Yet more troubled waters on oil figures

Political Editor

Saturday 9 March 2013

IT had been shaping up as a good week for the SNP.

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magnus gardham

Ukip's surge in the Eastleigh by-election allowed Nicola Sturgeon to suggest the politics of England and Scotland were drifting further apart, then the UK Government back-tracked on a promise to locate thousands of troops north of the Border. A day later came official figures showing the black hole in Scotland's finances was smaller, relatively speaking, than the UK's as a whole last year. John Swinney said Scotland was "better off to the tune of £824 per person", though "less broke" would have been a more candid way of putting it.

The Finance Secretary, however, has not spent the week fighting off claims he lacks candour.His private cabinet briefing paper, leaked to coincide with those Government balance sheets, revealed in the frankest detail his concerns about the state of Scotland's finances and the affordability of state pensions, unemployment benefits and public services under independence.The document was painfully realistic – and that, for Mr Swinney's opponents, was the problem. It revealed the chasm, they said, between the Nationalists' private concerns and the picture for public consumption of an independent Scotland splashing out on improved public services and generous welfare provision while cutting business taxes and saving cash in an oil fund. It prompted a truly awful bombardment of front-page headlines. Alex Salmond had to be on top form – which he was – to fend off the attacks at First Ministers' Questions. His argument was simple: Scotland will actually be a lot better off than the year-old figures that underpinned Mr Swinney's briefing suggested. It quickly emerged that the Scottish Government is drawing up its own forecasts for future oil revenues. They are expected to be dramatically higher than those produced by the independent Office for Budget Responsibility, on which UK budget calculations are based.The attractions for the Scottish Government are obvious. According to the most recent OBR oil forecasts, from December total UK oil revenues will plummet from £11.3 billion to £4.4 billion in 2016/17. The figures are expected to be downgraded further at the Budget later this year and that could have a striking impact on the projected state of an independent Scotland's finances compared with the UK. John McLaren, the Centre for Public Policy Research think-tank economist, believes it could leave Scotland in a worse position than the UK as early as 2013/14. Falling oil revenues mean there is a shelf life to claims that Scotland is "better off".The question is how credible the Scottish Government's forecasts will be. Spin doctors cited a recent report showing increased investment in the North Sea and alternative long-term estimates of oil prices. They quoted predictions of $130 per barrel, from Department of Energy and Climate Change figures, and an OECD forecast of $150 per barrel, both significantly above the OBR's $90 per barrel. However the OECD figure is for 2035 – and at the top end of a range of predictions from $100 to $150. Meanwhile other authorities are much closer to the OBR. The IMF, for example, predicts $92 per barrel by 2017 while the Norwegian central bank is basing its calculations on $90 by 2015. Mr McLaren believes the OBR is not being unusually cautious.There will doubtless be an almighty Holyrood bust-up about the Scottish Government forecasts when they are published. Will the Scottish Government convince us they have arrived at a truer picture of the country's oil wealth? Or will opposition parties persuade us that ministers have cooked the books? Two things to bear in mind as you ponder that one: first, Mr Swinney appeared to accept the OBR's figures last year, noting in his briefing that they had not been "seriously challenged" by the industry. And secondly, adopting a more optimistic view of oil revenues appears to be at odds with the First Minister's own economic advisers, who recommended a cautious approach.

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Yet more troubled waters on oil figures

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