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Scottish independence: Oil projections ‘skewed’

Projections for North Sea oil must be revisited based on new data, say the CPPR. Picture: PA

Projections for North Sea oil must be revisited based on new data, say the CPPR. Picture: PA

SCOTTISH Government projections on oil and gas revenues are “skewed in an optimistic manner”, according to academics from Glasgow University’s Centre for Public Policy for Regions.

Analysis on production and tax from the North Sea should be updated to help judge how it affects the country’s future fiscal balance, the CPPR said.

The latest paper on public sector revenues has incorporated recent publications from Government Expenditure and Revenue Scotland (Gers) and the Office for Budget Responsibility (OBR).

The latest Gers figures showed that oil revenues dropped by more than two-fifths in 2012/13, pushing Scotland’s deficit above the UK’s for the first time in recent years, and CPPR said the gap will continue to grow.

The report said: “A year ago the Scottish Government outlined four additional North Sea revenue scenarios to those made by the OBR. These were based on varying oil prices and production levels, each of which results in higher North Sea tax revenue projections than those of the OBR.

“These forecasts are now out of date and the lower than expected out-turn North Sea tax revenue data for both 2012-13 and 2013-14 show them to be skewed in an optimistic manner.

“It would need currently unforeseen improvements in North Sea production and/or the oil price before Scotland’s fiscal balance reverted to being better than the UK’s.”

‘More estimates needed’

CPPR called on both the Scottish and UK Governments to provide further estimates on the impact of different price and production assumptions on future North Sea revenues.

The report’s co-author John McLaren said: “Based on the OBR’s latest forecasts, Scotland’s fiscal position, relative to the UK, continues to worsen.

“We now need the Scottish Government to update its own alternative North Sea oil tax scenarios, based on the latest information available, in order to judge how these might affect Scotland’s future fiscal balance.”

Co author Jo Armstrong said: “As North Sea tax revenues are so critical to Scotland’s absolute and relative fiscal balance, it is important that both the Scottish and UK Governments supply greater certainty over Scotland’s share of these revenues and that more is understood about the implications of changes in costs, price and production levels.”

‘Relatively healthier’

A Scottish Government spokeswoman said Scotland’s public finances have been “relatively healthier” than the UK’s by a total of £8.3 billion over the past five years.

She said: “Despite oil revenues falling by more than 40% in a single year, due to both unplanned disruption to production and record capital investment by the oil and gas industry, Scotland’s current budget balance for 2012-13, at 5.9% of GDP, was almost identical to the UK equivalent of 5.8%.

“We expect that record North Sea investment will lead to an increase in revenues in coming years. Oil and Gas UK’s central forecast is for production to rise from around 1.4 million barrels a day in 2013 to 1.7 million by 2017.

“In contrast the OBR assume that current record levels of investment provide no boost to production, despite the UK Government commissioned Wood Review highlighting the potential for production to increase in the coming years.”

Scottish Conservatives leader Ruth Davidson said: “The CPPR makes it crystal clear that - as we have consistently said - the First Minister’s dodgy year-old oil forecasts are now both out of date and completely skewed to suit his own purposes.

“We know why the First Minister won’t update these figures. It’s because he knows it will expose his back-of-a-fag-packet calculations. That’s why, when I called on him to publish new figures at First Minister’s Questions last week, he simply brushed the issue aside and ignored it.

“However, he can’t ignore the facts any more, and he must act and publish new figures immediately. Anything less will prove to people once again that this is a reckless First Minister who will do and say anything to further the cause of separation.”

 

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