With the oil price at its current low, an independent Scotland would face a fiscal “chasm”by George Magnus / January 4, 2016 / Leave a comment
Read more: the Iran deal marks the end of the Oil Age
Read more: 2016–the year when politics will trump economics
The deteriorating relationship between Saudi Arabia and Iran may have global implications of huge importance—but what, you might ask, does it have to do with the lurking issue of Scottish independence and this year’s Holyrood elections on 5th May? The answer is oil, which is the basis of the economics of independence.
To understand this better, cast your mind back 16 months to the independence referendum. It was rejected by 55-45 per cent, but the issue clearly hasn’t gone away. Nicola Surgeon, the First Minister told her party conference last October she didn’t envisage another referendum before 2021, but conceded there might be, for example, in the event of a “leave” vote in the UK’s forthcoming EU referendum. When the votes were cast in 2014, the price of a barrel of Brent oil was still over $100. Today it is less than $40. This weekend, Sturgeon launched her party’s Holyrood election campaign, calling for a “renewed” drive towards independence. So how will oil influence political debate in Scotland in 2016?
How significant are the economics of independence? If people really want to govern themselves, politics will trump economic arguments and according to polls by Michael Ashcroft, those voting for independence in 2014 were overwhelmingly motivated by disaffection with Westminster. Then again, you could argue that the economics of that sentiment are never far away. The second most important issue for pro-independence voters was the NHS. The benefits system also figured prominently. For those voting against, the main issues were economic: would an independent Scotland keep the pound and how would the pension system work? Scottish public spending and the context in which it occurs are, therefore, key to citizens’ aspirations and fears. One vital part of that context is North Sea oil revenues, which have fluctuated over the last decade between £4-9.7bn, or roughly between 7-17 per cent of total Scottish fiscal revenues.
In the Scottish government’s last (June 2015) oil and gas bulletin, expected revenues were scaled back substantially. At the time of the referendum, and based on an oil price of $113 per barrel, oil revenues were expected to be almost £8bn in 2016/17, and…