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Economists: Scotland deserves £bns in compensation for squandered oil money

AN independent Scotland should demand billions of pounds in "compensation" for Westminster's mismanagement of North Sea oil revenue when negotiating its share of the UK's national debt, two leading economists argue today.

Jim and Margaret Cuthbert say Scotland should push aggressively for a large discount on its share of UK debt due to losing out on the proceeds of the oil boom. Westminster, they say, left the country poorer by failing to set up a Norwegian-style savings fund.

In a new paper for the left-wing Jimmy Reid Foundation, the couple, both former Scotland Office economists, say Scotland should play hardball in negotiations because of past UK mistakes rather than "let bygones be bygones".

These include the UK Government's "inexcusable" failure to steward the fortunes from the North Sea, and Scotland's resources being squandered to prop up an otherwise unsustainable UK economy.

Although this spared the UK from collapse, they argue that it also meant Westminster ducked the economic reforms needed to put the country on a stable footing, with the result that the UK now has a national debt of almost £1.4 trillion.

They say the SNP should drop the options for sharing this debt which were set out in November's White Paper on the mechanics of independence.

The paper set out two ideas: Scotland agreeing to service a share of UK debt based on its share of the population, which would be roughly £130 billion; or a more sophisticated calculation based on Scotland's historic share of the debt, roughly £100bn.

The Cuthberts say both these measures are "unsatisfactory" and riddled with weaknesses. Although they do not suggest a figure of their own, they say Scotland should try to drive down its debt share as far as possible

They say negotiations should focus on the "principle of equity" enshrined in the Vienna Convention on debt division between nations, and on the UK misusing oil revenues which, if Scotland had become independent in 1980, could have generated a savings fund of £150bn.

They point out that if the rest of the UK had not had North Sea oil revenue in the 1980s, its borrowing would have reached crisis levels.

"The way in which the UK has mishandled the revenues arising from the North Sea raises very important equity issues which need to be taken into account in debt-splitting negotiations.

"The benefits of North Sea oil were squandered on current spending with the result that the UK has never achieved a sustainable economic model. This failure was inexcusable," they say.

They also say the SNP should consider that the Bank of England may yet write off the third of UK debt attributable to quantitative easing, under which the Bank printed money to buy Treasury bonds to save the economy after 2008.

If the Treasury managed to negotiate its way out of repaying the Bank of England, that could reduce national debt to nearer £800m, say the Cuthberts.

Reid Foundation director Robin McAlpine said: "London types have this week been virtually bragging about how they would cripple Scotland with debt if Scots vote for independence, implying we're helpless and useless.

"They seem to assume that Scotland will kneel down and do what it's told in the style of the UK Treasury. This paper simply aims to show that Scotland can easily produce a robust negotiating position on debt. Why a government in the dire economic and financial position of David Cameron's thinks it holds all the cards is something of a mystery."

The Tory spokesman on the economy, Murdo Fraser, said: "This sort of pie in the sky reasoning will do the nationalist cause no good whatsoever.

"If you are going to look at Scotland's historic share of national debt it needs to be on the basis of a beneficial 300-year-old union, not just a convenient snapshot of recent decades."

Finance Secretary John Swinney said: "The two examples, of a population share of debt and a historic share of debt, show however Scotland's share of the UK's debt is calculated, Scotland is in a far stronger position than the UK with debt taking up a smaller portion of our economy. Calculating debt on a historic basis would take account of the 30 years of higher tax revenues per head paid by Scotland as part of the UK."

Contextual targeting label: 
Finance

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