Leader: Why SNP may be placing too much store on North Sea oil

IT'S Scotland's oil. Decades on, this simple statement is still the most effective campaign slogan the Scottish National Party has ever had and, though it may have been retired, for Alex Salmond's party it still expresses the essence of their case that an independent Scotland could pay her way financially, thanks to the revenue from the black gold.

It is a case the SNP says is strengthened by yesterday's Government Expenditure and Revenue in Scotland (GERS) report, the annual assessment of all government money spent and raised north of the Border, because, if a "geographical share" of UK North Sea oil and gas revenues is included in the figures, Scotland contributed 9.4 per cent of UK public sector revenue and received 9.3 per cent of total UK public sector expenditure.

Game set and match to the SNP then? Well no, and for reasons inextricably linked to oil. The GERS figures show the revenue from North Sea oil halved for the year 2009-10 compared with the year before, adding to Scotland's fiscal deficit. In that year, Scotland had a deficit of some 20 billion, excluding North Sea oil, or 14bn if you include it. To counter this, the Nationalists point out the price of oil has rebounded since 2009-10 and is projected to remain high for some time. Therefore, Scotland's finances are sound and would be were we independent. They are right, up to a point.

GERS proves beyond any doubt Scotland's reliance on oil, for better for worse. Official figures show that in 2009-10, oil accounted for 1.2 per cent of the total UK tax take, but in Scotland, the equivalent figure is 12 per cent of revenue, and it was 21 and 14 per cent in the two years before that. Leaving aside any dispute over whether Scotland would be entitled to all the oil and gas revenue - unlikely to go unchallenged in any independence negotiations - even in a bad year, Scotland would depend on oil for at least a tenth of her income.

Economist JK Galbraith once said of forecasters: "The only difference is between those who know they don't know and those who don't know they don't know''. With their assertion that all will be well economically for an independent Scotland, the SNP is in the latter camp. For, given the volatility of oil prices, it cannot know for certain the nation will be able to count on continued high revenues from North Sea taxes.

Most Scots will take the former view, being honest enough to agree with an assessment by the Centre for Public Policy for Regions that we cannot be sure the oil price will be maintained, relying as it does on the dollar and sterling relationship, as well as world supply and demand; what share of oil and gas an independent Scotland would control; and the size of Scotland's share of the UK debt that revenues would have to cover. The SNP's claim that a fully-independent Scotland would be a more prosperous, high-spending economy fuelled by oil is, at best, unproven.