Carmichael critical of Scottish government oil forecast
The Scottish government’s oil revenue forecast for the first three years of independence is £15.5bn wide of the mark, according to the latest analysis produced by the UK government following the crash in oil prices.
According to figures from the Scotland Office, instead of generating the £20.2 billion predicted by the Scottish government between 2016 and 2019, the falling oil price would have provided only £4.7 billion for the exchequer of an independent Scotland – a nearly 77 per cent reduction on pre-referendum predictions.
The “independence funding gap” is now the equivalent of a £155 million loss for each of the hundred days that have passed since the referendum on 18th September, the government department claims.
The figures prompted Scottish secretary Alistair Carmichael to ask the Scottish government to explain how “they could have got it so badly wrong” and to “take steps to restore trust in any future oil data they produce”.
The analysis published by the Scotland Office shows the shortfall an independent Scotland would have faced with a current oil price of $60 per barrel compared to the revenue predictions of the Scottish government based on an oil price of $110 per barrel.
The paper also maintains a larger United Kingdom tax base makes it easier to manage the fluctuations of a volatile oil price and the tax revenues it brings in.
Oil revenues would have represented a much larger percentage of overall independent Scottish tax revenue.
Mr Carmichael said: “On referendum day Nicola Sturgeon and John Swinney were predicting ‘a second oil boom’. Scottish government economists were telling us the oil price would be $110 per barrel. Now, just 100 days later, with the oil price actually standing at $60 there is a £15.5 billion hole in the finances of independence. That is a £155 million mistake for every day that has passed since the referendum on September 18th.
“Serious questions need to be asked about how they could have got this so badly wrong on this vital referendum issue. We were making a decision that Scots were going to have to live with forever and the Scottish government are sticking to wildly optimistic oil predictions that have not even made it to the new year.
“This is totally unacceptable and steps need to be taken to restore confidence in any future oil analysis provided by the Scottish government. I know this is something that members of the Scottish Parliament and others will wish to pursue in 2015.”
He added that the UK government was continuing to work closely with industry to address the challenges it faces and to maintain Britain’s energy security by maximising the economic recovery of domestic oil and gas resources.
“The package of allowances and tax reliefs the UK government unveiled as part of the Autumn Statement were the result of the close and productive working relationship with the oil and gas sector in this country. A level of support which is only possible because we can draw on the combined strength and resources of the United Kingdom,” Mr Carmichael said.
Before the referendum stock market analysts Investec backed the SNP’s claim that North Sea oil was a bonus rather than the backbone of an independent Scotland’s economy.
The London firm said it was a “misconception” that Scotland is poorer than the UK as a whole.
In a detailed investors’ note, they said they believed that even without the vast amount of hydrocarbons around its shores, Scotland’s per capita GDP was “roughly equal” to the rest of the UK.
Colin Hunter
One wonders if his Tory cronies in Westminster saw it coming either! One wonders if anyone but the Americans and the Saudis, who probably engineered it to pull the rug from under Comrade Putin, and deprive Iran of funds for it’s Nuclear programme, saw it coming?
Is it not usually industry analysts, employed by Governments who produce these figures, rather than the Governments themselves? It is utterly typical of this person to attempt to make political capital out of what could be a serious blow to the industry. Oh Look! The Scottish Government got it wrong! Fair comment. But then it’s highly likely that Westminster got it just as wrong, but we won’t mention that, will we.
John Tulloch
i have regularly suggested – and been derided for doing so – here that “Peak Oil” is a fantasy, that there’s plenty of oil, and that industrial-scale renewable energy is uneconomic and will continue to be so for the foreseeable future.
So there’s no excuse. American oil and gas production has been growing explosively for several years, what did the SG economists think would happen to oil and gas prices, not only, as a result of that but also when shale oil and gas technology spreads to other parts of the world?
John Tulloch
Now that American oil production is set to overtake that of Saudi Arabia and neither is prepared to manipulate the oil market to keep the price artificially high for the benefit of Russia, Iran or anyone else, the oil price drop towards its true market level is proving to be embarrassing for Scottish nationalists who promised a “land of milk and honey” after independence.
ian mcewan
They promised now such thing. With economies basically on parity this referendum was never about oil or money but self determination. Reducing it to money is the tactic of the unionist.
Gordon Harmer
Ian were you sleeping during the referendum campaign, Salmond made promises by the dozen, ranging from the setting up of an oil fund, to every person in Scotland being worth £300,000 because of oil revenue.
http://www.telegraph.co.uk/news/uknews/scotland/10198532/Alex-Salmond-North-Sea-oil-worth-300000-for-every-Scot.html
John Tulloch
Perhaps, we’re each talking about different referenda, then?
