Analysis: Reliance on volatile oil price a tricky position
THE position for Scotland is interesting - the effect of the Barnett formula and the relatively low tax yield of Scottish onshore activities would have created a substantial deficit, except for the oil receipts, which in 2010-11 would have been just under £8 billion using the allocation recommended by Aberdeen University experts.
After adding in Scotland’s share of the oil revenues, the deficit for a hypothetical independent Scotland emerges as 10 per cent of GDP, which by coincidence is exactly the same figure as the UK figure on the same definition.
These figures do not include the net cost of banking bailouts for RBS and Lloyds HBOS. They are based on the 2010-11 position when the price of Brent crude was on average $82.33 per barrel. In 2011-12 we estimate an average price of $110.54, which would improve Scotland’s finances by about £3bn.
What does this say about Scottish independence? Alex Salmond’s claim that Scotland subsidises the rest of the UK is not supported by this data, but, equally, the claims commentators that the English subsidise the Scottish welfare state are not supported either.
Of course this analysis does not take account of all the economic issues that might emerge if Scotland were to be independent. Set-up costs for a new country are not included. On the other hand, an independent Scotland, as a relatively small nation, might not choose to spend in some of the areas such as defence that are appropriate for a medium-sized power like the UK.
The public finances of an independent Scotland would be highly dependent on oil revenues, which are very volatile. Our analysis from last year showed the onshore Scottish economy had not been strong and is gradually falling behind even the rest of the UK. Crucially, even after taking the oil revenues into account, Scotland would still have had a deficit of about the same share of GDP as the UK – 10 per cent in 2010-11.
So an independent Scotland would have to take similar austerity measures to those the coalition is already implementing nationally. And establishing a credit rating for a new country would probably require rather more prudence.
• Douglas McWilliams is chief executive of think-tank Cebr.
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There are 15 comments to this article
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Cruixer
Sunday, February 19, 2012 at 03:36 PMSnore. Volatile oil prices, yes thats correct, oil prices are not stable they go up, sometimes they go down but they always go up again! Honestly, is there anyone out there that is so stupid to believe that a resource which is dwindling and the entire world relies on is going to go DOWN in price. One thing is for sure, the oil will eventually run out and if Scotland wants to use it to develop the country then it needs to act now, otherwise Westimster will use it to develop London, and once it does run out Westminster will care even less about Scotland than it does now.
SlyFifer
Tuesday, February 14, 2012 at 07:24 AMBrent Crude the other day $117.47 a barrel. Pound hovering at $1.57. Situation more or less steady. US preparing to re-arm its arsenal of 30.000lb bunker busting bombs - why ?. To allow the Israelies to use them on Iran to eliminate the nuclear weapons. Scenario. Oil goes through the $250.00 a barrel. Petrol prices in Scotland hits 2.50 a litre, Scotland plc shuts down. High oil prices, great for the Treasury, crucifies the people. Volatile yes, unreliable yes. 85% tax on petrol - utterly crazy !.
Biscuit McVittie
Monday, February 13, 2012 at 02:21 PMThis can't be true. These experts are anti-Scottish.
Brond
Monday, February 13, 2012 at 02:12 PMPlenty of oil now... http:www.deadlinenews.co.uk20120212scotland-handed-power-over-antarctica-by-mistake
peter58
Monday, February 13, 2012 at 01:46 PMOh, I forgot - Scotland will be the Saudi Arabia of renewables if they can only persuade the English to finance the experimental CCS technology and maintain the subsidies already flowing like liquid gold. And good luck with that too cybernats!
peter58
Monday, February 13, 2012 at 01:44 PMScotland as a hedge-fund economy based on the price of oil in the event of separatism is virtually guaranteed. Good luck with that cybernats.
samcoldstream
Monday, February 13, 2012 at 12:22 PMWhere are the men in white coats? The author would disingenuously have us believe that the massive hydrocarbon deposits in deep waters west of Shetland, in the Orkney Basin, and off the Continental Shelf, west of the Hebrides are not worth exploiting? Oil and gas exploration and production has only started west of Shetland and there are tens upon tens of billions to be made in licensing blocks, corporation tax, VAT, and petrol duty just waiting for the Treasury to collect.
