:00:10. > :00:13.essential. Thank you very much. Tonight on Newsnight Scotland: Per
:00:13. > :00:23.head of population, we spend more public money than anywhere else in
:00:23. > :00:23.
:00:23. > :00:30.the UK. But count oil revenues and we raise enough taxes to pay for it.
:00:30. > :00:34.Case proved, say the nationalist. Case proved, say the Unionists.
:00:34. > :00:36.They can't both be right, can they? Good evening. Tonight we're looking
:00:37. > :00:39.at macro-economic policies and constitutional change. Or, in other
:00:40. > :00:42.words, can Scotland go it alone? Some of the best brains in
:00:42. > :00:47.economics and finance gathered in Edinburgh this evening to discuss
:00:47. > :00:50.exactly that. Among them the Institute of Fiscal Studies. Its
:00:50. > :00:53.report has given comfort to supporters of independence, as well
:00:53. > :00:59.as the Union. It confirmed public spending here is higher than the UK
:00:59. > :01:02.average and it says that with oil revenues we can probably afford it.
:01:02. > :01:12.But it also looks at what an independent government could do to
:01:12. > :01:15.balance the books once the oil runs out. It at Edinburgh this evening,
:01:15. > :01:19.the first of four conversations about constitutional change in
:01:19. > :01:24.Scotland. This one is about the economy and how Scotland will
:01:24. > :01:30.survive if it were independent. cause spending per head in Scotland
:01:30. > :01:35.is bigger than the rest of the UK, taxes excluding North Sea oil about
:01:35. > :01:40.the same. Once that revenue runs out then the gap between taxes and
:01:40. > :01:50.spending here will be bigger than the gap elsewhere. Hence the fiscal
:01:50. > :01:54.
:01:55. > :01:59.transition will be bigger. At the heart of the debate, was the
:01:59. > :02:06.importance of oil to the Scottish economy. But that debate has not
:02:06. > :02:11.always been as open as this evening's event. Back in 1974 or, a
:02:11. > :02:17.report commissioned by the Tory government was buried for 30 years.
:02:18. > :02:23.Why? Because it said an economic independence goal and could be
:02:23. > :02:27.prosperous. This paper has shown that the advent of North Sea oil
:02:27. > :02:33.has overturned the traditional economic argument used against
:02:33. > :02:37.Scottish Nationals and wrote the offer. An independent Scotland
:02:37. > :02:47.could expect to have massive surpluses on his budget and on its
:02:47. > :02:53.
:02:53. > :02:59.The oil industry provided huge employment, even before the black
:02:59. > :03:07.gold began to flock ashore. Even then, there were voices urging
:03:07. > :03:13.caution when it came to using the wealth created. That first trickle
:03:13. > :03:20.will grow and by 1977 supplies should amount to at least one
:03:20. > :03:25.quarter of the oil we require as a nation. Oil is likely to continue
:03:25. > :03:29.to contribute to the Exchequer either in London or Edinburgh for
:03:29. > :03:34.at least 40 years. The debate is whether an independent Scotland
:03:34. > :03:39.could maintain its current level of government spending. It is �1,200
:03:39. > :03:44.per person more here than elsewhere in the UK at the moment. Awe
:03:44. > :03:50.revenues can fill the gap in the short term. Could tax increase as
:03:50. > :03:54.oil runs out? Cutting public spending remains an option. Using
:03:54. > :03:59.oil to maintain expenditure would make it difficult to build up under
:03:59. > :04:05.region style fund to fall back on when the oil eventually runs out.
:04:05. > :04:11.We know that oil will diminish. Because prices go up and down, that
:04:11. > :04:20.can distort any budget. You would have to put money I, if you do that
:04:20. > :04:26.impact on public spending. On it means putting up taxes. That is a
:04:26. > :04:33.problem if you have a small economy, dependent on a single source. You
:04:33. > :04:38.do not get that in the UK. One of the unusual aspects announced their
:04:38. > :04:42.independence is that we have not Sea oil as a disadvantage. That is
:04:42. > :04:48.an odd way to look at it. I think it is a tremendous advantage that
:04:48. > :04:53.we have 50 years left of this natural resource. This helps us
:04:53. > :05:03.underpin the economy and grow other parts of the economy which will be
:05:03. > :05:04.
:05:04. > :05:07.very strong, like renewable energy, Engineering, tourism and food.
