In the run up to the independence referendum of Sept 2014, Scottish voters were repeatedly told “oil is just a bonus” and our public finances were not reliant on such a volatile and uncertain resource.
To prove this, the SNP’s White Paper produced a fantasist forecast of oil revenues at up to £7.9bn. Because basing your hypothetical independent country on oil and gas forecasts far in excess of what anyone else was predicting is concrete proof that said forecasts aren’t really that important…**
Following the referendum, the oil price fell. Then fell some more. Then went into freefall. Then stopped for a bit. Then fell some more.
This has been a terrible reality for people like me who work in the industry. Rather less importantly, it has also been terrible politics for supporters of independence as those few people who actually believed that oil was “just a bonus” to the independence case would soon have concrete evidence that this was, in fact, a massive lie.
This led to a number of pro-independence supporters making various claims about the oil price crash and its impact on Scotland. Wings had a good go at it, maintaining that the net impact would actually be good for Scotland’s economy.
For reasons that should be obvious to most, Wings continues to reference this BBC article and Fraser of Allander report from March 2015 up to 10 months after its publication, handily ignoring the more recent information – like this article posted on the same day as this from Wings and 2 weeks before his radio “debate” with Kevin Hague of chokkablog.
And did the article offer an explanation for Scotland’s economy lagging behind rUK’s? Oh, they did?
Well fancy that.
Of course, no-one could deny that lower oil prices will be of benefit to at least some sectors of the economy, it’s simply common sense. There may even be some truth in a medium to long term positive impact as the ensuing growth will always *eventually* outstrip the contraction in the oil industry but the biggest factor in all of this is the public revenues that are generated and this is where the negative impact is undeniable… or so you’d think.
With oil revenues in 2015/16 predicted to be around £130m for the UKCS (~£110m for Scotland), this leaves around a £7.8bn gap from the SNP’s forecasts. That £7790m. A 98.6% fall.
To fill that £7790m tax revenue gap, onshore taxes in Scotland would have to increase by the corresponding amount. In 2013/14, onshore revenues were £50bn. So we’d need an increase of 15.6%.
Compared to the actual oil revenues from 2013/14, rather than the SNP’s forecasts, an 8% growth is required. So clearly this is just nonsense.
Which would provide something of a problem for some but not, it would appear, Gordon MacIntyre-Kemp, Chief Executive of Business for Scotland and occasional columnist for The National.
Mr MacIntyre-Kemp, in an August 2015 article which was both printed in The National and posted on Business for Scotland, argued that Scotland’s deficit had in fact *reduced* despite the crash in oil prices.
Ignoring for a minute that Mr MacIntyre-Kemp believes an 8.1% GDP deficit to be “manageable”, it may be worth looking into the figures he is quoting.
An alert reader will notice that the 8.1% GDP deficit is from 2013/14, an improvement from the 9.7% GDP deficit of 2012/13. If only Mr MacIntyre-Kemp were an alert reader.
If the reason is still not clear to you, perhaps this will help.
The blue line is the price of a barrel of Brent Crude.
Mr MacIntyre-Kemp was trying to assert that the deficit for April 2013 to March 2014 is evidence that Scotland’s economy is benefitting from an oil crash that started in July 2014.
A deliberate lie or embarrassing incompetence? I’ll leave you to decide but it’s worth also highlighting that on 15th August 2015, Gordon MacIntyre-Kemp believed that “the worst-case oil price scenario” had hit. It wasn’t even an isolated claim:
August 7th 2015 and “the price can only go up”. Well let’s have a check on how that prediction went…
Source – NASDAQ
If oil really is “just a bonus” then why are they so desperate to overestimate the forecasts and underestimate the crisis?
Of course, today the actual post-crash figures were released – at least partially with GERS for 2014/15 including around 6 months of sub-$100 price revenues. The figures reveal the lie behind any desperate claim that the oil crash is good for Scotland’s economy.
From an 8.1% GDP deficit in 2013/14, the slump in oil revenues has contributed to Scotland recording a 9.7% GDP for 2014/15. £14,900,000,000 of deficit. That’s more than 2013/14. Worse. By 1.6% GDP. Or £2.5bn cash. Of course it must be pure coincidence that oil revenues are £2.2bn lower…
Whilst the overall UK deficit has improved from 5.8% of GDP to 4.9%. Still not great but almost half that of Scotland.
Not quite what Gordon MacIntyre-Kemp would have you believe.
And remember that these figures are for 2014/15, when oil was still $100+ for half the period covered. Oil revenues are due to fall below £0.2bn for 2015/16…
But what about the onshore economy? Perhaps Wings was right and the lower oil price would result in an economic boost to the country that would more than compensate for the loss of oil revenue? Well… er… no.
Onshore revenue, excluding oil and gas, grew in Scotland by 3.2% – an impressive result – versus 4% for the UK overall. So less. And even with the onshore growth, the total tax revenue in Scotland fell by £607m.
The crashing oil price will prove to be a benefit to some sectors but any claims that it is a positive for public revenues in Scotland is clearly and demonstrably wrong.
**please note that I said “forecasts” not “price”. There is a very good reason the SNP always say their “price forecasts were in line with industry at the time” and ignore the forecast bit. If you’re not sure why, watch this: