Cut in official oil revenue forecasts sparks dispute

UK Political Correspondent

Friday 13 July 2012

A war of words erupted between Edinburgh and London yesterday after official fore- casters significantly lowered their projections for North Sea oil revenues.

RESERVES: The OBR cut its forecasts for North Sea oil revenues, and called oil and gas the 'most volatile of the main tax streams'.

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Kate Devlin UK Political Correspondent

LibDem Chief Secretary to the Treasury Danny Alexander said the revised predictions proved Scotland was better off as part of the United Kingdom.

But the Scottish Government hit back, accusing the Coalition of "scaremongering" over independence.

The row was triggered by new figures released by the independent Office for Budget Responsibility (OBR). The OBR cut it projections for North Sea oil and gas revenues over the next 30 years. In an annual report, the OBR said it projected oil and gas receipts would make up 0.05% of GDP by 2040/41 – around half last year's projected level. The organisation said it had reduced its forecasts because of lower projected prices, and described oil and gas as the "most volatile of the main tax streams".Mr Alexander said: "There are many reasons for optimism about Scotland's economic future, and oil and gas remain a big part of that. "But a case for separation that relies on a declining source of income is sorely mistaken. "Scotland benefits hugely from the income stability being part of the UK provides."However, a spokesman for the First Minister said: "This is just the same old scaremongering. More than half of the value of the North Sea's oil and gas reserves have yet to be extracted – that's 24 billion barrels with a wholesale value of £1.5 trillion. "The best way to ensure a stable and prosperous future for the Scottish oil and gas industry is with decisions taken by a Scottish Parliament, 100% directly elected by the people of Scotland, rather than Westminster politicians whose approach to the industry has been one of inconsistency and uncertainty."Last month, academic Robert Rowthorn, Emeritus Professor of Economics at Cambridge University, warned of the problems caused by the volatility of oil revenues. He noted how in the past 25 years oil prices had shown a great deal of volatility. Up to the early 2000s a barrel of oil was $25, then it jumped to $150, dropped to $50, rose back up to $150 and was now around $100.Labour's Shadow Scottish Secretary Margaret Curran added her voice to those arguing the latest figures showed Scotland would be better off rejecting independence in the upcoming referendum, expected in 2014. She said: "The oil and gas sector is very important, but production goes up and down, prices go up and down, and so it is foolish to base our whole economy on this alone."The OBR also warned the Coalition had to find another £17 billion of additional spending cuts or tax or face a £65bn financial black hole. The figure is larger than the £10bn the Chancellor suggested earlier this year could have to be shaved off the already scaled-back welfare bill. Even if the cutbacks were found, Britain would only return to pre-crisis levels by 2061, the OBR added.And if nothing was done, the UK's ageing population would increase the budget deficit by £65bn. The organisation warned spending related to older people, including on pensions and healthcare for the elderly, was putting the main pressures on finances. However, TUC general secretary Brendan Barber said more cuts would be the wrong tactic. He said: "We know austerity is already failing, with falling taxes and rising social security costs leaving the Government's borrowing targets in tatters."The last thing our economy needs is years more of the same failing medicine. "A strong recovery, driven by investment in new infrastructure, industries and decent job creation, is the best basis for securing sustainable public finances."

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Cut in official oil revenue forecasts sparks dispute

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