:00:14. > :00:17.classes know who marry. Thank you. Tonight on Newsnight Scotland, the
:00:17. > :00:21.government claims that the value of oil still under the North Sea is
:00:21. > :00:25.greater than that of the oil which has already been extracted and would
:00:25. > :00:29.make an independent Scotland wealthier than the UK. The first
:00:29. > :00:32.Minister 's figures are disputed by opponents who say that he is
:00:32. > :00:42.exaggerating and that he would need the oil money just to pay for
:00:42. > :00:43.
:00:43. > :00:48.schools and hospitals. Today Alex Salmond gave his upbeat
:00:48. > :00:58.response to the Office of Budget Responsibility. Who should we
:00:58. > :01:06.believe? Oil. It is one of the issues that
:01:06. > :01:11.was right to the heart of the debate over Scotland 's future. The SNP
:01:11. > :01:17.'s campaign to win control of Scotland 's oil, as they put it,
:01:17. > :01:24.goes back to long before the party even had a sniff of power are north
:01:24. > :01:28.of the border. Successive UK government have squandered the
:01:28. > :01:35.opportunity is brought by its wealth with little direct reward for
:01:35. > :01:39.Scotland. Today the first Minister reiterated that message, but he is
:01:40. > :01:46.also keen to look forward to what oil production might do for Scotland
:01:46. > :01:51.in the event of independence. In its latest paper on the issue, the
:01:51. > :01:55.Scottish government says it wants to support and incentivise continuing
:01:55. > :01:59.production to give the industry long-term stability. But Alex
:02:00. > :02:04.Salmond says he is not planning a rise in the tax that it pays.
:02:04. > :02:10.think that we now have about the rate level, it is about 62%. But the
:02:10. > :02:14.problem is that the Westminster Government have had 16 tax changes.
:02:14. > :02:22.They have also had 14 energy ministers in the last 16 years. They
:02:22. > :02:26.have had a lot of uncertainty and volatility. If you want the maximum
:02:26. > :02:30.benefit to develop the North Sea and benefit the community of Scotland,
:02:30. > :02:35.you have to have stability in the tax regime and that is what we are
:02:36. > :02:39.bringing forward in this paper today. Asked the state of the sector
:02:39. > :02:44.is one thing, the point that we because of the argument is how much
:02:44. > :02:52.oil is left. Today Scottish Government paper points to figures
:02:52. > :02:56.which estimate there may still be up to 24 billion barrels waiting to be
:02:56. > :03:03.uncovered. But other forecasts tell a different story. The UK 's
:03:03. > :03:09.budgetary watchdog say that North Sea 's oil and gas revenues may be
:03:09. > :03:14.much lower than thought. What we would take from looking at the way
:03:14. > :03:19.in which oil and gas receipts were performed in the past eight in the
:03:19. > :03:22.future is that this is extremely volatile source of income. The
:03:22. > :03:25.numbers go up and down enormously from year to year and that means
:03:25. > :03:30.that trying to project them even in the short-term is different and over
:03:30. > :03:35.the longer term you would expect them to decline. Knowing at what
:03:35. > :03:42.pace they will do so was uncertain. The man who used to hold the UK 's
:03:42. > :03:48.purse strings shows that Alex Salmond 's case is weak. not only
:03:48. > :03:53.has he inflated the amount that he thinks is left in the North Sea, but
:03:53. > :03:58.this morning he said it was worth about �300,000 to everyone in
:03:58. > :04:03.Scotland. That is grossly misleading. What he has done is to
:04:03. > :04:08.take the price of everything in their North Sea, when in fact the
:04:08. > :04:11.only thing the Scottish government gets as the profits. That depends on
:04:11. > :04:17.production costs, which are increasing, and the price, which is
:04:17. > :04:26.notoriously volatile. and then follows the roundabout whose figures
:04:26. > :04:30.are more reliable. -- the argument about these figures. These
:04:30. > :04:38.independent figures were actually relying on the Department
:04:38. > :04:44.environment and climate change. Our estimates are in line with the
:04:44. > :04:48.industry. The Scottish government says that the offshore oil industry
:04:48. > :04:53.is planning to invest �100 billion in new projects and on that basis
:04:53. > :04:58.argues things are looking rosy. How long it lasts however, nobody can be
:04:58. > :05:08.certain. The Scottish Government 's energy
:05:08. > :05:08.
