Scotland's Energy Resources Westminster Mismanagement

Without oil – would Scotland already be independent?

Screen Shot 2015-08-17 at 13.37.23Quietly and without fuss, one of the key claims unionist economics, that Scotland is overly dependent on oil, has lost its menace. The referendum battle lines on oil revenues were clearly drawn, oil price volatility was a vital unionist scare story.  The No campaign claimed that Scotland’s economy wasn’t viable without a steady $100 a barrel and that any fall in prices would herald an economic disaster.  Claims of  ‘armageddon’, ‘cataclysm’, ‘black-holes’, ‘tax rises combined with massive cuts in services’ were all based on fears of $70 oil prices then considered to be the worst case scenario. Today $70 would be a desirable price for the industry – so outside of Aberdeen and the North East why hasn’t the sky fallen in?

Make no mistake, the oil price has fallen dramatically and now fluctuates between the mid $40s and high $60s a barrel, arguably beyond the worst case scenario predictable from historic data.  The low price is bad news for Aberdeen, the North East and the whole oil and gas sector. Tens of thousands of jobs are being cut as oil companies try to adjust to the price slump and every single job lost is a catastrophe for the individual concerned.  There has also been a significant fall in Scottish Government revenues and, as a result, our short-term (one year) notional operating deficit is 8.1% of GDP versus 5.6% for the rest of the UK.  However, this is still a significant improvement on the previous year’s 9.7% so, rather than ‘Armageddon’, lower oil prices have just meant that Scotland’s economy, despite taking a sizable hit has proven it is strong, sustainable and has a manageable deficit, even with oil prices falling to the worst case scenario.

Devastated by the electoral meltdown in Scotland of the unionist political parties, it is only natural that tribalised unionists would seize on the fall in oil revenues as vindication but they are clutching at straws.  The crowing goes something like “Ha! Ha! Ha! If you had voted for independence you would be bankrupt right now”.  This argument fails fundamentally on two levels; firstly, the often overlooked fact that Scotland wouldn’t have become independent until 2016 and lower asset values during an asset negotiation could actually be useful.  Secondly, recent economic data shows that Scotland’s economy is still strong, growing and, in some key areas, even outperforming the rest of the UK;  not only that, the IMF have stated that UK economic growth is being held by low oil prices driving down manufacturing costs and inflation – go figure.

But what about Scotland’s growth, given the oil price was supposed to affect us so badly?  Contrast the armageddon argument with the fact that Scotland has just experienced the longest period of continuous economic growth on record since devolution in 1998, having enjoyed ten quarters (Q4 2012 – to Q1 2015) of continuous growth.

A report on Scotland’s economy published last week led Martin Gill, head of Accountancy firm BDO LLP in Scotland, to say we are experiencing a “summer of success” for Scottish businesses and that Scotland has “a thriving economy, despite global economic unrest”. In a separate report Donald MacRae, chief economist at Bank of Scotland, said “Activity grew in the services sector while manufacturing output showed a welcome return to growth” and predicted “moderate growth for the rest of 2015”. In June UK Government figures showed that a surge in North Sea oil and gas production lifted UK industrial output by 1% – the biggest increase since 2010, helping growth in the UK’s economy (not just Scotland’s) pick up 0.7% in the last quarter. In fact, the ONS (office of National statistics) reported that “mining and quarrying” which includes oil and gas, rose by 7.8% in the quarter, which they described as the biggest increase since 1989 despite falling oil prices. Inward investment figures released last week by Scottish Development International (SDI) show 2014/15 was a record year for inward investment in Scotland.  More than £433 million of inward investment was secured, worth 9,659 jobs. This is 17% increase in projects and a 30% increase in jobs in 2014/15, despite the referendum where uncertainty was predicted to stop inward investment stone dead.

Surely with oil and gas job losses impacting disproportionately on Scotland the latest job figures will show Scotland underperforming? Not a bit of it, last weeks show that the UK jobless total increased by 25,000 in the last quarter whilst Scotland’s fell by 13,000, the best performance in all 12 UK regions. Figures for the full year show that employment in Scotland rose by 28,000, unemployment fell by 19,000 and economic inactivity fell by 6,000 since June 2014 and that the Scottish economy matched UK growth in 2014.

