SNP plans for Holyrood to control all of Scotland’s tax and spending have been dealt a major blow by a report predicting North Sea oil revenues will be slashed over the next 25 years.
The independent Office of Budget Responsibility (OBR) has dramatically cut the amount it expects the sector to generate for the Exchequer between 2020/21 and 2040/41 from £36.6 billion to only £2.1bn.
This should be another stark warning to the SNPIan Murray
The OBR also downgraded its projection for revenues over the next five years, which it said will be £3.4bn instead of £16.7bn.
OBR director Robert Chote described the downgrades as “dramatic” and warned that even in the best case scenario, future revenues will be “minimal”.
He said receipts from the sector were likely to be negative “in a number of years” as companies receive repayments of past tax to reflect current losses.
Graham Parker of the OBR said: “One of the issues is the large cost of decommissioning former oil and gas fields which has a high cost and will take away a lot of the tax revenues partly because the government has to pay a share.”
The OBR stressed the figures were subject to “large forecast errors” as the sector was volatile and unpredictable.
The predictions yesterday came as the SNP put down an amendment to the Scotland Bill for full fiscal autonomy.
The move would see Scotland lose its block grant from Westminster in exchange for Holyrood gaining complete control over tax and spending.
Before yesterday’s revised OBR forecasts, the respected economic think-tank the Institute for Fiscal Studies had warned the move would lead to an annual £10bn black hole in Scottish finances.
Meanwhile, Labour yesterday published its own oil report suggesting the price per barrel would need to rise to $200 from the current $60 for the Scottish Government to break even under full fiscal autonomy.
Standing in for Nicola Sturgeon at First Minister’s Questions, finance secretary John Swinney said the UK government had got oil and gas taxation changes “badly wrong” in 2011 and these have been reversed to try to boost investment.
He said: “What fiscal autonomy is about is building on the powers of this parliament, powers that over the last 16 years have seen an improvement in the economic performance of Scotland, where our GDP per head used to be sixth in the United Kingdom and it’s now third in the United kingdom – only behind London and the south-east.
“Productivity has increased from 96 per cent of UK levels in 1999 to being in line with UK levels in 2012.
“The moral of this story is that where we can exercise distinctive economic policies in Scotland, we can transform the economic performance of the country. For that is what fiscal autonomy is all about – it is about enabling this parliament to take the decisions that are right for Scotland.”
But the findings added to political pressure for the SNP to scrap its full fiscal powers plan.
Scottish Secretary David Mundell said: “The OBR have revised their oil and gas forecast down by 94 per cent between 2020-21 and 2040-41.
“That is obviously a very significant reduction and clearly highlights the challenges for the industry caused by the steep fall in oil prices.” He noted the UK Government has already introduced a significant package of reforms to support the sector, worth £1.3bn, including cutting headline tax rates and introducing a new Investment Allowance to reward companies investing in the UK Continental Shelf.
He added: “What this [OBR] report also shows is how right the Scottish people were not to believe the wildly exaggerated claims that were made about oil revenues in last year’s referendum campaign.”
Labour’s shadow Scottish secretary Ian Murray said: “The OBR revenues report should be another stark warning to the SNP of the folly of their full fiscal autonomy manifesto promise.
“Scotland benefits hugely from the pooling and sharing of resources across the UK but the SNP seem to want to gamble with Scotland’s future for their political ideology.
“They have no economic credibility whilst they continue to ignore the experts. They are not standing up for Scotland but selling Scotland down the river.”
A Scottish Government spokesperson said: “The OBR themselves state these projections are ‘subject to considerable uncertainty’ and the figures reflect recent low oil prices, which some forecasters have predicted will bounce back to higher levels over the longer term.
“Oil & Gas UK estimate that there are up to 23 billion barrels of oil and gas still to be recovered from the North sea. The key to supporting the industry in the long term and maximising the recovery rates of remaining reserves is ensuring a stable and supportive fiscal and regulatory regime is put in place.”