:05:08. > :05:12.minister is your now. -- is here now. Can we say that this estimated
:05:12. > :05:18.figure, it is not terribly helpful, it is like somebody saying that we
:05:18. > :05:27.are going to build a lot of wings for airliners and that is worth a
:05:27. > :05:34.certain amount for every person in the UK. So what? the figure, 24
:05:34. > :05:40.billion barrels, valued at... are an ordinary Scottish man, woman
:05:40. > :05:45.or child, you are not going to see that money. the figure is correct
:05:45. > :05:50.figure, based on an industry estimation. Alistair Darling said it
:05:50. > :05:56.was out by a factor of 12 times, it exaggerated the value. I think
:05:56. > :06:06.you're talking about a different figure. You'll act now, he was not.
:06:06. > :06:08.
:06:08. > :06:12.And Professor Alex Kemp has attacked... It is a meaningless
:06:12. > :06:15.figure, in the sense that the people Scotland would benefit from it. What
:06:15. > :06:21.really matters is how much tax revenue you get from these reserves
:06:21. > :06:25.which I left. I using that you want to have an oil fund, and you see in
:06:25. > :06:30.the paper, you will establish it when conditions allow. What does
:06:30. > :06:34.that mean? You'll might let me try and answer all of your various
:06:34. > :06:38.questions. The tax revenue is extremely important and it is clear
:06:38. > :06:43.that the tax revenue will be very substantial indeed. Even if the
:06:43. > :06:48.figures were correct, the tax revenue would be massive. Secondly,
:06:48. > :06:52.in relation to an oil fund, there has been oil extraction in the UK
:06:52. > :07:00.since the mid-1970s. And almost alone in the world, the UK does not
:07:00. > :07:07.have a oil fund. Norway has been a producer of the same period and its
:07:07. > :07:10.oil and gas fund is worth a believe �400,000. I am asking you, in your
:07:10. > :07:16.proposal to establish an oil fund, once the skull conditions allow,
:07:16. > :07:26.what that means? 1's fiscal conditions permit we will establish
:07:26. > :07:31.one. What would be the fiscal conditions? Once it is appropriate
:07:31. > :07:38.to put excess income into a savings account, just as you and I should do
:07:38. > :07:44.prudently looking after our finances. When is that?I expect
:07:44. > :07:48.fairly shortly after independence. What is the criteria? Normally did
:07:48. > :07:53.not put a penny piece into their fund until five or six years after
:07:53. > :07:59.they had set it up. That does not answer the question. It is not
:07:59. > :08:04.possible to say. What are the criteria? It is with the obvious,
:08:04. > :08:07.when we are in a position where there is a substantial surplus of
:08:07. > :08:11.revenue over budgetary requirements, that is a time when
:08:11. > :08:19.you save money just as you or I would save money. to be clear, I
:08:19. > :08:24.using that you would not set up an oil fund until Scotland 's current
:08:24. > :08:29.budget was in surplus without the use of any oil money? Until it is
:08:29. > :08:32.appropriate to do so. you said a minute ago that when you have a
:08:32. > :08:38.surplus of oil receipts over the money that you have to spend. People
:08:38. > :08:44.have a right to know this, are you saying that your oil fund would only
:08:44. > :08:53.be set up when Scotland 's budget is balanced without using oil money?
:08:53. > :08:58.now. These decisions would be for chancellors. He would not expect if
:08:58. > :09:03.the Chancellor of the exchequer for the UK was on this programme to set
:09:03. > :09:07.what his future but it would be. he would tell me what his policy
:09:07. > :09:12.would be about balancing the budget. He may not tell me exactly how he
:09:12. > :09:19.would do it. we support an oil fund that would contribute to it. As
:09:19. > :09:24.Norway has done, and others, when it is appropriate to do so. you seem to
:09:24. > :09:30.say that he would not want to set up an oil fund unless the budget was
:09:30. > :09:36.balanced without the use of oil. We will set up a fund and contribute to
:09:37. > :09:40.it when it is right to do so. The greatest asset we have in Scotland
:09:40. > :09:46.as the people in the oil and gas industry, an industry that we
:09:46. > :09:56.support. I have spent some time... I am sorry, you are asking people to
:09:56. > :10:00.vote for independence. What are your criteria for setting up an oil fund.
