Independence: ‘Save up oil funds for the future’

MINISTERS in an independent Scotland should seek to slash the gaping onshore deficit, so they can save up oil funds for the future, a new analysis of the country’s potential has said.

Using new figures from UK and Scottish government sources, the Centre for Public Policy and the Regions (CPPR) finds that, even on the most optimistic assumptions for oil income, Scotland is on track to run a deficit every year for the next five years.

To ensure the country’s remaining oil riches are not used to plug that deficit, the CPPR says that, over the long term, ministers should balance their books to allow the oil money to be saved up.

However, its report concludes that “we remain some way from understanding how this might be achieved”, given the levels of spending promised by ministers for coming years.

Bringing the onshore finances into balance in order to allow oil funds to be saved would be an enormous task. The CPPR finds that, over the past four years, Scotland’s non-oil deficit has been between 10 per cent and 18 per cent, or higher than the UK’s.

The need to reduce it was also identified by the SNP government-commissioned “Fiscal Commission” report this month, which said Scotland should base its finances on the expectation that oil revenues would be on the low side.

The CPPR’s John McLaren said: “Scotland’s mainland fiscal balance, excluding the North Sea, is very heavily in deficit, both in absolute terms and relative to the UK’s. This position improves considerably once a geographic share of North Sea revenues is added in.

“However, as the Fiscal Commission pointed out, in the long run the objective should be to achieve as close to an overall onshore budget balance as possible.”

Fellow author Jo Armstrong said cautious oil estimates would also help to affirm Scotland’s green credentials.

“The position on future North Sea revenues is highly complex,” she said. “Assuming a cautious oil price for public expenditure planning purposes would lessen the risk of a shortfall and be consistent with carbon reduction targets.”

Using oil revenue projections supplied by John Swinney two weeks ago, the CPPR estimates that – even with all the oil money – the country would still be in deficit on any measure.

By 2017, that deficit would be 4.4 per cent on the most pessimistic outlook and 0.6 per cent on the most optimstic. The finance secretary’s figures did not consider the pessimistic oil revenues prediction from the Office for Budget Responsibility last week.

Willie Rennie, the leader of the Scottish Liberal Democrats, said: “Alex Salmond and John Swinney are playing with fire by relying on the most optimistic oil forecasts to fund their independence spending promises.”

Alistair Darling said: “Oil is great for Scotland. However, betting a country’s economic future on such a volatile and declining resource just isn’t credible.”