Energy revenue 'not enough to fund Scots independence'

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SCOTLAND would be unable to stand alone economically even if it received all the oil and gas revenue raised by the Treasury, a government report claims today.

The Scotland Office paper shows North Sea oil revenue would not have plugged the gap between spending and tax raised in Scotland, leaving the country with a massive 3.5 billion budget deficit.

The claim has come in a UK government report due to be published next month which shows that from 1980-81 to 2007-8 Scotland has accumulated a deficit of 23.5bn.

The report by Scotland Office and Treasury economists has added fuel to the debate over whether Scotland could pay its own way with independence or fiscal autonomy.

The argument for independence had already received a blow when Scotland's two big banks – RBS and HBOS – received a 37bn bailout from the UK government, more than the annual expenditure of the Scottish Government.

The report's calculations look even worse if Scotland only received its geographical share of 82.5 per cent of oil and gas revenues with the deficit in 2007-8 increasing from 3.5bn to 4.8bn in a record-breaking year for oil when the cost of a barrel broke the $100 barrier, but it has been condemned by SNP ministers in Holyrood as "a grotesque attack on Scotland by a Labour government in London".

They argue that over the three years up to 2007-8, Scotland would have been in profit by 2.3bn if it had received its geographical share from North Sea oil which the SNP calculates as being 93.5 per cent – more than 10 per cent higher than the UK government assessment.

However, critics have pointed out that even with an inflated geographical share of oil and gas revenues the Scottish Government was only able to make a profit by excluding capital spending on one-off projects.

The UK government report is based on Scotland's share of the national deficit in 2007-8 which is estimated at 11.1bn. The total UK oil and gas revenue that year was 7.6bn, which even if this was all given to Scotland, would leave a deficit of 3.5bn.

It takes account of all government revenues, so includes the estimated Scottish receipts accruing to HM Revenue and Customs for all UK taxes, but also non-domestic rates, council tax and Vehicle Excise Duty collected by the DVLA in relation to Scotland.

Scotland Office minister Ann McKechin said that the report undermined claims made by Nationalists that with energy revenue Scotland could stand alone.

She also said that it left serious question marks over proposals to divert oil and gas money into a fund rather than using it to support annual government spending. The Scottish Government highlighted the Norwegian oil fund in its recent National Conversation on independence and suggested Scotland should have something similar.

The report also shows that only in nine out of the past 28 years would Scotland's finances have been in surplus, with 1988 the last year it would have been in the black.

The findings have been dismissed by Alex Salmond, who argued that British debt was the real problem.

A spokesman for Mr Salmond said: "This is a grotesque attack on Scotland by a Labour Government whose woeful mismanagement of the economy has put the UK into almost 180bn of deficit this year.

"It is Britain that is bust, not Scotland. The official figures demonstrate that Scotland's financial position is far stronger than the UK as a whole.

"Scotland's oil and gas industry is the only thing keeping the London Treasury afloat."