Aberdeen could become world leader in renewables

Aberdeen could become world leader in renewables

This stands in direct contrast to the unionist Armageddon argument and tallies with the pro-independence position that oil and gas was a bonus to Scotland’s economy. However, the oil sector has taken a hit and that demonstrates comprehensively the negative impact of Westminster’s error in not creating an oil fund to deal with pricing volatility.  Additionally, it adds weight to calls to invest now to turn the North East into a world centre for renewables energy, preparing for the time when oil does become depleted.

The oil industry will be heartened by news that BP is investing $1bn to extend the life of its UK North Sea assets; their Eastern Trough investment will secure the future of the field for the next 15 years. Recently, 41 new licenses were awarded for oil and gas operations in the North Sea, making the recent licensing round the largest in five decades, with 175 licenses covering 353 blocks. Oil and Gas Authority chief Andy Samuel said “The UK continental shelf remains a world-class hydrocarbon province where significant resources and economic value remain to be realised and that the good level of interest in the 28th round highlights the continued attractiveness of the UK’s oil and gas resources”.

Screen Shot 2015-08-17 at 13.44.38The current price of oil curtails the North Sea revenue bonus to Scotland’s finances but that we are seeing prolonged low prices now (due to geopolitical influences rather than supply and demand) makes it more likely that the price will rise in 2016. The World Bank and IMF forecast steady rises to around the $70 mark in 2020 with the EIU more bullish at $90.

The argument that Scotland’s post-independence economy would be dependent on the price of oil has been totally debunked by the fact that the price has fallen to unforeseeable lows and yet our economy in many areas has outperformed the rest of the UK. An independent Scotland could invest for growth rather than wait for Westminster austerity to slow the economy and create a new economic crisis.

Hearing again that oil production increases have boosted the UK’s economy, I can’t help but wonder, if Scotland didn’t have oil would we already be independent?

 

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About the author

Gordon MacIntyre-Kemp

Gordon MacIntyre-Kemp is the Founder and Chief Executive of Business for Scotland. Before becoming CEO of Business for Scotland he ran a small social media and sales & marketing consultancy.

With a degree in business, marketing and economics, Gordon has worked as an economic development planning professional, and in marketing roles specialising in pricing modelling and promotional evaluation for global companies (including P&G).

Gordon benefits (not suffers) from dyslexia, and is a proponent of the emerging New Economics School. Gordon contributes articles to Business for Scotland, The National and The Huffington Post.

22 Comments

    • While every side has a point, everything I read is really nothing but guess work and assumptions. The idea of politicians having a clue how to set up a manage fund that benefits the people of Scotland is pure fantasty. Just listen to Holyrood. Regardless of party they are a joke. The UK/Scotland whatever is 40 years late in this revelation.

      • And yet politicians in Norway did just that, hugely successfully – why are ours different? Also do you really think regardless of party that being in Westminster makes any politician less of a joke?

    • Except no oil left by 2050 according to B.P itself and year on declines …and an immediate debt burden on independence of 140% of gdp …plus no funding from central U.K.Govts… nationalism always fails a country in the long term

  • The vast majority of the benefit from North Sea oil – the taxes paid by the oil companies – has disappeared straight to the Treasury in London ‘without touching the sides’. Scotland has felt no direct benefit at all! So if we were independent, even though currently that benefit would be smaller, because of the lower oil price and the lower level of activity in the North Sea, it would accrue to the Scottish Treasury and not to the one in London. So Scotland’s finances would in fact be better off than in the Union, not worse off, because that benefit – albeit currently smaller than before – would be a gain to Scotland, not a loss.

    • When gas was discovered off the Yorkshire coast in the seventies it was not called English gas or Yorkshire gas but British gas. The same should apply to oil off the Scottish coast.You state that Scotlands finances would be better off outside the UK. Scottish Financial Enterprise reports that 90% of its members customers are in the rest of the UK. Strathclyde University research suggests 267000 jobs are linked to trade with the rest of the UK 45000 in manufacturing and 43000 in finance.You separatists continue to denigrate Westminster (England) and expect that trade with the rest of the UK will not change. What will you do for work in Scottish ship yards when RN contracts are trans ferred to England? The SNP want their own immigration policy so a controlled border will result. Their are supposed to be nearly 800000 Scots born living in England what happens to them, why should the UK allow Scots to live and work in the UK without permits. Mr Kemp will probably say nothing will change, trade is trade. I would not bet on it.