In the one I’m talking about, the nationalists lambasted Westminster about “foodbanks and fuel poverty” in Scotland and not “balancing the budget” while John Swinney, unerringly, balanced the Scottish budget, year after year (because he isn’t allowed to borrow, perhaps?).
These are matters involving money, the only aspect of which the SNP didn’t want to talk about was the bit in which it was pointed out, repeatedly, including warnings about oil price volatility, that their financial projections didn’t stack up.
And now those forecasts stack up even more poorly than they did six months ago.
Gareth Fair
Here is the pre vote analysis from the Institute for Fiscal Studies.
http://www.ifs.org.uk/uploads/publications/docs/Phillips_Scotland_book%20chapter.pdf
It shows both views on oil revenues.
The Better together camp were using figures from the Office for Budget Responsibility. This was created in 2010 by George Osbourne to, in theory, provide ‘independent and authoritative’ analysis of the UK’s public finance.
The IFS article states the Better Together position was as follows;
Based on the independent Office for Budget Responsibility’s (OBR) forecast for further declines in oil revenues and Scotland taking on a population-based share of the UK’s public debt, the UK government says that an independent Scotland would have a budget deficit of 5.5% of GDP in 2016–17.
The Yes Scotland and the Scottish Government position was as follows;
Oil and gas revenues will increase in future and an independent Scotland’s public finances will be “similar to, or stronger than” the UK’s by 2016–17. The Scottish Government’s central projection is for Scotland’s oil revenues to be about £7 billion in 2016–17, up from £5.6 billion in 2012– 13 and about £4.1 billion last year. This is a lot more optimistic than the independent OBR’s forecasts, which imply revenues of about £3 billion in 2016–17.
On the basis of its more optimistic oil revenue figures, the Scottish Government forecasts a budget deficit of 2.8% of GDP in 2016–17, if Scotland took on a population- based share of the UK’s national debt.
john irvine
Thank God that the majority voted against Scottish independence, It just goes to show how utterly flawed the SNP`s policy`s were.
ian tinkler
Lets face it, many a Yes person, SNP follower and Salmond worshiper will continue to believe black is white and vice versa as an act of neo religious devotion to a lost cause. Just imagine how they would be running around now like headless chickens if they, the 45%, had actually won the referendum and were watching Scotland now go bankrupt!!! Happy New Yeareveryone, we have something to be joyful for. Salmond now wants to go to Westminster, wish it were Canberra or even further away!!
ian mcewan
Ian what is your definition of bankrupt? £1.7 trillion quid in debt and rising is mine. Don’t let facts or reality get in the way of a good sneer.
Scotland wouldn’t even be independent at this time had the YES won but would just be beginning to negociate with the UK state, which we would still be part of and coping with a loss of income.
The sad thing in all of this, is how unionists jump on every misfortune in order to justify their “victory”. They positively ooze smug satisfaction at the news of people losing jobs, deficits rising etc.
Gordon Harmer
What would have happened if we had a yes vote; would the yessers be positively oozing smug satisfaction at winning while causing job losses at the Clyde shipbuilders, over 10,000 Faslane workers and not to mention the thousands who would have lost their jobs because companies moved south. Then compounded by thousands of job losses in the oil industry; jobs that may never be available again because once manned down to save money those jobs would be gone for ever. There is no smugness in seeing people lose their jobs, what we are saying is we told you so, but all we got back was the same old mantra, you are scaremongering. That £1.7 trillion is a national debt and we all own a share of it and instead of working together to bring it down we have been lumbered with a faction who want to jump ship and keep all that nonexistent oil bonanza for themselves. What we now need is a Scottish government who need to start acting like a government instead of a mutual appreciation society and do something to help those who will lose their jobs in the oil sector.
Gareth Fair
The problem is that an independent Scotland would have limited access to borrowing at reasonable interest rates.
If part of the pound we would also have no control over monetary policy and strict controls within a currency union.
Having a new Scottish currency would bring a whole host of problems.
Debt is usually looked at as a percentage of GDP (basically all the revenue a country generates in a year), however the government does not have access to all that revenue to service debt, rather the portion it collects in tax.
This is why countries like Greece have struggled as they have large debt as a proportion of GDP and have low percentage as tax revenue.
