Soaring oil and gas revenues brought about by the current energy crisis could strengthen Scotland’s position in the independence debate, an economics think tank has concluded.
The Economics Observatory found that Scotland is in a “better” financial position than the UK as a whole in the face of the looming recession when fossil fuels are taken into account.
It estimates that the current deficit could be eradicated in future years if the boom in oil and gas continues.
However, it warns that reliance on energy from the North Sea wells is not a long-term solution and stressed that Scotland will have to overcome other economic factors.
The Economics Observatory – a new project set up to “bridge the gap” between academic research, government policy and the general public – looked at the impact higher revenues from the North Sea would have on the independence debate.
The report, written by Graeme Roy, Dean of External Engagement in the College of Social Sciences at the University of Glasgow and the Fraser of Allander Insitute’s Stuart MacIntyre, Professor in Economics at the University of Strathclyde, analysed the recent Government Expenditure and Revenue Scotland figures (GERS).
READ MORE: North Sea oil and gas boom 'could boost independence campaign'
The Gers figures showed that Scotland’s estimated budget deficit fell from 22.7 per cent of GDP in 2020/21 to 12.3% of GDP in 2021/22.
This is a reduction, relative to GDP, of just over 10 percentage points. The UK’s deficit fell from 14.5% of GDP in 2020/21 to 6.1% of GDP the following year – a reduction of just over 8 percentage points.
The authors said that increasing oil and gas revenues were the “key reasons” for the bigger fall in Scotland’s larger deficit, and said that this would “strengthen” Scotland’s position compared to the UK even during the predicted economic downturn.
The authors wrote: “In short, the key beneficial public finance effects – oil and gas revenues – will be concentrated in Scotland, whereas the costs – such as higher spending or the effects of a recession – are spread across the UK as a whole.
“The Institute for Fiscal Studies (IFS) estimates that oil and gas revenues would need to total around £14.5 billion this year for the Scottish implicit deficit to match that of the UK as a whole. They conclude that ‘such a figure is plausible, and may be exceeded’.
“This may well change the context of debate around Scottish independence and be more favourable to the ‘Yes’ campaign.”
READ MORE: Scotland's notional deficit twice UK level despite jump in tax revenues
However, the authors conclude: “Relying upon high oil and gas revenues is unlikely to be a long-term strategy for an independent Scotland’s public finances. Tough choices on tax and spending, and efforts to improve economic growth, will still be needed.”
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