meanwhile not surprisingly have stayed
silent.
Irrespective of where prices go from here (and they could ultimately
go back up) the SNP will never again be able to credibly base public
finance planning on anything other than a much more conservative oil
price; the only sensible planning course will be to assume that the oil
will be at the bottom of its historic range ($56 or lower), this would
clearly yield minimal revenues probably as little as £1.5B per annum.
Additionally the UK government is almost certainly going to have to
offer better tax breaks to continue to encourage N. Sea exploration and
minimise job losses in the oil sector. This will of course lead to even
lower tax revenues in future irrespective of any future increase in oil
price.
Despite this the SNP government continues to say, as John Swinney did
only a few days ago, that “oil is a bonus, and not the basis of
Scotland’s economy”.
This is simply untrue, and especially not true of
Scotland’s public finances. What many nationalists choose to forget, or
simply ignore is the state of Scotland’s onshore public finances.
The Scottish Government’s own numbers show us that in 2012-13,
Scottish total onshore revenues were £47.6 billion while total
government spending was £65.2bn, a shortfall of £17.6bn.
As you can see even in 12/13 oil was not the cherry on the cake it was the flour in the cake mix.
As Peter Jones said in the Scotsman recently : ‘To
try and shift that balance to the point that oil revenues would be a
bonus would inflict so much austerity misery that there would be rioting
in the streets. Even middle-class people like me might be among the
rioters, storming the Holyrood barricades’. I would have joined him for sure.
In fact far from being a bonus the SNP’s plan was to use oil revenues
to plug the gaping hole in what would have been a newly independent
Scotland’s public finances but in 12/13 they got their first shock as
the geographic share of oil revenues came in at just £5.6B (down from
£11.6B in 2008/9).
The latest figures for 13/14 show oil revenues at just £4.2B
remembering this was before the halving of the price of oil! As I said
expect oil revenues at something close to £1.5B in 14/15 together with a
hefty reduction in Scot’s GDP. There is now basically next to nothing
from oil to fill the huge onshore Scottish deficit indeed the Scottish
government will have lost around £10B per annum in oil tax revenue since
2008/9.
It’s some times difficult to appreciate what these big numbers
actually mean in real terms. I always remember the John Swinney’s leaked
report where he questioned an independent Scotland’s ability to fund
its pension obligations even with the SNP’s so called ‘realistic’ oil
prices. He was overruled and the leaked report was ultimately buried in a
morass of SNP media management and misdirection. This was plainly
nothing short of deception on a grand scale especially in light of
recent events and should be the subject of a full independent
investigation.
The problem of course is there has been no adjustment in Scots
Government spending actual or planned; Scotland alone could never
sustain this level of borrowing not to mention the UK inherited debt and
of course not forgetting the minor issue of which currency we would
use.
The reality is that we manage this situation because we are part of
the UK and because oil represents around 1% of UK GDP; indeed rather
than being a problem for the UK the oil price fall is wholly positive to the UK economy.
The plain fact is independence is dead in the water or at least it is
for anyone with any sense and if you want further proof just look at
what’s happening in Russia – and they have their own currency!
The SNP although they don’t know it yet is a spent force. There is
literally no point voting for them unless you believe in their central
aim, which if pursued would be on the basis of all economic evidence be
independence at ANY cost to Scots.
I actually don’t believe Nicola Sturgeon is foolish enough to try
again but if she did based on the dire economic prospects for an
independent Scotland and on an assumption the Better Together camp
learned from the strategic mistakes we made in the first referendum I’m
100% confident she would lose and lose far more heavily than in the
first one.
She knows this of course the problem for her is her new membership
clearly don’t and they will soon begin to exercise their strength in
numbers.
I think it’s time to take the fight to the SNP and take no more
nonsense; their position is very weak but our politicians don’t appear
to have fully realised that yet. I see their latest demand is
independent negotiation at the EU.
The second word of the UK government response to this demand should be ‘off’.
As for Scotland we should be putting our minds to how we become less
dependent on oil and the public sector and how we generate the wealth to
make Scotland and the UK a better place to live. In my view figuring
out how we grow the Scottish economy beyond oil is currently more
important than spending more money than we haven’t got.
So Happy New Year to you all especially the 2 million + of you that
helped us dodge a very dangerous and potentially destructive bullet in
2014; and for the 37% of the electorate who voted yes don’t worry a
conman was at work, fortunately he’s retired let’s hope the voters of
Gordon keep it that way.
In every election I’ve ever seen (and there have been quite a few)
it’s been the politicians who’ve convinced the electorate they can
manage the economy best who win; simply put ALL political promises are
vacuous if the electorate don’t believe you will deliver the economic
conditions to deliver them.
It was clear early on the Nationalists held a nirvana like view of
independence (and still do); that somehow the act of independence alone
will transform Scotland into a ‘better’ place if only we could escape
the evil clutches of the demon Westminster.
Most sensible people in the end look at the evidence and the evidence
told me (and eventually the majority of Scots) if Scots voted yes they
would find themselves living in a country that was poorer than the one
they had voted to leave indeed one where the levels of austerity we are
going through now would pale into insignificance in comparison.
David Smith (@dsmitheconomics) the resident economist at the Sunday Times summed it up brilliantly in this article in September just prior to the referendum:
‘A vote for independence will be a vote for a Scotland that is
poorer, more unstable, and will require deeper cuts in public spending
than if it remains part of the UK’.
If the economics of independence were to say the least dubious in
September then with the collapse of the oil price since, independence is
now quite simply a non starter (except in the minds of the 20% or so
who would vote for independence at any cost to Scots).