    • Well they took £300 billion in revenues out of the North Sea and said there was no need for an oil fund as the large size of UK meant that if ever the North East needed help then they would stump up – but they haven’t and its only £125m. Norway has committed $25.2bn to its coffers to make up to the short fall from its oil fund and is cutting taxes to help hard up workers.

      So add it up UK £125m support and austerity V Norway $25.2bn support (+ an extra $4bn for a jobs fund) – how does that make us better together?

      • Gordon, the issue isn’t how in hindsight an oil fund would have been wise. The issue is where would Scotland have obtained the GBP125M (or whatever the figure is)that is currently being supplied to keep the NSea oil sector afloat have come from?
        It’s all very well saying independence would not have happened and they would still be negotiating the split….. but what would they be negotiating with? Keeping Faslane… which incidently provides significant economic boost to that area and 100s of (if not 1000s of) direct and indirect jobs and would likely be very much in our interest to keep.
        Do you have a reference for those employment figures stated in your article please?

        • Hi Craig first lets put the £150m into context > Westminster has received over £300bn in taxes from oil and gas and they told Aberdeen that oil price volatility meant they needed the UK’s broad shoulders, but when Aberdeen asked for help Westminster just shrugged. The region made the case for £2.9 billion in support and David Cameron offered £125 million. Putting that into perspective the UK Government plans to borrow over £3bn to refurbish the House Of Commons and the Lords, £125m could end up being similar to interest on the Westminster refurbishment borrowing of which nearly 9% will be deducted from Scotland’s budget. It is also under a third of the deal given to Glasgow when Osborne was claiming the economy was in recovery and growing strongly – so takes no heed of Aberdeen’s extraordinary circumstances, other city deals throughout the UK have been larger ipso facto it isn’t money being found to keep the North Sea afloat.

          The fact that there is any money at all to support the region has to be welcomed, and more so the Scottish Government’s commitment to take the City Deal figure up to £504m with its own money, meaning the deal is actually 75 per cent funded by the Scottish Government – the UK’s £125m over 10 years, is £5m less than his government charged Google for 10 years’ Corporation Tax. £300bn taxes banked but only £125 million to help Aberdeen = no real benefit from the Union. There are tax cuts for the industry but as always Westminster thinks helping big companies is more important than helping small people.

        • Craig you ask if we ere independent where would the £125m come from – well I would suggest where would the billion come from thats actually needed to do the job properly and start the task of turning Aberdeen into a global renewables energy centre of excellence for then the oil eventually does run out in 40-60 years.

          Scotland wouldn’t be independent yet and negotiations on debt share would involve recognition of Scotland’s past contribution to paying down the UK debt and the predicted future value of assets being transferred. Ironically, the UK negotiators would right now be trying to make the case that the oil price would soon rise and so we should be taking more of the debt. But as Alex Salmond said at the 2014 Business for Scotland conference, “no deal on currency, no deal on debt”.

          If I were at the negotiating table I would have said if we take a population share of debt then (amongst other things) we want written guarantees of debt relief linked to future oil price falls as the UK had already banked the money that should have been set aside for volatility. So would the oil price mean cuts in service or tax rises for a newly independent Scotland? Well extra borrowing for a few years to invest in boosting our economy might well have been the worst-case scenario, and being a region of the UK as it slides into another recession will be no better would those claiming the oil price means we can’t afford independence today start clamouring for independence if the oil prices rose again? Why, when they parroted the word ‘volatile’ over and over in 2014, do so many Unionists now believe that volatility has ended and prices will remain low forever? A Pinsent Masons report last week found that 96 per cent of oil executives believe that Scotland’s oil industry will recover to ‘peak’ price levels of profitability seen in the first half of 2014 ($110-$115), the majority expecting this to happen within the term of the next Scottish parliament. If that happens then if we had become independent in 2016 as planned, there would be a greater borrowing to begin with then greater tax revenues within a few years which would once agin mean Scotland fiscal position would be stronger than the UK’s.

          If your argument is that Scotland can’t afford independence because of oil prices being low – does that mean if the oil price goes up that you would vote yes?