:05:07. > :05:11.The Scottish government said an independent Scotland would face
:05:11. > :05:18.difficult financial choices but it could use a full range of economic
:05:18. > :05:24.levers to support growth and maintain public services. Another
:05:24. > :05:29.contributor to tonight's seminar was Professor Gavin McCrone whose
:05:29. > :05:37.1974 reports, as you saw, was buried by the then government. He
:05:37. > :05:43.has now written another report for the seminar tonight. I asked him
:05:43. > :05:50.about to what conclusions he had come to. They are oil price was
:05:51. > :05:55.very high then. The potential all revenues were very large. They were
:05:55. > :06:01.greatly underestimated by the then Conservative government. I wrote
:06:01. > :06:05.that paper you referred to, in the interlude between the Conservative
:06:05. > :06:10.government and the Labour government coming in. It was in the
:06:10. > :06:14.form of a briefing for incoming ministers. That report was not made
:06:14. > :06:21.public. It took decades to come to light. Should it had been published
:06:21. > :06:27.at a time? A knoll, because when civil servants right briefings for
:06:27. > :06:31.the minister they are confidential. -- know. It was not intended to be
:06:31. > :06:36.published and it was quite right it was not published. Most of the
:06:36. > :06:45.information I gather it was already available in the his sources. The
:06:45. > :06:48.Observer newspaper had been running at courses of -- running pieces of
:06:48. > :06:55.it end success of papers. I concluded the same thing in my
:06:55. > :07:05.paper. A what about now? A report today seems to paint a different
:07:05. > :07:09.
:07:09. > :07:14.picture. How have things changed The oil has run down quite a bit,
:07:14. > :07:18.the peak of production of 1999. The mid- 1980s saw a price collapse,
:07:18. > :07:23.and it has only recently begun to recover. Oil revenues are nothing
:07:23. > :07:28.like as large now as they would have been in real terms in the
:07:28. > :07:34.early 1980s. There are still more than 2 billion barrels of oil under
:07:34. > :07:39.the North Sea. That is right. will last for another 40 years.
:07:39. > :07:45.Does that strengthen or weaken the case for Scottish independence,
:07:45. > :07:50.based on four revenue from the oil? What came out very clearly from the
:07:50. > :07:54.IFS contribution to the discussions today, something we knew already,
:07:54. > :08:00.was that Scotland pays its fair share of taxation to the UK
:08:00. > :08:03.Exchequer, but the level of public expenditure per head in Scotland is
:08:03. > :08:08.�1,000 a cover-up -- higher than the UK average. Scotland's
:08:08. > :08:11.contribution without oil is not sufficient to pay for the level of
:08:11. > :08:16.public expenditure. The oil makes up the difference at the moment.
:08:16. > :08:21.That being the case, where does that leave the debate about the
:08:21. > :08:27.state of Scotland's finances? trouble is, of oil is very volatile
:08:27. > :08:32.as a source of revenue. It has varied between �1 billion per year
:08:32. > :08:37.and �12 billion per year. Nobody knows what it is going to do in the
:08:37. > :08:41.future. We expect that the oil price may stay pretty high, but it
:08:41. > :08:45.may not, on the other hand, because with the expect -- exploration of
:08:45. > :08:49.Shell Gas and the other things happening, there could be a drop in
:08:49. > :08:54.the oil price. If Scotland was deployed -- depending wholly on the
:08:54. > :08:58.revenue from oil to make up the gap in the difference between tax
:08:58. > :09:02.revenue and public expenditure, that is a very volatile source. It
:09:02. > :09:08.would be unwise to depend on it. Winnow ultimately that oil and gas
:09:08. > :09:10.will run out. Yes, it will eventually. Even if it lasts for a
:09:10. > :09:15.long time, we will be exploiting resources which are more and more
:09:15. > :09:23.difficult to get, so the profit and the taxation will be reduced on
:09:23. > :09:26.them, even if the gap it keeps up for a long time. When we look to
:09:26. > :09:30.countries like Norway and Middle- East countries which have large
:09:30. > :09:36.sovereign ale -- funds based on oil wealth, could got under that now?
