George Kerevan: Hold the champagne till the hard work’s done

Today the SNP faithful are gathering at the SECC in Glasgow for their spring conference and rally before the May local elections. Rarely have they been so confident.

First, the Nats have a controlling majority at Holyrood, which means they alone will legislate the timing and content of the upcoming constitutional referendum(s). Of course, Westminster could impose a veto but that would wreck the Union all on its own.

Second, the SNP’s opponents remain woefully divided. Last weekend, Labour finally realised it needed something to offer the voters, and came up with… er, another “commission” on greater devolution, though only if Scots vote against independence. Ditto the Lib Dems and Tories. So now we have three different devolution offerings, all to be kept secret until after any independence referendum, implying yet more constitutional uncertainty.

Third, the SNP is riding high in the polls. Last month, Scottish Labour sank to its lowest rating ever (23 per cent) while the SNP was on a stellar 49 per cent. Since last year’s election, SNP membership has soared to over 20,000.

Everything seems set for Scotland to take its place among the nations circa 2017. Yet now is a dangerous time for the Nats, when hubris and over-confidence could end their hopes just like Scotland in Argentina during the 1978 World Cup. Two-and-a-half years is a long time to wait for a referendum and many things could go wrong. The electorate may get bored, the opposition parties could get their act together and the economy troublingly remains weak.

Now is the time for the SNP leadership to exploit its strategic advantages, rather than take a premature victory lap. The SNP has to take the initiative in selling the economic case for independence for in 2014, people will vote with their wallets – particularly women.

Which explains the importance of the publication of the latest analysis of public spending and taxation north of the Border, the Government Expenditure Revenue Scotland, or GERS. This annual report was introduced by the Tories in 1992, in a bid to show that Scotland was too poor to be independent. It did just the opposite. In the years leading up to the Credit Crunch, GERS shows that Scotland was running a basic budget surplus (taxes covering current expenditure) at the same time Gordon Brown was driving the UK into a structural deficit (taxes not covering current spending).

The response of the anti-independence parties to the latest GERS (for 2010-11) is instructive. Many have used it as a fresh opportunity to declare that Scotland is incapable of standing on its own economic feet. Scots Tory finance spokesman Gavin Brown intoned: “When you include investment in infrastructure, it brings Scotland’s loss for the year to more than £10bn. This is currently sustainable only due to our links with the rest of the United Kingdom.”

Had Mr Brown, a former solicitor, bothered to look up the data he would have found that the Scottish budget deficit in 2010-11 was 7.4 per cent compared to 9.2 per cent for the UK. The Scots deficit figure was also below that of the average for the OECD industrial countries. Far from needing the UK to bail it out, an independent Scotland would have been able to fund such a deficit on its own. I suspect that back in 2010, Scotland might have been seen as a safe haven for investors. The UK Government, on the other hand, has funded its recent deficit via the Bank of England printing money – with consequent harm to savers and pension funds.

More sophisticated critics concentrated on what GERS implied for the SNP’s plans for an oil fund – converting non-renewable oil and gas into a permanent asset by investing some of the revenues in income-yielding bonds, shares and property. Both the Centre for Public Policy and the Regions (CPPR) and the redoubtable Professor Brian Ashcroft argue that for the foreseeable future an independent Scotland would need all its oil revenues to cover its budget deficit. Any move to divert income to an oil fund would be risky, or lead to unnecessary borrowing.

Let us begin by accepting that oil revenues are volatile, though far less than most commentators assume. If you net out the obvious spike in commodity prices in 2008 – whose extra proceeds would have gone to the oil fund anyway – the deviation of one year’s oil income from the rolling average is quite manageable.

I also accept it would be imprudent to divert any oil revenues to an investment fund while there is a structural deficit. The earliest point Scotland will be independent, after negotiations, is 2017. But 2016-17 should see the UK and Scotland eliminate their structural deficits, assuming Office of Budget Responsibility forecasts are correct.

Curiously, in its critical analysis of GERS, the CPPR produces statistical tables only till 2015-16 – a whole year before the end of the period covered by the OBR budget forecast. As a result, both the UK and Scotland are seen to have deficits, allowing the CPPR to claim launching an oil fund is problematic.

It’s interesting in his context that critics never mention Denmark, Europe’s third biggest oil and gas producer. None of the characters in Borgen, the gritty TV drama about Danish politics, ever worries about volatile oil revenues bring down the economy, or suggests that Denmark should join Germany for security. In reality, the Danes impose strict rules on the growth of public spending – sustainable funding has to be identified before hand. Provided you are not seduced into spending more if oil prices spike temporarily, you don’t get into trouble if they crash.

Why this animus against an oil fund designed to manage public spending more efficiently? Why do Labour, Lib Dem and even Tory politicians constantly (if erroneously) cite GERS as proof Scotland needs subsidising in perpetuity, rather than telling us how to grow the economy?

Perhaps because they remain in thrall to a UK economy chained to the City of London.