Friday, 24 February 2012

Oil Fund or No Oil Fund? Is that The Question?

Scots must be about the most stupid people on earth, judging by the headlines in the daily newspapers, to say nothing of the comments made about the prospects for an independent Scotland. I know we are supposed to accommodate the lowest common denominator in the debates but I have to admit, I am beginning to wonder if some Unionists are actually capable of formulating any kind of rational argument. On the car radio yesterday, I tuned in to Brian Taylor's debate which came from Fettes College in Edinburgh. One contribution from the floor, in the discussion on independence, suggested that if Scotland voted "Yes" in the referendum, was there not a danger we could end up like Greece? There would be riots in the streets and people burning buildings. As he warmed to his task (probably from the heat from the burning buildings) the enthusiastic Unionist concluded, "There could be civil war!" Aye right. Away and lie down in a dark room somewhere.

Unfortunately, this kind of nonsense is not confined to the "ordinary voter" whoever that may be. Philip Hammond warned us that thousands of jobs would be lost in the defence industries, because the rUK "would not build ships in a foreign country" - the "foreign country" being an independent Scotland. Does Hammond not know what is going on in his own department, or, is South Korea not a foreign country? For the purposes of this debate, is Scotland the only "foreign country", or is it just the only country the rUK will not trade with? When questioned why an order from the Royal Navy worth £465 million, went to South Korea, a spokesman from the MOD - that is Hammond's department - said, "it represented the best commercial deal". Now why would that matter, if the rUK will not "build ships in a foreign country"?

One would assume that one of the longest serving MEPs and one who has consistently and unreservedly supported the EU, would know and understand the implications for an independent Scotland, when it came to membership of the EU. Unfortunately, it would seem that we presume too much. David Martin MEP, has been pushing the notion in The Scotsman (where else) that an independent Scotland, "having been part of another member state" would have to re-apply for entry. It is time that argument was exposed for the fallacy that it is. When Scotland decides to become independent, the UK will cease to exist because it was formed by the partnership of Scotland and England (Wales is another discussion) therefore it is wrong even to speak of the rUK. Scotland's position will not be that of a "part of another state" that has broken away, it will be one half of the partnership which created the UK and which has just dissolved the partnership, thereby ending the existence of the UK. Whatever arrangements are made with the EU for England, Wales and Northern Ireland, will have to be made with an independent Scotland. That is the constitutional reality and any attempt to downgrade Scotland's legal position should be fought every step of the way.

The major story hitting the headlines for the past week has centred on the question of an Oil Fund being created in an independent Scotland, with Unionists setting out to create as much confusion as possible. The Scotsman carried the following headline, "Go-alone Scotland 'cannot afford oil fund without major cuts'". Unfortunately, the think tank quoted, does not actually say that. The Centre of Public Policy and the Regions (CPPR) centred on the comment by Salmond that he hoped Scotland would put aside £1 billion a year of oil taxes "once fiscal conditions allowed", countering that by arguing that "in the period after independence" it would be difficult to help close the budget deficit and have the oil fund at the same time "certainly not in the size being suggested". Taken together, there is not a great deal of difference in the two statements. However, Unionists have decided to interpret the statement from the CPPR as meaning that an independent Scotland will not be able to afford an oil fund - at all, therefore independence is a waste of time, the lights will all go out and there may even be civil war - God help us.

Unfortunately, the reaction by some SNP spokespeople to the comments by the CPPR, have not been helpful, attacking the membership of the think tank as having worked at one time for the Labour Party. So what, if there are some years there will be insufficient revenues to contribute anything to an oil fund? Whatever figures are being produced now are no more than projections, based on a series of assumptions and, as those assumptions are changed, so will the projections of the revenues available. In other words, if you don't like the projections the think tank has produced, ask them to change their assumptions and they will produce other projections. Unionists can have their projections and Nationalists can have theirs and we can turn the whole argument into a farce. One year's figures neither make a case for independence nor a case against independence.

It might be helpful if we looked at some figures for oil and tax revenues, some of which are projections and some of which are factual. The latest figures for Government Expenditure and Revenue for Scotland (GERS) show that Scotland is in a better financial position than the UK as a whole. As a perecntage of Gross Domestic Product (GDP) Scotland's Net Fiscal Balance for 2009/10 was -10.6% as opposed to the UK's -11.2%. Scotland's share of oil revenues for the same year went down from £11.7 billion to £5.9 billion, which would have made it difficult to contribute Salmond's proposed £1 billion to the oil fund. Fortunately, the Office for Budget Responsibility (OBR) has forecast that oil revenues over the next five years will average £13.4 billion, of which Scotland's share will be £12.2 billion, which is a far cry from the assumptions used by the CPPR and its "diminishing oil revenues".

The National Institute of Economic and Social Research (NIESR) is another think tank whose findings are being used to suggest an independent Scotland would struggle financially. Under its "assumptions" Scotland's debt ratio to GDP would be around 70%, a figure the think tank seeems to think is unmanageable without severe hardship. When the conditions for entry to the single currency were being drawn up, it was decided under the Maastricht Treaty that the debt ratio for member states should be 60%, which is not all that far away from the 70% which Scotland would allegedly find a problem. We know that that figure was never adhered to by the likes of Greece, Italy etc, which is why the euro is on the verge of collapse. The OECD forecast that the UK's debt ratio to GDP would be 95% in 2012. On 31st December 2011, the figure was 64%, excluding the financial sector intervention (RBS, Lloyds etc) but when that was included, the figure was 148%. In 2010, Japan's ratio of debt to GDP was 225%, Germany's was 78.8% and in 2011, the USA's was 110%. It would seem therefore that an independent Scotland's fiscal position would be as healthy as the best economies in the world and a great deal more healthy than some others.

There are going to be a great many variables in any calculation that is made about Scotland's future economic prospects. If Scotland reduced corporation tax it would certainly encourage business growth but what we will not know is whether the gap created by the loss of revenue from each individual firm, will be more than covered by the increase in business activity. It is assumed that it will. North sea oil activity will be determined in large part by the tax regime imposed by a Scottish government. There have been three tax hikes in the past decade, imposed by Westminster governments, the last of which provoked Centrica to say it intended to abandon the North Sea. Centrica has now changed its mind and a "sympathetic" tax regime might bring on stream marginal fields currently not being developed. Any Scottish government would have to be careful however, that it did not become too sympathetic. It is assumed there are other fields waiting to be developed when the oil price is right and it is under those conditions that the proposed oil fund is likely to become a reality.

Greater economic activity in a sector of the economy as important as the oil industry will have a knock on effect in other areas. Once the multiplier effect kicks in, the increased economic activity becomes general. No government can predict with certainty what will happen in any economy, although every government claims to be able to. By the same token, no opposition can predict what will not happen. The one thing about which we can be certain, is that the Unionists will manufacture whatever statistics and assumptions are needed, to "prove" independence will be a disaster.

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