:09:36. > :09:40.It should have been done in my opinion. I argued for that in the
:09:40. > :09:46.1970s. If we had put aside a proportion of the oil revenues that
:09:46. > :09:49.came in, the hall financial position of the UK would be a lot
:09:49. > :09:53.stronger than it is now. As to whether Scotland could do that and
:09:53. > :09:58.the future, the problem is that oil revenues would be needed if
:09:58. > :10:03.Scotland became independent in the first instance to finance the
:10:03. > :10:08.current expenditure budget. It may be possible at some point in the
:10:08. > :10:14.future Queen some of that off and put it into a fund, -- to cream
:10:14. > :10:18.some of that of, but you would have to cut expenditure or increased
:10:18. > :10:22.taxes or achieve somehow a much faster rate of economic growth.
:10:22. > :10:25.you think Scotland could go it alone? It certainly could, that is
:10:25. > :10:30.not in doubt. The question is, what would be the problems we would have
:10:30. > :10:36.to face. Would it be better Ross? personally do not think it would be
:10:37. > :10:43.better off. You do not quite know how we could be. There would be all
:10:43. > :10:51.sorts of unknowns, like it Scotland was raising public debt, for
:10:51. > :10:56.example, at what rate of interest would pay? We do not know. If a
:10:56. > :11:01.separate central bank had to be set up, how much would that cost? It is
:11:01. > :11:05.really very difficult to arrive at a firm view about how well-off
:11:05. > :11:11.Scott and would be as an independent country, but it seems
:11:11. > :11:17.unlikely it would be better off. A enjoy now from London by the
:11:17. > :11:21.SNP's Treasury spokesman Stewart Hosie, and Ken McIntosh it speaks
:11:21. > :11:26.for Labour on finance in the Scottish parliament. Where in
:11:26. > :11:31.today's report from the Institute for Fiscal Studies does it say
:11:32. > :11:39.independents will make Scotland's finances are to ruff, more secure
:11:39. > :11:47.in the long-term? -- better off? does not say that, it is a historic
:11:47. > :11:51.analysis of the 30 years, and five years passed, and it suggested the
:11:51. > :11:54.Geographic share of oil, we would have a lower debt to GDP ratio
:11:54. > :11:59.going into independence. It then poses a number of challenges, one
:11:59. > :12:02.is to do with oil, then another to do with the demographic situation
:12:02. > :12:06.which the report says is shared in common with most countries in
:12:06. > :12:10.Europe. That is precisely why we need independence, so that our
:12:10. > :12:17.Scottish government has the tools and Labour's to be able to tackle
:12:17. > :12:21.the challenges and find solutions. The prop --. The problem is, the
:12:21. > :12:26.report just says there will only be challenges for an independent
:12:26. > :12:30.Scottish government. There are long-term challenges for the UK.
:12:30. > :12:35.The point I'm making is, because the starting point for independence
:12:35. > :12:39.is where we thought we were, with control of the the school leavers,
:12:39. > :12:47.with the understanding there is 1.5 trillion pounds of oil, $600
:12:47. > :12:53.billion, �400 billion of potential revenue, still left in the North
:12:53. > :12:56.Sea, we harness that, we husband that wealth properly to diversify
:12:56. > :13:02.the economy. There are any number of ways we can do that, but only
:13:02. > :13:06.that the powers of independents. Ken McIntosh, that is the argument,
:13:06. > :13:11.there is lots of oil left which could in which Scotland. I have to
:13:11. > :13:18.say, this report is very impressive, Stuart likes it and I think it is
:13:18. > :13:22.very good. It is crucial because it backs the arguments that the
:13:22. > :13:28.evolution side have been making for some time, we cannot be accused of
:13:28. > :13:35.scaremongering by the SNP. The key argument is that oil is volatile
:13:35. > :13:40.and appreciating, it will run out. This report says, you cannot hide
:13:40. > :13:44.oil to -- use or to hide the fundamental questions the SNP have
:13:44. > :13:49.to answer. What currency will be used, who said the interest rates,
:13:49. > :13:55.will we have the Bank of England as a lender of last resort? All these
:13:55. > :14:00.assertions of the SNP that have not been negotiated all agreed at all.
:14:00. > :14:04.Even if Scotland gets all of its geographical share of oil and gas,
:14:04. > :14:09.it is only going to hold spending around current rates. Voters will
:14:09. > :14:14.hardly notice the difference. is not necessarily true. The whole
:14:14. > :14:18.point is, it is not just about the current revenue stream. I know why
:14:18. > :14:23.the IFS did this report and the way it did, and that made sense. What
:14:23. > :14:29.they did not do is look at any other policy initiatives post-
:14:30. > :14:33.independence to grow the economy. Just as a few examples,... Focusing
:14:33. > :14:37.on all and gas revenue, rather than other issues about the Bank of
:14:37. > :14:41.England. I am not going to talk about the Bank of England. This is
:14:41. > :14:45.about using the bath in the North Sea. If we were able for example to
:14:45. > :14:48.use some of that wealth for an industrial buildings Alliance, we
:14:48. > :14:54.would have supply-side capacity grown in known oil manufacturing.