Spooked
Monday, February 13, 2012 at 10:52 AM#7 Yes it does, but relative to the size of the economy it will vary more. This means you'll have to borrow more often to tide you over the low patches and the lenders will be taking a punt on your ability to repay in the high spots. That's why your borrowing costs would be higher
Anagach
Monday, February 13, 2012 at 10:15 AMOh my God!, if we became Independent then government income and the economy might go up and down!. hang on does it not do that now?.
Sneeky
Monday, February 13, 2012 at 09:18 AMThe public finances of an independent Scotland would be highly dependent on oil revenues, which are very volatile. However the volatiltiy is what will give Scotland benefit over the long term. _______ We have nearly as much Oil now left as we have already extracted, yet now the price is $100+ per barrell as opposed to $10 historically. _______ As a resource becomes more scarce it increases in value. It is guaranteed that over the coming decades Oil (And Gas, for those of you who forget we have 62% of that also) will increase in price and as they are currently taxed at 61% the Tax take will increase accordingly. _______ This means that in good years money can be put aside in an Oil fund so that in bad years the shortfall can be managed. _______ Crucially however, this would give Scotland a significant benefit in the long term to properly budget for the economic cycle and is something that is competely impossible without Independence. _______ Also it is important to note that the calculations made are based on current employment trends and this may change upon independence as the Government will have the tools necessary to create investment and Growth. To think that Scotland would not adapt and develop is to give a low opinion of the people of this country.
Sneeky
Monday, February 13, 2012 at 09:12 AMScotland would not have been responsible for the liabilities incurred by the English arms of the RBS or HBOS so to try and use them as a reason to avoid independence is disingeneous. _______ George Walker, professor of financial regulation and policy at the University of Glasgow, has publicly stated that Scotland would only have had to take on a proportion of the total cost of the bail-out based on the subsidiaries and business operations of HBOS and RBS in Scotland which amounted to no more than 5 per cent. _______ The liabilities would have been covered by the authorities in the areas in which they occurred. This is why the FED in America has bailed out RBS. _______ It would be a strange world indeed if the home countries of international corporations were held responsible for the lax management of financial markets by other countries around the world.
Beachdair
Monday, February 13, 2012 at 12:59 AMMr Williams says "...an independent Scotland, as a relatively small nation, might not choose to spend in some of the areas such as defence that are appropriate for a medium-sized power like the UK." .................................................................................. ....................................................................................................... That is true, Mr McWilliams, because independent Scotland will have different national interests than rUK. For an idea of how such differences might affect independent Scotland's defence expentitures, see scottishdemocraticalliance.org and go to International and then to Security & Defence and download the PDF at the bottom of that page.
Beachdair
Monday, February 13, 2012 at 12:52 AMMr McWilliams is just re-hashing similar articles that the Scotsman drags out periodically when it cannot dream up any scare stories.
Proud Doonhamer
Monday, February 13, 2012 at 12:50 AMDouglas McWilliams Bio Douglas is one of Europe’s foremost economics forecasters and commentators, covering trends in the UK, European and international economies. Prior to founding Cebr in 1993, Douglas was Chief Economic Adviser to the Confederation of British Industry and Chief Economist at IBM UK. In addition to his technical skills he is known for his understanding of the implications of economic trends and policy changes for business decisions, for his understanding of the economics of the technology sector and for his skill in communicating such information. Douglas is the acknowledged expert on the economy of London and the financial prospects of the City of London. He has advised numerous organisations including clients in the technology sector, the transport industry, property & construction, financial services and the public sector. ______ Nothing more needs to be said about another rented poodle.
Proud Doonhamer
Monday, February 13, 2012 at 12:46 AMReliance on City of London controlled bankers is a guaranteed loss.
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