The independent Office for Budget Responsibility issues its latest estimate of oil reserves and, predictably, Alex Salmond, the leader of “Project Denial”, dismisses it as “stuff and nonsense”.
One of those he cites to back his response is Ian Wood, who he describes as a “huge expert” (your report, 11 July) a description with which I have no reason to disagree.
However, I listened to Ian Wood on Radio Scotland, and while he suggested the OBR was perhaps being over prudent, he did not give unreserved backing to the much higher estimate preferred by Mr Salmond nor did he dismiss the OBR figures.
In essence he seemed to suggest the answer was probably between the two. However, more importantly he pointed out that what is really important is the tax revenue generated. I presume Mr Salmond will now downgrade him to the status of only “expert” and thus one whose opinion can be denied.
It is undeniable that to extract the oil will be much more expensive than in the past and this will require improved tax incentives to encourage exploration and production.
The obvious conclusion is that the income per million barrels extracted in future will be significantly less than in the past and, as pointed out by all experts, subject to considerable volatility.
Oil remains a huge asset but the financial impact of volatility is very significant on the relatively small economy of an independent Scotland but that financial impact is substantially reduced when part of the much larger UK economy.
It appears to me that the dependence on these tax revenues as one of the principle pillars on which the future financial success of an independent Scotland rests makes for very shaky ground indeed.
No impartial observer could possibly not have major concerns over reliance on the most optimistic estimates and would want the “best” estimate of Scotland’s future finances to be based on more prudent figures.
At best I suggest these would show there would be no financial advantage in Scotland becoming independent but the risks attached remain unacceptably high.
Braid Farm Road
If SCOTLAND were to become independent there would be no barrier to us continuing to use the pound, simply as a unit of exchange, just as Panama uses the US dollar.
However, Alex Salmond wants much more than that.
What the First Minister is seeking is for an “independent” Scotland to be part of a formal monetary union with the rest of the UK, in which the Bank of England would be the “lender of last resort”. In other words, the First Minister wants a situation in which, if Scotland were to go bankrupt, the remainder of the UK would automatically become responsible for all of our debts.
Obviously no chancellor could ever agree to taking on the debts of another, foreign country, over which his or her government would have absolutely no control. The Conservatives have said “No”, Labour has said “No”, and the Liberal Democrats have said “No” – and yet Mr Salmond predicts that there would be no problem in achieving a monetary union. Which part of the word “No” does he not understand?
At the very least, he suggests that he would be able to negotiate such a set-up. This won’t happen, but if any chancellor were to envisage having such a dialogue he would have to insist on having complete control over Scotland’s interest rates, our investment policy and borrowing powers – what sort of independence is that?
It is a fact of political life that all countries, from time to time, have to borrow money. This is particularly so when setting up a new regime with all of its infrastructure. Equally, the more secure the indebtedness, the lower will be the interest on that borrowing – so you can see why the guarantee of a monetary union is so attractive to the SNP. But, as noted above, that will not happen.
By definition the resources of an independent Scotland will be only a fraction of those of a combined United Kingdom. With less back-up, its costs of borrowing will surely be higher.
Fundamentally the cost of borrowing has a direct bearing on pensions and welfare provision. If the cost increases there will either have to be cuts or increases in taxation to maintain this expenditure.
However, there is yet another problem with the costs of borrowing that an independent Scotland would have to face. Alex Salmond has already declared on television that, if he does not get the monetary union he wants, he would be prepared to walk away from Scotland’s legitimate share of the existing national debt. Just imagine how attractive that makes us look to a potential lender, and what additional premiums would be required to compensate for such a risk.
All in all, in purely financial terms, a Yes vote is a big No-No.
Ian C Collee