        • RE Faslane – it is true that the base does generate an economic benefit for the surrounding area however take a look at the Herald article (link below) and you will see that it is not as much as has been suggested. Most of the military jobs are people who live on base and fly home to rest of UK when they get leave. That said the Scottish Government committed to make Faslane the military HQ for the Scottish Combined armed forces and it would actually have more jobs and more local jobs and more top brass located there and still be a naval base for conventional subs and ships. So under independence the economic benefit for the local area could actually be greater than with the current nuclear base and there would be no nukes near our most populous areas which for many would be a benefit in itself.

          I believe the link to the employment figures you ask about is in the article itself.

          http://www.heraldscotland.com/news/13078740.Labour_and_Tories_under_fire_for_inflating_Trident_job_losses/

  • An independant Scotland would be getting all the tax from the oil , whereas now we are getting only 8% of that tax revenue . 100% of the Tax is better than 8% , in my books . Without the oil , Westminster would not have resisted our desire for independence in the way they three unionist parties ( manned by a bunch of traitors ) did .

  • We have not been proved budgetarily self reliant to sustain present spending levels, we still have a grant subsidised economy.

  • I’m by no means a Unionist and found this article to be very heart-warming. However, surely Scotland’s economic successes are (at least in part) down to still existing within the UK? The No camp were persistent in bleating on about the security afforded to Scotland by being part of the UK so is this not evidence that they were right on this one?

    • I assume you mean we are better together because the UK Government is ending new public subsidies for onshore wind farms, and causing early closure of Longannet because of the ridiculously high feed-in tariffs, and cuts to block grant, etc?

    • I believe that our above-average performance is improved by the fact that we have our own Parliament. Our economic well-being coincides with the creation of the Parliament. Surely if we were independent we would control all the economic levers to boost our performance further?

    • If you take a look at the melt down in Aberdeen with the oil price as we were in the union all the recipes in the good years went to the Treasury and there was no investment in a sovereign oil fund to deal with volatility. We were told that should their be a crises that we could “rely on the broad shoulders of the larger UK Economy”. However when the price dropped and the crises began Westminster just shrugged – Small independent Norway on the other hand has an oil fund worth $820bn and they are taking $240m out to deal with he problem. Norway has 1m Krone reserves for every person in the country and Scotland has £50bn debt as part of the UK. Add to that that the UK has cut renewables subsidies 80% would go to Scotland to pay for nuclear power 90% will go to England and we were told if we even had the referendum that tourism from the UK would dry up and inward investment would stop due to uncertainty but 2014 turned out to be a record year for both. The best form of government we can have is full independence within the understanding that all nations are interdependent in trade and so need to share sovereignty over issues such as human rights and banking regulation etc. So BfS suggests staying in the EU but seeking reforms from within and turning the UK into a trading and social union not a Westminster centralised autocracy. That is the true meaning of modern independence and any benefits both England and the RUK gain from the current union would be maintained whilst the problem of Westminster distance and disinterest in the regions would be overcome.

  • Look at the current price of oil, up to $60/bbl. Compare with the price between 1985-2005. The world didn’t come to an end back then. The difference now, Taxation

  • Gordon,

    Without Oil! Scotland’s manufacturing base is pretty robust and clearly benefiting from the fall in the price of oil. Do we know what percentage of Scottish GDP derives from manufacturing and what percentage of UK manufacturing GDP comes from Scotland. Is there data on this?

    JackD

  • It was never the Yes people that shouted the story about oil. It was always those that want to keep Scotland in the union. The truth is that Scotland is a rich country without the oil; we have the talent and resources in many fields beyond oil. It was always stated to be the cherry on top of the cake.
    We need a vibrant economy where everyone is set to work to make things, sell things and improve our infrastructure. Those idle hands that presently depend on handouts as jobs cannot be found for them must be brought into use in community service work and trained to make the best use of their talents, no matter how limited.
    Everyone should get the opportunity to earn a living wage. State subsidy of bad employers has been the norm for all too long. Everyone’s employment should be as part of a team where the rewards are fairly shared. The state should have a say in how the poorest and the richest divide the spoils. The present nonsense where some bigger employers are paying themselves more than 200 times what they pay their lowest employee. In my view a sliding scale should be introduced where the pay at the top is a limited multiple of the pay at the bottom. The bigger the numbers the bigger the multiple but nowhere near where we are now.

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