The advice contained in the paper, which has only just come to light, was rejected by the then Prime Minister James Callaghan prompting the First Minister to claim it provided more evidence of Westminster mismanagement of the economy.
The paper was written by Professor Gavin McCrone when he was chief economic adviser to the UK Government’s Scottish Office.
McCrone made a passing mention of its existence when he appeared in front of Holyrood’s finance committee last week to discuss the economics of Scottish independence.
It is the second paper written by McCrone on oil economics to gain notoriety. The SNP frequently cites a briefing paper produced by McCrone in 1974, which said the discovery of oil in the Noth Sea had “completely turned the traditional arguments used against Scottish nationalism”. The 1974 paper only became public more than 30 years after it was written.
Giving evidence to MSPs, McCrone disclosed that he had written another oil paper, which had yet to be published.
McCrone talked of “a second paper” which “has not been unearthed so far in which I recommended an oil fund”.
A Scottish Government special adviser tracked down the second paper in the National Archives of Scotland. Alongside its recommendation for an oil fund, the paper said: “If we allow this precious asset to be used without leaving something in its place for the future we shall rightly be condemned in the eyes of succeeding generations.”
The establishment of an oil fund has long been a key SNP economic policy. Last night Salmond said: “These are yet more damning revelations which lay bare the extent to which Westminster has mismanaged Scotland’s oil wealth.
“Labour were told more than 35 years ago that they should set up an oil fund or risk being ‘condemned’ by future generations, but they failed to do so. The costs of that mismanagement are now clear. Norway discovered oil at the same time as Scotland and now has the biggest oil savings fund in the world at more than £500 billion, while Scotland’s fund stands at zero, thanks to Westminster.
“But we now have the biggest opportunity we will ever have to put that right because there is as much oil, by value, still to come from the North Sea as already has been extracted.
“And we have made clear that in an independent Scotland we will establish just such a fund – something which only a Yes vote in September will ensure.”
A Scottish Labour spokesman said: “If Alex Salmond is so enthusiastic about an oil fund, he should be honest with the people of Scotland about the schools and hospitals that would be cut to pay for it.
“With so many holes in the economic case for separation, the nationalists would rather hark back to past grievances from 40 years ago than set out where they would find the money to fund an independent Scotland.”