I remember a conversation with a ‘No’ voter, early in the Referendum campaign. “It’s all about the oil, really, isn’t it?” she grinned. I felt something groan inwardly, deep inside me – a combination of the demoralizing thought of just how much talking I was going to have to do, with so many pieces of information, but full in the knowledge that I probably was still not going to get past that initial, obviously deep-rooted idea. Scottish independence, it is all about greed, a mistaken belief that Scotland would be rich without those ‘broad shoulders’ of Westminster to manage the resource for the child nation to the north…
Of course, it was not about oil – the demonstrations of the strengths of Scotland’s economy without oil being almost directly equivalent to the UK’s, showed that oil was a surplus benefit, and not something that the Scottish economy was hung up or overly dependent on (not like the financial services industry, which has a few percent too much of our overall economy, leaving us slightly vulnerable to the vagaries of that particular market).
And oil does not automatically equate to wealth, despite appearances to the contrary. Just look at the reports of the Aberdeen foodbanks being emptied. A very different picture to when I went to work there in the mid-eighties. I was rooming in an elderly couple’s house (all that I could afford, as I was in part of the oil industry that made the profits pretty much exclusively out of what it charged Shell for staff time), and that first weekend, another guy who was renting another room offered to show me around, and introduce me to his family. I remember we walked over to his brother’s place for lunch, just as his brother pulled up…in a brand new Lotus sports car. I asked what his brother did: “Aw, he just works in fish packing.” This impression of a city of riches only grew when that night, the room-renter confided in me that he had a cocaine habit, but it was ‘not a problem’ – I just was not to tell the elderly couple about it…an elderly couple who had microwave ovens at a time when they were actually pretty rare things.
Thirty years on, and the Silver City is a grimmer place to be, with starker inequality than ever before: 1 in 4 children are born into poverty in the northern half of the city, average house prices have increased by 88% since 2005 (compared with 3.3% in Stirling), and those NOT working in oil and gas are on close to the national average wage, making things difficult as prices increase – you cannot pay £800 pcm when on minimum wage. A recent survey noted that Aberdeen was countering the Scottish rental trends, with a fall in prices, in an attempt to adjust to the changing market with the collapsing oil price – but they are still well above the Scottish average: the average rent of a 2-bedroom property fell 1.2% to £972, with a 3 bedroom on £1,216, down 7.2% on last year, whereas the Scottish average figure for a 2 bedroom property was £654, up 6.8 % this last quarter on last year’s figure. Community worker Ian Armstrong notes the opportunities missed: “When l came to Aberdeen in the first instance the government should have had something in place to protect the city. We have missed the boat on an oil fund.”
And here we have Aberdeen – the oil and gas capital of Europe – with a call by Aberdeen City Council for a summit on the crisis in the oil industry. It starts, of course, with the oil price at around 60 dollars a barrel, when it was averaging 109 dollars a barrel last year ( http://chartsbin.com/view/oau ), the shift down apparently due to a concerted US/Saudi Arabia strategy to hit both Russia and Iran (although Saudi Arabia may also be trying to undermine US fracking expansion). With 90% of UK reserves in Scottish waters, Scotland is the largest oil producer and second largest gas producer in the EU, an industry that supports 200,000 Scottish jobs, so the N-56 group’s mid-March report argued for co-location of policy makers responsible for oil and gas taxation and regulation (i.e. UK government) with the industry, in Aberdeen (instead of London), mirroring Norway’s strategy in Stavanger, to make them more responsive. They also argued for a long-term economic tax approach, rather than unstable short-term tax grabs (which the current coalition government were heavily criticized for, early in their term of office). Although this prompted North Sea-based oil companies to divert their funds into much needed research and development, in order to avoid the new production taxes, critics have observed that the big oil companies had mistakenly invested heavily in new oil exploration such as oil sands, deep water and arctic fields when the price was high, rather than building up reserves, and are now ill-placed to deal with a low oil price – hence the prospective job losses.
However, some people are keen to put a glossy glow on the loss of all those Scottish oil industry jobs: PwC claim that oil prices at 50 dollars a barrel could boost employment across the country by 91,000 over the next 5 years, with GDP rising 1% per year between 2015 and 2020. Their model adjusts the rise in employment figures to 37,000 if the price is $73 a barrel, and only 3,000 if the price is $108 a barrel. Long-term, the price of oil to 2040, as predicted by OPEC, is expected to be $100 per barrel, reflecting a global rise in costs of production.
So, back to that hoary old question: why do we not have an oil fund, to protect those in our oil industry when the price is low? I mean, it is not as though this would be an unusual strategy for oil-producing countries to have: Iraq relies on oil for 90% of its revenues, yet it along with the UK are the only two countries in the world not to have a wealth fund. Another unusual strategy was not to have the oil state-owned: globally, 70% of oil is nationalised, with only 10% of the remainder in the hands of the large companies, as we have in the UK.
What about the practical economics of having such a wealth fund (which Labour like to call a ‘resilience fund’, just so that it sounds different from what the Scottish Government are arguing for)? Would it ever have been feasible to acquire such a thing?