The unionists made a lot of mistakes during the independence
campaign: they ceded the question (no = negative), the timing (who on
earth agreed to a 2+ year campaign), the franchise (although that did
backfire on the Nats) but in my view the biggest mistake we made was
allowing Alex Salmond to perpetuate two fundamental economic myths which
still pervade to this very day:
- Scotland contributes more than it receives from the UK
- Oil is a bonus to the Scottish economy – the cherry on the cake
‘Even with a geographic share of oil revenues, and even in a
period when North Sea production was at a peak, Scotland has run a
bigger deficit than the whole of the UK. This, in fact, has been the
position for the past 25 years’.
In respect of the second untruth however if twitter is anything to go
by Nats continue to believe oil ‘is a bonus’ some even believe we
should still be creating an oil fund.
The most common Nat comment on the oil price collapse has been to
dismiss it as a temporary aberration and that ‘we weren’t due to be
independent until 2016 anyway’ Frankly this is like telling a woman in
labour she’s not had the baby yet. The markets would have had a field
day at both Scotland’s and the UK’s expense.
Remember the independence public finances were based on an oil price
forecast from the SNP of $113 and the resultant tax take. The OBR
forecasts according to Salmond were ‘scaremongering in the extreme’.
Today the price of oil is hovering at around $56, so Alex Salmond’s
conservative $113 oil price ended up being 100% out even the
‘scaremongering’ OBR proved to be over optimistic. They at least have
amended their forecasts the SNP meanwhile not surprisingly have stayed
silent.
Irrespective of where prices go from here (and they could ultimately
go back up) the SNP will never again be able to credibly base public
finance planning on anything other than a much more conservative oil
price; the only sensible planning course will be to assume that the oil
will be at the bottom of its historic range ($56 or lower), this would
clearly yield minimal revenues probably as little as £1.5B per annum.
Additionally the UK government is almost certainly going to have to
offer better tax breaks to continue to encourage N. Sea exploration and
minimise job losses in the oil sector. This will of course lead to even
lower tax revenues in future irrespective of any future increase in oil
price.
Despite this the SNP government continues to say, as John Swinney did
only a few days ago, that “oil is a bonus, and not the basis of
Scotland’s economy”.
This is simply untrue, and especially not true of
Scotland’s public finances. What many nationalists choose to forget, or
simply ignore is the state of Scotland’s onshore public finances.
The Scottish Government’s own numbers show us that in 2012-13,
Scottish total onshore revenues were £47.6 billion while total
government spending was £65.2bn, a shortfall of £17.6bn.
As you can see even in 12/13 oil was not the cherry on the cake it was the flour in the cake mix.
As Peter Jones said in the Scotsman recently : ‘To
try and shift that balance to the point that oil revenues would be a
bonus would inflict so much austerity misery that there would be rioting
in the streets. Even middle-class people like me might be among the
rioters, storming the Holyrood barricades’. I would have joined him for sure.
In fact far from being a bonus the SNP’s plan was to use oil revenues
to plug the gaping hole in what would have been a newly independent
Scotland’s public finances but in 12/13 they got their first shock as
the geographic share of oil revenues came in at just £5.6B (down from
£11.6B in 2008/9).
The latest figures for 13/14 show oil revenues at just £4.2B
remembering this was before the halving of the price of oil! As I said
expect oil revenues at something close to £1.5B in 14/15 together with a
hefty reduction in Scot’s GDP. There is now basically next to nothing
from oil to fill the huge onshore Scottish deficit indeed the Scottish
government will have lost around £10B per annum in oil tax revenue since
2008/9.
It’s some times difficult to appreciate what these big numbers
actually mean in real terms. I always remember the John Swinney’s leaked
report where he questioned an independent Scotland’s ability to fund
its pension obligations even with the SNP’s so called ‘realistic’ oil
prices. He was overruled and the leaked report was ultimately buried in a
morass of SNP media management and misdirection. This was plainly
nothing short of deception on a grand scale especially in light of
recent events and should be the subject of a full independent
investigation.
The problem of course is there has been no adjustment in Scots
Government spending actual or planned; Scotland alone could never
sustain this level of borrowing not to mention the UK inherited debt and
of course not forgetting the minor issue of which currency we would
use.
The reality is that we manage this situation because we are part of
the UK and because oil represents around 1% of UK GDP; indeed rather
than being a problem for the UK the oil price fall is wholly positive to the UK economy.
The plain fact is independence is dead in the water or at least it is
for anyone with any sense and if you want further proof just look at
what’s happening in Russia – and they have their own currency!
The SNP although they don’t know it yet is a spent force. There is
literally no point voting for them unless you believe in their central
aim, which if pursued would be on the basis of all economic evidence be
independence at ANY cost to Scots.
I actually don’t believe Nicola Sturgeon is foolish enough to try
again but if she did based on the dire economic prospects for an
independent Scotland and on an assumption the Better Together camp
learned from the strategic mistakes we made in the first referendum I’m
100% confident she would lose and lose far more heavily than in the
first one.
She knows this of course the problem for her is her new membership
clearly don’t and they will soon begin to exercise their strength in
numbers.
I think it’s time to take the fight to the SNP and take no more
nonsense; their position is very weak but our politicians don’t appear
to have fully realised that yet. I see their latest demand is
independent negotiation at the EU.
The second word of the UK government response to this demand should be ‘off’.
As for Scotland we should be putting our minds to how we become less
dependent on oil and the public sector and how we generate the wealth to
make Scotland and the UK a better place to live. In my view figuring
out how we grow the Scottish economy beyond oil is currently more
important than spending more money than we haven’t got.
So Happy New Year to you all especially the 2 million + of you that
helped us dodge a very dangerous and potentially destructive bullet in
2014; and for the 37% of the electorate who voted yes don’t worry a
conman was at work, fortunately he’s retired let’s hope the voters of
Gordon keep it that way.