:14:54. > :14:58.How would we do that, bearing in mind all this money would be used
:14:58. > :15:02.to maintain current spending? is the argument the IFS takes, but
:15:03. > :15:07.what I'm suggesting is, if you take other fiscal decisions to grow the
:15:07. > :15:11.economy, to grow engineering and food production and export, to grow
:15:11. > :15:15.the tourism sector, you can do all sorts of things to grow the economy
:15:15. > :15:20.so you are not so dependent on a single sector which is a good thing.
:15:20. > :15:25.And to grow the GDP position overall, and that helps the country
:15:25. > :15:29.be able to put some of the oil wealth into an oil fund in the
:15:29. > :15:32.years whether it is possible. grow other areas of the economy,
:15:32. > :15:36.you are not reliant on oil. There is nothing wrong with us doing that
:15:36. > :15:42.now, why can't we do that under devolution? What could be used the
:15:42. > :15:47.Scottish parliament to do this? -- why can't we use the Scottish
:15:47. > :15:52.parliament? These are simply ifs, raced by Stewart. People want to
:15:52. > :15:56.know, what of their actual plans for tax and spending? That is what
:15:56. > :16:01.the report highlights most of all. It says we can set off on a journey,
:16:01. > :16:06.we had some petrol on the tank but it will run dry. What happens then?
:16:06. > :16:10.Stewart cannot answer these simple questions. Will taxes go up or down,
:16:10. > :16:17.will spending go up or down? This is the most simplistic nonsense.
:16:17. > :16:21.This is not just about tax-raising or cutting spending. It is about
:16:21. > :16:27.taking other sensible, Smart initiative to grow the economy.
:16:27. > :16:31.can't we do that now, in Scotland with the devolution of Parliament?
:16:31. > :16:34.What I had suggested with the industrial buildings Alliance, or
:16:34. > :16:39.agricultural buildings Alliance, these are functions of corporation
:16:39. > :16:43.tax which we do not have control of. Because the Labour Party and their
:16:43. > :16:47.Lib Dem and Tory friends are not prepared to devolve it. Only with
:16:47. > :16:51.independents can be crudely -- truly grow the economy and reach
:16:51. > :16:55.the potential the country has. there not a problem here, this
:16:55. > :17:01.revenue is not guaranteed, it fluctuates, rises and falls. You
:17:01. > :17:10.are reliant on a source of income for 15% of the Scottish governor --
:17:10. > :17:15.budget, we do not know how much it will be worth. The UK is also on --
:17:15. > :17:19.reliant on these revenues. To a small extent, that is why you need
:17:19. > :17:24.to diversify the economy. The report is clear, Scottish revenue
:17:24. > :17:28.just does not come from oil and gas, it comes from a range. A slightly
:17:28. > :17:32.different composition to the UK at a whole. You need to widen and
:17:32. > :17:37.bright and that even further, hence the requirement for independence,
:17:37. > :17:41.control of the fiscal levers, and a tour of the economy. This oil and
:17:41. > :17:47.gas will last for decades, there are billions of barrels left. It
:17:47. > :17:50.could pave the way for Scotland to move from where we are now into a
:17:50. > :17:58.completely new situation economic Klee, over the course of many
:17:58. > :18:02.decades. The excellent heart of this report is pointing out that,
:18:02. > :18:06.the folly of trying to run -- rely on oil in the long term. It is
:18:06. > :18:12.saying, yes, oil could pave the way in the short term but it does not
:18:12. > :18:16.get us to any answers in the long term. What happens to our children,
:18:17. > :18:21.what happens to the future? doing things might be worse in 40
:18:21. > :18:26.years is not a clincher. -- arguing things. It is not arguing things
:18:26. > :18:30.might be worse than 40 years. It is in our lifetime, in the next decade,
:18:30. > :18:35.the Scottish government have to come up with serious answers to
:18:35. > :18:40.questions they are not bits to -- not willing to answer now, simple