Andrew Wilson: Seize opportunity of cheap oil

The independence debate has moved on from the North Sea. Picture: PA
The independence debate has moved on from the North Sea. Picture: PA
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FAR from being the political and economic nemesis of the SNP, low oil prices present the party with a necessary opportunity to completely modernise their position.

“It’s Scotland’s oil” was a major boost for the independence argument in the 1970s. It was a key campaign plank during a set of political circumstances that catapulted the SNP from fringes to relevance in two landmark elections in 1974.

The idea that Scotland had an opportunity that could transform its de-industrialising post-war economy, was a compelling one that excited a significant body of public opinion. But at a price.

The windfall that the advent of North Sea oil brought to the economy and taxation revenues was mammoth, purposefully disguised and sadly squandered over decades while other countries were able to save theirs. Because of its constitutional significance it became a political football at the expense of its effective stewardship.

A cursory comparison between Britain and Norway’s finances and governance is instructive. Whitehall advised government against the oil fund model partly because it would be a living, breathing asset for the SNP’s case.

But what’s done is done.

What is also true is that decades of misinformation has left the population of the country pretty much inured to all the economic argument. In my estimation there is little in oil that moves the political dial.

Last week crude oil prices fell ­below $35 per barrel, the lowest in 11 years.

This led to inevitable finger-wagging and barely disguised glee as opponents of the Scottish Government pointed out that their pre-referendum central forecast was for an oil price of $110 per barrel in 2016.

“Surely” they cried, “this sinks the economic case for independence?”

So much steaming tripe is talked about economic forecasts especially on oil. While the Scottish Government chose $110 the UK Department of Energy and Climate Change predicted prices between $114 and $127.

Indeed in May 2014 the Treasury’s own publication of 22 independent forecasters showed that none expected prices to fall as they have done and 18 expected them to stay above $100 in 2015.

And it’s not just oil and gas revenues; in November the UK Office for Budget Responsibility (OBR) revealed they underestimated their forecasts for all taxation revenues by a mere £27bn, giving the Chancellor a much questioned windfall to play with in his autumn statement.

This reversed their previous position of getting their forecasts wildly wrong in the other direction. The month before that assumption-led boost was revealed, the OBR admitted in their, laudably transparent, analysis of the performance of their own forecasts over the previous five years that they had initially overestimated forecast tax revenues for the last financial year alone by £71 billion. That, incidentally, is more than twice the entire Scottish Government budget.

I don’t make this point to cheapen any effort. All budgeting is fraught. That is my point.

Oil revenues are a function of both price and production and what’s undoubtedly true is that in choosing the combination of both elements of their forecast the Scottish Government ended up at the more optimistic end of the spectrum rather than the conservative one. But if those without sin cast the first stone when it comes to forecast reliability on revenues – few rocks will be in the air.

My point is that the political economy of this debate needed to move on then and self-evidently needs to move on now. Even if the price surged back above $100 it wouldn’t shift a single vote towards Yes. Nor should it be relied upon to fund anything other than savings, investment or to pay down debt. The SNP argued in the referendum that oil was a “bonus, not the basis”, for their economic case. Time to demonstrate they mean that.

The idea that oil revenues present a quick and easy route to economic salvation, without any effort on our part, is the opposite of a true independence argument. There is no pot of gold, black or otherwise, at the end of the independence rainbow. But there is a toolbox, and that is the true prize.

We know that Scotland as part of the UK has an unsustainably large gap between revenues and expenditure, just as the UK does. Every region outside the south-east is in a worse condition than Scotland.

The core question we should focus on is who is best placed to put that right, the Scottish Government we elect or a Tory one in Westminster we never do?

Much was made in last year’s election of an analysis from the Institute of Fiscal Studies finding the Scottish deficit running at 8.6 per cent of GDP compared with 5 per cent for the UK overall. But looking ahead on the same analysis Scotland’s deficit/GDP hits 4.6 per cent in two years’ time – better than the UK position last year. Think about it.

The core financial argument used by opponents of progress is that Scotland in the UK is in such a bad position that things should stay the same and the same people should stay in charge. Odd. Plainly. But arguing Scotland is in such great financial shape that it must change, is every bit as counter-intuitive.

Time to stop looking either South or under the sea for our economic salvation; the answer lies within. «