Dr Steve McCabe, Director of Research Degree Programmes, Birmingham City Business School
In the debate concerning the potential for Scotland to become an independent country after the forthcoming referendum on 18 September, a great deal of attention is being focused on its ability to survive economically without financial support from Westminster. And not surprisingly there is heated debate about the way that North Sea oil and gas has been used over the last 40 or so years to provide funds for the UK government to, it is claimed by advocates of independence.
Those who believe that Scotland should vote yes in the referendum contend that successive Westminster governments have misused North Sea Oil. In particular there is contempt for the widely-held view that Mrs Thatcher was able to fund high levels of unemployment in the 1980s to undermine (some would say ‘destroy’) traditional industries. The fact that Scotland suffered disproportionally from the decline of such industries made Conservatism a toxic brand north of the border (as well as many other parts of the UK north of Watford) and undoubtedly sowed the seeds of the current quest for independence.
In Scotland’s Economy: the case for independence, a document produced by The Scottish Government last year in which First Minister Alex Salmond provides the foreword, it is argued that if oil revenues should have been used similar to that of Norway which created an ‘oil fund’ for future development and generations and is believed to be worth some £450 billion. As this report claims, it ‘reasonable assumptions’ are made, if an independent Scotland invested the net fiscal surpluses achieved since 1980 it would now have accumulated assets ‘equivalent to between 62 per cent and 84 per cent of GDP.’ According to trade body Oil and Gas UK some 42 billion barrels of oil equivalent (boe) have been extracted from the North Sea since production began.
The important question being asked now is how much oil and gas is left and, crucially, how much revenue would accrue to an independent Scotland to be spent on day-to-day operation of services such as health, education and social care (see below)? Estimates vary pretty dramatically. Some suggest that there could be as much as £1.5 trillion worth of oil left which would make Scotland a wealthy country. Even the most pessimistic estimate of £120 billion is hardly small beer. Oil and Gas UK believe that there are “significant” amounts of oil left and that between 15 to 24 billion boe could be extracted until at least 2050. The UK government’s Department of Energy and Climate Change (DECC) suggest that there could be between 11.1 and 21 billion boe.
These estimates are absolutely vital to the ongoing debate surrounding independence which has just become even more factious following the comment by Scotland’s Finance Secretary John Swinney that if it isn’t allowed to retain the pound as its currency remain following any separation it would not pay its share of the UK debt. Given that this would effectively mean defaulting on some £100 billion this would make a significant contribution to Scotland’s economic needs.
In the year 2012-13 public spending in Scotland was believed to be £65.2bn. Given that this is 9.3 per cent of total UK spending but with a proportionally smaller population of 8.3 per cent there is a view that Scotland gets more than its fair share (the only other part of the UK with higher per capita spending being Northern Ireland). The key question is whether an independent Scotland could raise at least this amount from all revenue though, in reality, oil would be the most important contributor? Those who argue that Scotland should remain part of the UK assert that there is too much risk in relying on oil the price of which, it should be remembered, is market-dependent though, to be fair, has remained fairly stable in recent years.
Undoubtedly the debate about what is good for Scotland economically will continue for the next three weeks. The question of Scottish independence is not new. You only have to watch Mel Gibson in the factually flawed Braveheart giving his passionate performance to be aware that sentiment and nationalism will play their part. However, when voters in Scotland make their decision in the referendum they should be cognisant of the economic implications – and consequences – of their decision.
Perhaps they should also be aware that though we are exhorted to live for today, we must keep enough to pay the bills tomorrow!
Dr Steve McCabe
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