Emphatically, yes – if one subtracts Scotland’s total tax receipts since 1980 from the average for the UK, Scotland has contributed a surplus of £222 billion in today’s prices, an average of £6.73bn per annum. But what about that persistent idea that Scotland has ‘always’ run a deficit, amounting to £15 billion as per the ‘Better Together’ propaganda sheets? It crucially ignores the fact that Scotland only ran a deficit because it was in the UK. Even before you factor in the savings that could have been made if Scotland hadn’t been subject to UK spending decisions (most obviously on defense, getting rid of Trident, never mind supporting needless London infrastructure and vanity projects), independent analysis shows that Scots subsidised the rest of the UK by £222bn over that period.
[This casts the recent hilarious UK Government campaign to post small union flag plaques saying ‘Funded by UK Government’ on a variety of public projects and buildings throughout the UK. At the time, it was widely seen as a response to growing support for Scottish devolution and independence – but perhaps it would have been more accurate to have the plaques say ‘Funded by the Scottish TaxPayer’. 🙂 ]
To continue: the economist Professor Brian Ashcroft (former Scottish Labour leader Wendy Alexander’s husband, and he was a strong advocate for the ‘No’ campaign during the Referendum, so does not exactly go looking for arguments against the Union) found in 2013 that Scotland’s notional deficit was entirely down to having to pay interest on the UK’s debt (much of which was run up by aforementioned vanity projects): over 32 years, the total value of Scottish tax receipts is £1,425 billion, with public spending in and for Scotland at £1,440 billion – there, in that difference, is the figure of £15 billion. “But, Scotland’s share of UK debt interest amounted to £83 billion at 2001-12 prices. Subtracting this from total estimated Scottish spend of £1,440 billion we get a debt interest adjusted estimate of spend of £1,357 billion. This means that Scotland was in overall surplus by about £68 billion (£1425 billion-£1357 billion). A very modest oil fund (assume 3% interest, and then think – again – about the reduced public spending without having to subsidise those London vanity projects) would have protected Scotland for many years. In early 2014, even the Office of Budget Responsibility was predicting that oil revenues for 2016/17 would be just £3.3 billion . If the oil price fell so far that companies made no profit at all, as is currently the case, and therefore no tax revenue accrued to the Scottish Government, that would make only a small dent in even Professor Ashcroft’s worst-case £68 billion fund.
Harold Wilson may be criticized for promising a Scottish oil fund in his election manifesto and then failing to deliver it, but as he appears to have been subject to an attempted coup to put Louis Mountbatten in as an unelected Prime Minister (due to CIA paranoia that ‘socialist’ meant ‘communist’), his spirit might well legitimately argue in his defense that he had a reasonably good excuse for having taken his eye off the ball. Instead, he gave the oil fund to Shetland, who now, consequently, have a higher standard of living than on the Scottish mainland.
Gordon Macintyre-Kemp of Business For Scotland made a fine point at the start of January in an article entitled ‘The Shrugging of those Broad Shoulders’: “Labour argued against the creation of a Scottish oil fund for a generation. They stated that it didn’t make sense to borrow to pay into a fund [while in deficit], but we are still in deficit [when they are suggesting their ‘resilience fund’] so this smacks of a Labour deathbed conversion to SNP policy.”
But – decades on from those early seventies Labour governments, who missed the opportunity to have a state-owned oil industry – here comes Gordon Brown at the start of March…no longer a Labour Chancellor, but now with a wizard idea: the government should step in, to nationalise the unprofitable fields about to be abandoned. Wait… what? This is worse than closing the stable door after the horse has bolted…as one commentator observed, Brown is continuing his policy as Chancellor of nationalising the losses and privatising the profits, just as he took on the Alliance & Leicester’s toxic debts into public ownership and sold off the healthy part to get the worst possible deal for the public. (Come to think of it, is that really such a socialist approach for a Labour Chancellor?) Does this really help anyone, save for possibly saving jobs in a somewhat notional sense with a deflated market? Well, for one thing, it would really help those big oil companies: the decommissioning costs for oil rigs are £60 billion – half of which would be borne by the Westminster Government. Except that, in public ownership, the UK government would be liable for ALL of it – genius!!
My ‘No’ voter did eventually vote ‘Yes’ in the Referendum – sadly not because of any argument that I could bring to bear – but as I have always said, I wish we had never found the oil in the North Sea, as Westminster would have let us go a long time ago. Now we can only dream of the the oil either running out, or prices staying perpetually low (both highly unlikely in the next twenty years), at which point it might finally act as a trigger for them to get rid of us. And perhaps – as a resource that we are unlikely to ever see the real benefits from – that is the real reason why oil is Scotland’s curse.
“…And the oil price is dropping so Tony [Blair] thinks independence is a no-no, although he was still opposed last year when oil was riding high. Clearly the price of oil is as relevant as the price of a bag of sugar. The Unionists do keep going on about the plummeting price – the logical corollary is that there must be a price at which independence becomes a moral and economic necessity. Perhaps they should tell us what that is, then?” (Paul Kavanagh, 9/4/2015)