19/11/2012 Newsnight Scotland

essential. Thank you very much. Tonight on Newsnight Scotland: Per

head of population, we spend more public money than anywhere else in

the UK. But count oil revenues and we raise enough taxes to pay for it.

Case proved, say the nationalist. Case proved, say the Unionists.

They can't both be right, can they? Good evening. Tonight we're looking

at macro-economic policies and constitutional change. Or, in other

words, can Scotland go it alone? Some of the best brains in

economics and finance gathered in Edinburgh this evening to discuss

exactly that. Among them the Institute of Fiscal Studies. Its

report has given comfort to supporters of independence, as well

as the Union. It confirmed public spending here is higher than the UK

average and it says that with oil revenues we can probably afford it.

But it also looks at what an independent government could do to

balance the books once the oil runs out. It at Edinburgh this evening,

the first of four conversations about constitutional change in

Scotland. This one is about the economy and how Scotland will

survive if it were independent. cause spending per head in Scotland

is bigger than the rest of the UK, taxes excluding North Sea oil about

the same. Once that revenue runs out then the gap between taxes and

spending here will be bigger than the gap elsewhere. Hence the fiscal

transition will be bigger. At the heart of the debate, was the

importance of oil to the Scottish economy. But that debate has not

always been as open as this evening's event. Back in 1974 or, a

report commissioned by the Tory government was buried for 30 years.

Why? Because it said an economic independence goal and could be

prosperous. This paper has shown that the advent of North Sea oil

has overturned the traditional economic argument used against

Scottish Nationals and wrote the offer. An independent Scotland

could expect to have massive surpluses on his budget and on its

The oil industry provided huge employment, even before the black

gold began to flock ashore. Even then, there were voices urging

caution when it came to using the wealth created. That first trickle

will grow and by 1977 supplies should amount to at least one

quarter of the oil we require as a nation. Oil is likely to continue

to contribute to the Exchequer either in London or Edinburgh for

at least 40 years. The debate is whether an independent Scotland

could maintain its current level of government spending. It is �1,200

per person more here than elsewhere in the UK at the moment. Awe

revenues can fill the gap in the short term. Could tax increase as

oil runs out? Cutting public spending remains an option. Using

oil to maintain expenditure would make it difficult to build up under

region style fund to fall back on when the oil eventually runs out.

We know that oil will diminish. Because prices go up and down, that

can distort any budget. You would have to put money I, if you do that

impact on public spending. On it means putting up taxes. That is a

problem if you have a small economy, dependent on a single source. You

do not get that in the UK. One of the unusual aspects announced their

independence is that we have not Sea oil as a disadvantage. That is

an odd way to look at it. I think it is a tremendous advantage that

we have 50 years left of this natural resource. This helps us

underpin the economy and grow other parts of the economy which will be

very strong, like renewable energy, Engineering, tourism and food.

The Scottish government said an independent Scotland would face

difficult financial choices but it could use a full range of economic

levers to support growth and maintain public services. Another

contributor to tonight's seminar was Professor Gavin McCrone whose

1974 reports, as you saw, was buried by the then government. He

has now written another report for the seminar tonight. I asked him

about to what conclusions he had come to. They are oil price was

very high then. The potential all revenues were very large. They were

greatly underestimated by the then Conservative government. I wrote

that paper you referred to, in the interlude between the Conservative

government and the Labour government coming in. It was in the

form of a briefing for incoming ministers. That report was not made

public. It took decades to come to light. Should it had been published

at a time? A knoll, because when civil servants right briefings for

the minister they are confidential. -- know. It was not intended to be

published and it was quite right it was not published. Most of the

information I gather it was already available in the his sources. The

Observer newspaper had been running at courses of -- running pieces of

it end success of papers. I concluded the same thing in my

paper. A what about now? A report today seems to paint a different

picture. How have things changed The oil has run down quite a bit,

the peak of production of 1999. The mid- 1980s saw a price collapse,

and it has only recently begun to recover. Oil revenues are nothing

like as large now as they would have been in real terms in the

early 1980s. There are still more than 2 billion barrels of oil under

the North Sea. That is right. will last for another 40 years.

Does that strengthen or weaken the case for Scottish independence,

based on four revenue from the oil? What came out very clearly from the

IFS contribution to the discussions today, something we knew already,

was that Scotland pays its fair share of taxation to the UK

Exchequer, but the level of public expenditure per head in Scotland is

�1,000 a cover-up -- higher than the UK average. Scotland's

contribution without oil is not sufficient to pay for the level of

public expenditure. The oil makes up the difference at the moment.

That being the case, where does that leave the debate about the

state of Scotland's finances? trouble is, of oil is very volatile

as a source of revenue. It has varied between �1 billion per year

and �12 billion per year. Nobody knows what it is going to do in the

future. We expect that the oil price may stay pretty high, but it

may not, on the other hand, because with the expect -- exploration of

Shell Gas and the other things happening, there could be a drop in

the oil price. If Scotland was deployed -- depending wholly on the

revenue from oil to make up the gap in the difference between tax

revenue and public expenditure, that is a very volatile source. It

would be unwise to depend on it. Winnow ultimately that oil and gas

will run out. Yes, it will eventually. Even if it lasts for a

long time, we will be exploiting resources which are more and more

difficult to get, so the profit and the taxation will be reduced on

them, even if the gap it keeps up for a long time. When we look to

countries like Norway and Middle- East countries which have large

sovereign ale -- funds based on oil wealth, could got under that now?

