Referendum : Last week’s £28 billion deficit and this week’s “oil boom”

Lesley Brennan

15 March 2013

Last week was a particularly bad week for the SNP when a Scottish Government report leaked by an insider showed the world of difference between the public and the private views of the SNP Government on the financial deficit that a newly independent Scotland would face and its difficult consequences for public expenditure, pensions and benefits.

What has made these difficult consequences so politically significant is that the SNP ‘s opponents have always warned that the Nationalists repeatedly dodge the hard questions about how an independent Scotland would pay its way.

Those who challenge the SNP on this are dismissed by the Nationalists as “scare-mongering”.

Now it turns out that  those who are dismissed as “scare-mongering” are asking the same questions that John Swinney was asking his Cabinet colleagues to face up to.

In his report that was leaked, Mr. Swinney emphasised the restraints that the fluctuating revenues from a finite resource with an oscillating price such as oil would have on government spending on social services.

By 2015-16, Scotland’s net fiscal deficit is forecast to rise to £28 billion.

This £28 billion deficit is where the  Nationalists’ claim  - that in an independent Scotland , high class Scandinavian public services will be paid for by low rates of taxation as in America - runs into deep trouble, having to confront reality.

Where will the money for these services come from with such a large deficit ?

This is another challenging question for the Nationalists when the natural source of revenue for such spending has already been rejected, because John Swinney has ruled out both higher income  taxes  and higher taxes  on the oil companies operating in the North Sea

Further still, the SNP wish to lower corporation tax on business.

On top of that , part of the oil revenues – around £1billion a year – were to be put away in an Oil Fund for future use , despite the massive fiscal debt.

However, after robust scrutiny by opponents, the idea of the Oil Fund was downgraded , and will now come into being  but  “only if fiscal circumstances allow”

The authoritative Institute for Fiscal Studies has already indicated that North Sea oil revenues could drop by as much as 17 per cent in the current period from 2011-2017.

Such are the challenges that still remain difficult for Mr Salmond on the Nationalists’ claims that Scotland would fare far better on its own after independence.

However,  over the weekend the Scottish Government, which had previously found no fault with the statistics from the Office for Budget Responsibility (OBR) that troubled John Swinney a great deal, produced its own fresh estimates which Mr. Salmond said showed that  there can be “little doubt that Scotland is moving into a second oil boom”.

This “boom” would ensure much more oil revenues  than had been forecast the previous week in John Swinney’s leaked document

Political opponents accused Mr. Salmond of “cooking the books”

Others pointed out his highly selective choice of statistics.

Rather than clear up any uncertainty about oil revenues , Mr. Salmond’s  actions have merely served to emphasise what the “No” campaign in the Referendum have been saying – predictions are not facts and it is very risky to base the long-term future of a new state on one major but declining natural resource which is at the mercy of market forces.

Next week, the Office for Budget Responsibility will present its updated projections for oil revenues from the North Sea .

What awaits us in response to these updated projections in the week after that is anyone’s guess.

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