Analysis: rosier future predicted by new oil study

Political Editor

Tuesday 12 March 2013

THE Scottish Government's new Oil and Gas Analytical Bulletin paints a far rosier picture of future North Sea revenues than that offered by the independent Office for Budget Responsibility (OBR).

JOHN SWINNEY: His concerns over the state of the country's finances were leaked. Picture: Colin Templeton

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Magnus Gardham Political editor

Where the OBR predicts a £31 billion income from Scotland's share of North Sea resources from now until 2017/18, First Minister Alex Salmond is banking on a bonanza worth up to £57bn.

Even taking an average of the Scottish Government's newly-formulated scenarios, revenues would amount to £48bn, more than 50% higher than the OBR figure.

Where the OBR predicts a year-on-year decline from last year's bumper £10.6bn tax take to £4.1bn in 2017/18, the Scottish Government sees, in its best-case scenario, a year-on-year surge from £7.2bn in the current financial year to £11.8bn in 2017/18. Mr Salmond proclaimed yesterday: "There can be little doubt Scotland is moving into a second oil boom." That is more than handy coming just a few days after a leaked cabinet briefing paper revealed Finance Secretary John Swinney's private concerns about the state of the country's finances and the affordability of pensions, benefits and public services under independence. Cue the immediate and angry accusations of cooking the books by some of the First Minister's more vocal critics. However, that was not how the industry or the experts saw it. Professor Alex Kemp, the UK's leading oil economist, said the OBR's approach was pessimistic and agreed the Scottish Government's range of scenarios – based on a more optimistic view of future production and prices – was plausible. However, Alistair Darling, the head of the pro-UK Better Together campaign, warned: "If the Nationalist figures are wrong – even by a relatively small amount – then they would be taking vast sums of money out of Scotland's budget." The real accusation is Mr Salmond is taking too much of a gamble by deviating from the OBR's cautious approach. What's more, it appears to be at odds with the advice of his own team of economic experts, the Fiscal Commission working group, who last month published their macroeconomic framework for an independent Scotland. They struggled to find ways of creating an oil fund at a time when all the country's oil money – and more – is required to maintain existing public spending. And they argued: "An attractive approach in the short-term would be to plan the Government's spending plans on the basis of a cautious forecast of oil revenues produced by an independent fiscal commission. "Then, if oil revenues exceed the forecasts, the excess could be transferred into a stabilisation fund." In other words, the Government should use a forecast like the OBR's, produced by a body like the OBR. "Alex's big gamble" will now become the constant refrain from the pro-UK camp as, over the coming months, SNP ministers seek to use their new oil projections as the basis for policies and spending pledges. In that sense the debate has just hurtled back to the future – and the battle over the SNP's old "It's Scotland's oil" rallying cry. Round two of this latest spat will come a week tomorrow (March 20) when the OBR produces its latest North Sea revenue forecasts to coincide with George Osborne's Budget. Unlike the Scottish Government's, their predictions are expected to be revised downwards.

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Analysis: rosier future predicted by new oil study

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