It should have been done in my opinion. I argued for that in the

1970s. If we had put aside a proportion of the oil revenues that

came in, the hall financial position of the UK would be a lot

stronger than it is now. As to whether Scotland could do that and

the future, the problem is that oil revenues would be needed if

Scotland became independent in the first instance to finance the

current expenditure budget. It may be possible at some point in the

future Queen some of that off and put it into a fund, -- to cream

some of that of, but you would have to cut expenditure or increased

taxes or achieve somehow a much faster rate of economic growth.

you think Scotland could go it alone? It certainly could, that is

not in doubt. The question is, what would be the problems we would have

to face. Would it be better Ross? personally do not think it would be

better off. You do not quite know how we could be. There would be all

sorts of unknowns, like it Scotland was raising public debt, for

example, at what rate of interest would pay? We do not know. If a

separate central bank had to be set up, how much would that cost? It is

really very difficult to arrive at a firm view about how well-off

Scott and would be as an independent country, but it seems

unlikely it would be better off. A enjoy now from London by the

SNP's Treasury spokesman Stewart Hosie, and Ken McIntosh it speaks

for Labour on finance in the Scottish parliament. Where in

today's report from the Institute for Fiscal Studies does it say

independents will make Scotland's finances are to ruff, more secure

in the long-term? -- better off? does not say that, it is a historic

analysis of the 30 years, and five years passed, and it suggested the

Geographic share of oil, we would have a lower debt to GDP ratio

going into independence. It then poses a number of challenges, one

is to do with oil, then another to do with the demographic situation

which the report says is shared in common with most countries in

Europe. That is precisely why we need independence, so that our

Scottish government has the tools and Labour's to be able to tackle

the challenges and find solutions. The prop --. The problem is, the

report just says there will only be challenges for an independent

Scottish government. There are long-term challenges for the UK.

The point I'm making is, because the starting point for independence

is where we thought we were, with control of the the school leavers,

with the understanding there is 1.5 trillion pounds of oil, $600

billion, �400 billion of potential revenue, still left in the North

Sea, we harness that, we husband that wealth properly to diversify

the economy. There are any number of ways we can do that, but only

that the powers of independents. Ken McIntosh, that is the argument,

there is lots of oil left which could in which Scotland. I have to

say, this report is very impressive, Stuart likes it and I think it is

very good. It is crucial because it backs the arguments that the

evolution side have been making for some time, we cannot be accused of

scaremongering by the SNP. The key argument is that oil is volatile

and appreciating, it will run out. This report says, you cannot hide

oil to -- use or to hide the fundamental questions the SNP have

to answer. What currency will be used, who said the interest rates,

will we have the Bank of England as a lender of last resort? All these

assertions of the SNP that have not been negotiated all agreed at all.

Even if Scotland gets all of its geographical share of oil and gas,

it is only going to hold spending around current rates. Voters will

hardly notice the difference. is not necessarily true. The whole

point is, it is not just about the current revenue stream. I know why

the IFS did this report and the way it did, and that made sense. What

they did not do is look at any other policy initiatives post-

independence to grow the economy. Just as a few examples,... Focusing

on all and gas revenue, rather than other issues about the Bank of

England. I am not going to talk about the Bank of England. This is

about using the bath in the North Sea. If we were able for example to

use some of that wealth for an industrial buildings Alliance, we

would have supply-side capacity grown in known oil manufacturing.

How would we do that, bearing in mind all this money would be used

to maintain current spending? is the argument the IFS takes, but

what I'm suggesting is, if you take other fiscal decisions to grow the

economy, to grow engineering and food production and export, to grow

the tourism sector, you can do all sorts of things to grow the economy

so you are not so dependent on a single sector which is a good thing.

And to grow the GDP position overall, and that helps the country

be able to put some of the oil wealth into an oil fund in the

years whether it is possible. grow other areas of the economy,

you are not reliant on oil. There is nothing wrong with us doing that

now, why can't we do that under devolution? What could be used the

Scottish parliament to do this? -- why can't we use the Scottish

parliament? These are simply ifs, raced by Stewart. People want to

know, what of their actual plans for tax and spending? That is what

the report highlights most of all. It says we can set off on a journey,

we had some petrol on the tank but it will run dry. What happens then?

Stewart cannot answer these simple questions. Will taxes go up or down,

will spending go up or down? This is the most simplistic nonsense.

This is not just about tax-raising or cutting spending. It is about

taking other sensible, Smart initiative to grow the economy.

can't we do that now, in Scotland with the devolution of Parliament?

What I had suggested with the industrial buildings Alliance, or

agricultural buildings Alliance, these are functions of corporation

tax which we do not have control of. Because the Labour Party and their

Lib Dem and Tory friends are not prepared to devolve it. Only with

independents can be crudely -- truly grow the economy and reach

the potential the country has. there not a problem here, this

revenue is not guaranteed, it fluctuates, rises and falls. You

are reliant on a source of income for 15% of the Scottish governor --

budget, we do not know how much it will be worth. The UK is also on --

reliant on these revenues. To a small extent, that is why you need

to diversify the economy. The report is clear, Scottish revenue

just does not come from oil and gas, it comes from a range. A slightly

different composition to the UK at a whole. You need to widen and

bright and that even further, hence the requirement for independence,

control of the fiscal levers, and a tour of the economy. This oil and

gas will last for decades, there are billions of barrels left. It

could pave the way for Scotland to move from where we are now into a

completely new situation economic Klee, over the course of many

decades. The excellent heart of this report is pointing out that,

the folly of trying to run -- rely on oil in the long term. It is

saying, yes, oil could pave the way in the short term but it does not

get us to any answers in the long term. What happens to our children,

what happens to the future? doing things might be worse in 40

years is not a clincher. -- arguing things. It is not arguing things

might be worse than 40 years. It is in our lifetime, in the next decade,

the Scottish government have to come up with serious answers to

questions they are not bits to -- not willing to answer now, simple