In an independent Scotland the oil revenues are a more significant part of the tax revenue than in the UK as a whole. Even with these figures inflated to what is now clearly unrealistic, debt was still projected to rise higher than the rest of the UK in the short term.
The current spending per person is higher than the UK as a whole.
Borrowing costs would be higher than the UK as a whole.
There would be significant break away costs.
The GDP growth projections put forward in the independence white paper as an assumption of the debt projections were unrealistic and the methods to achieve them sketchy.
This adds up to a widening debt as a percentage of GDP compared to the rest of the UK.
With limited access to borrowing and no control over the currency this leaves significant spending cuts and/or tax increases. There is not even the option to ‘print’ more money to pay debts like the US.
I doubt any developed country would go bankrupt as such, Scotland not being part of the Euro but in a currency union with the pound, it would be the rest of the UK which would have to help with the International Monetary Fund.
No country would want this though, it translates to major austerity and you still have to pay the money back.
ian tinkler
Ian mcewan, At least try and make a vague attempt at getting your facts accurate. Indy Scotland was going to be wholly financially dependent on a healthy North Sea revenue requiring an oil price of $100 plus, perhaps now a thing of the past. I will happily jump up and down with joy at the state of healthy financial growth in the UK growth and the present fall in unemployment, both in Scotland and the rest of the UK. Highest growth in the Western world, not too bad really. I positively rejoice at the prospect of Holy Rude setting the income tax rate as recommended by the Smith commission. For once the SNP will have to justify financing their populist freebies, Higher Education, Free prescriptions Child care et al. I will take little satisfaction at the poor Scottish work force having higher income taxes to finance Sturgeon’s Valhalla. As I will be past retirement age by then, I may just feel a little smug satisfaction, at the stupidity of SNP socialism, and await with glee the higher pension and social care as promised for my retirement. Enjoy your SNP vote and just think of me.
Robert Black
Independence wouldn’t have been just for Christmas, it’s worth noting Scotland would not have been independent till 2016 and any current prediction of oil prices in 2016 can have no more claim to accuracy than the estimates for now were a few months ago. The falling of the price in the run up to independence would undoubtedly caused some consternation. Consternation that would have been maintained had the price remained low into actual independence but in terms of the next 300 years or more of independence, it would undoubtedly be a mere blip. The idea that independence was only reasonable if every person in Scotland lived happily ever after for every minute of every day into an infinite future was a bizarre concoction of the Better Together campaign which the Yes campaign were unable to counter unless they’d been willing to spend the campaign discussing possible ‘doom scenarios’. Like all countries, an independent Scotland would have had good & bad times, the potential bad times, caused by a drop in oil price, would certainly have been unfortunate & unwelcome so early on, but dealing with the problems that come along, in your own way, is part of what being an independent country is about .
JOHN N OAKES Manchester, England.
Strange when you have a look at the map of voters in Scotland and the isles for YES/NO, only one extra area could have swung it. As the population increases would the next independent referendum be similar or just resign to the fact of not enough to sway the voters. Soon with the grand election looming and now the fear of SNP holding the trump cards. Westminster woeful attempt of organising a Urinating party in a brewery. The very weak choices of parties only goes to show how really damaged this Kingdom really is. Lets not forget SNP wishes for joining the Euroland gravy train too, possible the worst piece idealism ever argued for wanting independence. So begs the question of the driving force of the economy on GDP and the revenues to fund our fractured lifestyle within this Kingdom. Oil and Taxes will be the issue of the next election. If Oil prices keep going down I guess Shetland and Aberdeen will be in for a hard bump. Oil producing companies do not like extracting on the seabed if it cost them more. So we come down to Taxes and production in this fair land is weak and neither does EU. The more EU expands the greater the burden to fund the poorer countries eg Greece Bulgaria Romania Lithuania. And what of our humble Kingdom, think of Rome last days of power.
Charlie Gallagher
As has already been mentioned is it not amazing that of all the countries in the world that have a vast asset lying under its territory, that only Scotland will be worse off. As for figures, I seem to remember that the figure for a barrel that the Scottish Government used in their calculations were lower at $110.0 than those being propagated by the Office of Bollocks and Rubbish at $115.0. I will also remind detractors that oil revenue was always going to be a ‘BONUS’ for the Scottish economy and not an integral component of whether or not Scotland could pay its way. As for Mr. Tinkler suggestion of a destination for one of the UK’s most able politicians, can I suggest that Mr. Tinkler should also head south; South Pole Research Station should be far enough!!!
