Scottish independence: Go-alone Scotland ‘can’t afford oil fund without major cuts’

The SNP argues funds can be saved from oil revenue. Picture: PA
The SNP argues funds can be saved from oil revenue. Picture: PA
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ALEX Salmond’s post-independence plan to put Scotland’s oil billions into a massive investment fund for the future would require either a cut in funding for schools, hospitals and roads, or an increase in the country’s debt, a major independent think-tank has declared.

A report by Glasgow University’s Centre of Public Policy and the Regions (CPPR) argues that, while there may be “moral” grounds for putting aside Scotland’s North Sea windfall for future generations, politicians would not have any spare oil money after independence to do so.

Ken Macintosh: Salmond needs to say what further cuts he proposes

Ken Macintosh: Salmond needs to say what further cuts he proposes

Instead, the CPPR says that after independence, a new Scottish Government would need the revenues to pay the bills and keep public services going.

If they did decide to salt some of it away, the choice would be to cut existing spending, raise taxes, or to borrow more cash from the markets, the CPPR concludes.

The report comes a week after Mr Salmond declared that he hoped to put aside £1 billion a year of oil taxes for 20 years after independence, saying that – with interest – Scotland would eventually build up a £30bn cushion.

His plan follows the example of oil-rich Norway, which has built up a huge multi-billion kroner pension fund on the back of its own oil reserves.

In his speech to the London School of Economics, Mr Salmond attacked the UK Treasury for having spent most of its North Sea oil windfall, saying the UK was now one of the few oil-producing nations which had not built up a fund on the back of its natural resources.

SNP ministers argue that there will be a surplus after independence because the new system of government will trigger higher growth in Scotland, giving them more tax revenues to play with.

However, the report by the CPPR says there is “little prospect of any fiscal surplus becoming available” to help set up such a fund. It notes that all the tax revenues from the North Sea will be needed to “help close the budget deficit that emerges from maintaining existing levels of public services”. Therefore, it would be difficult in the period after independence to find the money to set up a new fund “and certainly not in the size being suggested”, the report concludes.

Report author Jo Armstrong said: “With current oil prices and more importantly, with declining North Sea production, such a level of investment will put current service levels at risk or will require adding to Scotland’s debt levels.”

Mr Salmond acknowledged in his LSE lecture that an oil fund could only be set up once “fiscal conditions allowed”.

The CPPR report notes Scotland’s most recent Government Expenditure and Revenues for Scotland (Gers) report says that – including North Sea oil – the country ran a deficit of £8.9bn, or £13.9bn, when capital spending is included.

Unless there is a sudden spike in the oil price or a decrease in Scottish Government costs, the CPPR says it is hard to see from where an oil fund would get its money. Even if there is a surplus, the think-tank says backers need to prove that saving it up would be a better option that spending it in other ways – such as by reducing the national debt, cutting taxes or building better infrastructure.

Scotland’s leading oil economist, Professor Alex Kemp of Aberdeen University’s Business School, said: “Over the next ten years there should be oil revenues of between £5bn and £10bn a year. What they could do with it [if the country was independent] would depend on the public spending they have.”

On the question of an oil fund, finance secretary John Swinney has argued that once independence beds in, a budget surplus would emerge, thus allowing SNP ministers to build up a new kitty.

Scottish ministers would be able to use “the levers of power of independence to create a more dynamic economy”, Mr Swinney said.

He added: “A more dynamic economy will generate higher growth and as a consequence higher revenues.”

A Scottish Government spokesman last night said that compared with the UK, which is also in deficit, Scotland remained in a stronger position.

He said: “The Gers figures show that year-on-year, Scotland is in a stronger financial position than the UK as a whole.

“Taking all spending in Scotland into account and all of our revenues, Scotland has run a current budget surplus in four of the five years to 2009-10 – while the UK hasn’t run a current budget surplus since 2001-2.”

However, Scottish Labour’s finance spokesman, Ken Macintosh, said: “Alex Salmond needs to spell out what further cuts he is proposing, because you can’t spend the same money twice.

“Basing our entire economy on a single commodity that is volatile in price and finite in supply is a risk that we avoid by working in partnership with the other countries of the UK.”