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Scotland's deficit hit by oil revenues fall

Plummeting oil revenues have contributed to a reversal in Scotland's economic fortunes relative to the UK in the last year, official figures show.

Oil revenues dropped by more than two-fifths in 2012/13, pushing Scotland's deficit above the UK's for the first time in recent years, according to Government Expenditure and Revenue Scotland (Gers) figures.

An unplanned stoppage in the Elgin oil field and the oil industry's shift from revenue-gathering towards investment was cited as the cause of the sharp drop by First Minister Alex Salmond.

The Elgin shutdown was a "one-off event", according to Mr Salmond, who said he does not expect unplanned stoppages every year.

A shift in Scottish Government spending towards capital investment, such as building schools and roads, and investments in national water board Scottish Water also helped to push Scotland's deficit to -5.9%.

The UK ran a deficit of -5.8% in the same period after lagging behind Scotland in recent years, Gers figures show.

Scotland's relative economic strength over the UK has been a key plank in the independence campaign.

Mr Salmond said it is important for the electorate to focus on Scotland's economy over the last five years as they prepare to vote in the independence referendum on September 18.

The average five year deficit was -4.3% in Scotland compared with -5.9% across the UK, according to Gers.

The fact that Scotland maintained an "almost identical" deficit to the UK despite a sharp drop in oil revenues also underlines the "underlying strength of the Scottish economy", Mr Salmond said at a press conference in Edinburgh.

But Mr Salmond's opponents say today's publication is a "landmark" moment in the independence campaign, insisting the size of last year's deficit would have made Scots £500 per person poorer rising to £1,000 by 2016/17.

Mr Salmond said: "North Sea revenue fell by 41% between 2011/12 and 2012/13. This, in part, was caused by unplanned disruption to production and above average levels of spending on development.

"Capital investment by the oil and gas industry reached a record £14 billion last year, and of course that reduces receipts in the short-term because of capital allowances which will substantially increase tax returns for the future.

"The key stoppage for this year was the Elgin-Franklin field where the pipeline for the Elgin field came down, which affected the whole transmission system of a number of other gas fields.

"It had a significant effect on the overall production and therefore revenue.

"Elgin-Franklin is now back in production, so it's a one-off event which affected the 12/13 figures.

"I would argue that if you can have a decline in oil revenue of over 40% in single year but still have a current balance which is identical to the UK, that indicates the underlying strength of the Scottish economy.

"In the last five years, Scotland would have been relatively better off by £8 billion, or almost £1,600 per head."

"People can point at other things and the electorate will judge whether there is consistency in looking over the five-year period."

The SNP's plan for two oil funds, one to stabilise Scotland's heavily oil dependent economy and another to save for the future, would shore up Scotland's budget against future oil shocks like the one seen in 2012/13, he added.

He predicted Scotland would start paying into the fund in 2016/17 when the deficit falls to -3%.

"We don't expect to have disruptions to pipelines every year," he said.

"We do expect very strongly that if you invest £14 billion in the North Sea then that pays off in higher production, higher returns and higher revenues in several years time.

"The position of the UK Department of Energy and Climate Change that you can invest £14 billion and that doesn't lead to increased production is extraordinary.

"In these matters you should follow the money, and the money tells you very clearly that people don't invest £14 billion unless they expect to see additional production."

Chief Secretary to the Treasury Danny Alexander said: "Today the Scottish Government's argument for independence has been undermined by their own figures.

"It shows that in 2012-13, the Scottish deficit per person was almost £500 worse than that of the UK. By 2016-17 this gap is forecast to have widened to around £1,000 per person. "

Former UK Chancellor Alistair Darling, leader of the Better Together campaign, said: "This is a landmark moment in the debate. This is the day that Alex Salmond's own figures made the case against independence.

"If Scotland was independent today we would have no option but to cut spending on services like schools and hospitals or put up taxes - or probably both. Today as part of the UK we don't have to do that."

Scottish Labour colleague Iain Gray, the party's Scottish finance spokesman, added: "These figures are an embarrassment for Alex Salmond and John Swinney and completely discredit the SNP's fiscal case for independence.

"Their White Paper has cost taxpayers £1.3 million but the economic predictions it contains are out by billions of pounds."

Scottish Liberal Democrat leader Willie Rennie said: "If this was the first day of independence, Scotland's chancellor of the exchequer would be announcing an emergency budget to increase taxes or cut spending on schools, hospitals and universities. But because we share across the United Kingdom through good times and bad, those decisions are not necessary.

"This shows the value of not being dependent on one uncertain, volatile and finite resource."

A spokeswoman for pro-independence group Business for Scotland said: "The Gers report continues 33 years of strong performances by the Scottish economy. Had Scotland been an independent country, it would currently have a net cash surplus of over £50 billion and no public debt.

"With 8.3% of the UK population, Scotland generated 9.5% of UK tax revenue in the five years to 2012/13, for 9.3% of UK spending

"Scotland's economic position, relative to the UK finances, would have been £8.3 billion better off in the past five years alone. Scotland is clearly a wealthy nation with the resources to be a successful independent country."

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