I also find it strange that Westminster’s bosom buddies in Washington didn’t bother to tell them that they were going to embark on a price war out of peek just to put Putin in his place and not withstanding the damage it would do to their own ‘Fracking’ developments which also depend on a high oil price.
As for Alistair Carmichael, like all good unionists he loves to spin falsehoods and while you could never accuse him of lying he finds it extremely difficult to tell the truth by telling the whole story. I suppose you might call it ‘cherry picking’ in the hope that the gullible will accept it as fact. Of course at this point in time if we had voted in September as the majority would now, we would be in discussions with Westminster and like now it is Westminster’s tax take that would be declining not Scotland’s as Independence would still be more than a year away.
As the people realise more and more just how much they have been conned by the unionists and their hastily cobbled together Smith Commission which as people are now seeing, will deliver the absolute minimum that Westminster thinks that they can get away with. Well think again the ‘VOW’ had better be delivered in ‘FULL’.
Gareth Fair
The following countries all need an oil price over $100 to balance their budgets.
Libya, Iran, Algeria, Nigeria, Venezuela, Russia, Saudi Arabia, Iran.
Nigeria, Africa’s largest oil producer, Energy sales account for 80% of government revenue and 90% of exports.
Venezuela one of the worlds biggest oil producers is really struggling inflation is around 60% and recession looming.
The only organisation forecasting a rise in oil prices was the OECD. The UK government was using the OBR figures which had it falling (all be it not as much as it has actually fallen.
Whilst cheap shale oil and gas from the U.S has increased supply and largely made the US energy self sufficient.
OPEC and Russia have refused to cut supplies to compensate so the price has fallen.
Even Saudi Arabia needs oil prices around $85 in the long run it has foreign reserves of around $700 billion so can survive a long time at low prices.
Presumably Saudi Arabia and the other foreign reserve rich producers (UAE and Kuwait) hope to benefit when some higher cost producers shut down. Whilst cutting supplies to boost prices will harm its economy as it did in the 1980’s.
There is a bit more to it than just Russia and America.
ian tinkler
Mr. Tinkler suggestion of a destination for one of the UK’s most able politicians!!! “Most able politicians”; well if that were so, Charlie, how come he lost? Let’s face it, Darling was not the most able of opponents, Cameron was not a popular figure in Scotland, Wicked Westminster should have been a push over for able Alex. Surely the Scott’s were not so gullible as to be so taken in by “Operation Fear” and “Bitter together”. Could it not be that Alex was so well stuffed due to his total mismanagement of the Yes propaganda? Could it not be he simple failed to con the Scottish electorate with his bitter, decisive and utterly unpleasant credo. Our “most able politician” lost, now get over it Charlie, wee Alex blew it, he lost big time.
David Spence
Ian, I wouldn’t say loosing by just 10% as ‘ lost big time ‘ given the closeness of the overall votes in the referendum. Yes, you can say, regardless to the final outcome, Alex Salmond lost the cause and this of making Scotland independent from the rest of the United (said very loosely lol) Kingdom.
However, and it very much surprises me that people (No voters) were so gullible as to believe anything a vile Tory would say (hey ho, the selfish capitalists unite (what a paradox lol)) the old saying ‘ Once bitten, twice shy ‘ will be a lesson the people of Scotland will learn when there is another referendum in the not too distant future again. Why England is so dependent on Scotland is beyond me (said with utmost sarcasm lol)
Steven Jarmson
I wasn’t “conned” by anyone at the referendum.
I was genuinely worried that I would have landed up living in a country with no currency, no real say in the big boys club fishy SALMONd wanted to join, and yes, we would have had to join.
We would have ended up in the Euro, we’d have had less quotas for fish, our crofters would have suffered lower subsidies, we’d have had to pay more to keep the poor east propped up, and, as several European leaders have said they would support in the past, we would have ended up with the oil as a “common resource.” Meaning no oil fund, no “balance of payments” to keep the pound.
What SALMONd should have done was say, listen, things will be hard at first, but in the end we’ll have our own currency, our own head of state, our own law making system not controlled by Germany, we’ll make the Scottish system of government more accountable, we’ll give out as much power to local control as possible and keep only the very very minimum centralised in Edinburgh, areas like Shetland will get far more powers over its local resources, we’ll rebuild the fishing fleet, we’ll encourage more farming, we’ll make Scotland self sufficient in food and energy.
You know, tried to be more radical and honest, instead we got “nothing is going to change.”
What’s the point of independence if nothing is going to change??