the koyal group, Osborne in warning over SNP plans for oil fund
ALEX Salmond’s hope of establishing a Norwegian-style oil fund in an independent Scotland would result in £12.5 billion of spending cuts or tax rises, George Osborne has warned.
The Chancellor, launching the Treasury’s fifth analysis paper on independence, also rubbished the First Minister’s assertion that there was £1.5 trillion worth of revenues still in the North Sea, noting how the Office for National Statistics valued it at £120bn.
Speaking to the Offshore Europe oil and gas conference in Aberdeen, the Chancellor argued Britain’s integrated economic union worked well for Scotland.
The SNP hit back, saying the UK Government’s mismanagement of the oil and gas industry showed it could not be trusted.
John Swinney, the Scottish Finance Secretary, claimed the Treasury paper actually showed “there is no doubt Scotland can not only afford to be an independent country but has the means to thrive” after independence.
Stressing how oil and gas revenues were the most volatile that existed, Mr Osborne in his speech warned the SNP on overstating its case for independence on black gold.
He said: “To suggest that spending can be increased, tax bills cut, an oil fund established, household energy bills kept down and investment in renewables increased simply doesn’t add up.”
The analysis paper points out that, if oil revenues are excluded, then public spending in Scotland since the start of devolution in 1999 was around 10% higher, £1200 per person, than the UK average.
Had Scotland received its population share of spending over this period, the paper states, then it would have received £74bn less, or £6bn a year.
But it then notes that if oil revenues are included, Scotland’s contribution to UK tax revenues increases substantially, with Scotland’s fiscal balance being “very similar” to that of the UK as a whole and, while Scottish spending would still be 10% higher, its revenues to the Exchequer would be 10% higher too.
The paper’s central attack is on creating a Norwegian-style oil fund in an independent Scotland, which the SNP has long championed. The Scottish Government has said it plans to establish one “when fiscal conditions allow”.
Since 1990, Norway has invested profits from its oil industry into coffers for the nation’s future when its budget has been in surplus. It contains £475bn – 40% bigger than the value of the Norwegian economy – making it the world’s largest sovereign wealth fund.
The Treasury paper stresses how setting one up post-independence might not be straightforward, noting how production was due to decline and projected returns might be over-optimistic.
The analysis points out if an independent Scotland wanted to set up a Norwegian-style oil fund, then in 2016/17 it would need to find £8.4bn to balance its books, implying 13% spending cuts or 18% tax rises.
If Scotland received its geographic share of oil revenues on independence, £4.1bn, putting it into the new fund, then this would mean the fiscal consolidation would rise to £12.5bn with spending cuts of 19% or tax rises of 27%.