Scottish independence: Alex Salmond takes step back from oil fund

ALEX Salmond has appeared to back away from claims he could set aside £1 billion a year in an oil fund over the first 20 years of an independent Scotland.

In a speech yesterday, the First Minister said the Nationalists’ plan to create an investment pot with North Sea oil cash would happen only when the economic situation allowed.

“We could when fiscal circumstances allow establish an energy fund to ensure that future generations benefit from the trillion pounds of oil and gas that lie below us,” he told a conference on the Future of the Union at the Royal Society of Edinburgh.

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Mr Salmond revealed details of his plan for an oil fund during an address to the London School of Economics (LSE) last month. He argued such a scheme would deliver £30bn by 2035 to protect an independent Scotland from future economic downturns.

Yesterday, a spokesman for the First Minister insisted he had said at the LSE that the oil fund was dependent on the right fiscal circumstances. However, that caveat was not reported at the time.

The SNP’s oil fund proposal is modelled on Norway’s Sovereign Fund, built up on the back of the country’s substantial oil reserves. The Nationalists claim an independent Scotland would have more tax revenues than it currently does, allowing the government to set aside oil revenue into a savings pot.

In his LSE speech, Mr Salmond said: “Revenues could be invested, rather than spent on current expenditure, during good financial times, and could counteract the effects of economic downturns.”

However, economists have questioned the thinking behind the scheme, claiming an independent Scotland, like the UK, would have a deficit and therefore would be not be in a position to salt away oil revenues.

Mr Salmond said yesterday that, in addition to the oil fund being established at some point in the future, Scotland would be a world leader in energy production. “In addition to those trillion pounds of oil and gas reserves, Scotland also has up to 25 per cent of Europe’s tidal power potential, 25 per cent of its offshore wind potential and 10 per cent of its wave power potential,” he said.

“We will be able to harness marine and offshore wind energy better and cheaper than anywhere else, giving us a huge competitive advantage in the transition to a low-carbon economy. So using our energy resources, our world-class university research base, and our manufacturing and engineering expertise, we have the opportunity to lead the world in this transition.”

David Lonsdale, the assistant director of the CBI in Scotland, said Mr Salmond’s comments suggested plans to divert significant sums of public money into an oil fund had been “premature”.

He said the spending squeeze affecting public services and the economy meant an oil fund for Scotland was a distant prospect.

“The country is still years away from eliminating the deficit in the public finances, let alone beginning to pay down the rapidly expanding national debt, and so any notions about diverting significant sums of public money into oil funds or other spending commitments appears premature,” Mr Lonsdale said.

John McLaren, from the Centre for Public Policy for Regions (CPPR), an independent body of economists based at Glasgow University, agreed there was “little prospect” of a fiscal surplus becoming available to divert into an oil fund.

The CPPR raised doubts about the validity of the proposed oil fund when Mr Salmond outlined his plans at the LSE, arguing that tax revenues from the North Sea would be needed to close the budget deficit. Yesterday, Mr McLaren said: “If this is a response to the concerns raised about the original proposal, it does not go far enough. It does not explain when it would be set up, how the books would be balanced or where lost income [for services paid for by oil revenues] would be saved.

“There are many questions that need to be answered. But in the end, why set up an oil fund when you can pay off national debt instead?”

However, Alex Kemp, professor of petroleum economics at the University of Aberdeen, who had argued that the SNP should let the public know how it intended to pay for the proposed £1bn-a-year oil fund, said waiting for the right fiscal circumstances seemed like a “sensible approach”.

He said: ”An oil fund would be good for both the UK and Scotland, in that it will allow people to benefit from a diminishing capital asset for generations to come.”

Professor Kemp – who has been praised by Mr Salmond for his “magnificent” academic work – has previously said more studies needed to be carried out to show how an oil fund would work, and how it would be afforded by the government of an independent Scotland.

He said: “They [the SNP government] should do that so we have a more informed debate.”

Ken Macintosh, Scottish Labour’s finance spokesman, claimed the First Minister’s latest comments on the oil fund appeared to show he had “ditched” the key policy.

“Someone had better check whether the rocks have melted with the sun because, yet again, Alex Salmond has rolled back on a major policy announcement,” he said.

“This is yet another admission that the economics of separation are uncertain at best and downright dangerous for our economy at worst.

“If Scotland started an oil fund in the same year as Norway, the current balance would be zero because we spend more on public services in Scotland every year than we raise in tax, and have done for a generation.

“Of course, Salmond is merely conceding what the CPPR has already told us – that an oil fund will mean cutting millions of pounds from front-line services because, despite the rhetoric from the SNP, you simply cannot spend the same money twice.”

Murdo Fraser, of the Scottish Conservatives, the convener of Holyrood’s economy and energy committee, said: “This shows that the SNP is in a state of total chaos with its plans for independence. Alex Salmond’s original proposal for an oil fund has all the hallmarks of being drawn up on the back of an envelope.

“As soon as it came under detailed scrutiny, it was exposed as unrealistic and it is little wonder that the First Minister is having to back away from it.”

He went on: “As every day passes, the more the SNP’s plans for an independent Scotland continue to unravel. They have simply been making things up as they go along, and now they have been caught out.”

At yesterday’s conference, Sir Malcolm Rifkind, a former Conservative Scottish secretary, cast doubt on the SNP’s claims about how much oil and gas reserves remained in the North Sea. He said experts had calculated that there was no more than 30 years of supplies below the sea, making a future oil fund look like an uncertain investment.

“When you look at the Nationalist position on the economy, the only point raised is that about oil revenues. Even in the most optimistic scenario for Scotland’s oil revenues, there are 20 years, 25 years or 30 years.”

Last night, the First Minister’s spokesman insisted Mr Salmond had already said he would wait for the right economic situation before pressing ahead with an oil fund.