:10:00. > :10:05.You are not giving me an opportunity to answer. We have an industry in
:10:05. > :10:09.Scotland which is not only succeeding in Scotland, but which
:10:09. > :10:12.now makes, and this is a point which has not been mentioned in any of the
:10:12. > :10:16.pieces earlier, nearly half of its income from work that is done
:10:16. > :10:20.throughout the world. The real challenge of the industry, and this
:10:21. > :10:25.is what we should be debating, is how do we nature that we can
:10:25. > :10:35.maximise the value of that by tackling issues such as
:10:35. > :10:41.infrastructure, enhanced recovery, increased recovery. If you don't
:10:41. > :10:51.want your first answer to this to stand, how about we set up an oil
:10:51. > :10:54.
:10:54. > :11:04.fund with Scotland's current budget? Our debt is not much more than the
:11:04. > :11:09.
:11:09. > :11:16.UK. The net fiscal balance, without oil, is 15%, compared to 8% with the
:11:16. > :11:26.UK. If you got to a stage where it was 5%, would you set up an oil fund
:11:26. > :11:27.
:11:27. > :11:32.then? The real tragedy is that the UK has saved zero over the last 40
:11:32. > :11:38.years, almost unlike every other country, and used the vast benefits
:11:38. > :11:41.for the benefit of their people rather than squandering it, as we
:11:41. > :11:44.have seen under successive Westminster governments.
:11:44. > :11:47.I'm joined now from Aberdeen by the oil economist Professor Alex Kemp
:11:47. > :11:50.and from Edinburgh by Professor Gavin McCrone, the former Government
:11:50. > :12:00.economist whose 1970s report on North Sea oil has an almost
:12:00. > :12:05.
:12:05. > :12:12.legendary status in the political debate on the subject. Alex Kemp, on
:12:12. > :12:18.the oil reserves, who should we believe? Estimating reserves is no
:12:18. > :12:26.easy matter. It's fairly understandable that you get
:12:26. > :12:34.different estimates. The Department of energy have a very good
:12:34. > :12:41.database. Their current estimates are the remaining potential is about
:12:41. > :12:46.20 billion barrels of oil equivalent. They have a high
:12:46. > :12:53.estimate of 33 billion, and a low estimate of 10 billion. That, I
:12:53. > :12:59.think, is a reasonable starting point. Obviously, the other thing
:12:59. > :13:03.is, it doesn't really matter, in a sense, how much oil is physically in
:13:03. > :13:09.the ground. What has got to come out as a function of the price is not
:13:09. > :13:14.just the quantity. Obviously, further exploration is expensive.
:13:15. > :13:22.What price would oil had to be, a barrel, if half of this stuff is
:13:22. > :13:32.ever going to be extracted? research paper took for investment
:13:32. > :13:36.
:13:36. > :13:44.screening prices of $90. We found that on that basis, we could,
:13:44. > :13:49.economically, produce 16 billion barrels of oil equivalent. We would
:13:49. > :13:59.still be producing nearly 400,000 barrels per day, and therefore, a
:13:59. > :14:00.
:14:00. > :14:04.potential to go beyond 2050. Gavin, again, or oil revenues only matter
:14:04. > :14:10.in terms of what it would do with your budget, which is why this idea
:14:10. > :14:15.of an oil fund is fine, but what criteria do you think should be
:14:15. > :14:25.there for setting up an oil fund, given that, as matters stand, you
:14:25. > :14:28.
:14:28. > :14:35.would need most, all all, the oil money? I have been in favour of an
:14:35. > :14:40.oil fund their ages, actually call -- actually, and it is a great,
:14:40. > :14:43.mishandled opportunity that we haven't had one. The economic
:14:43. > :14:50.situation of the United Kingdom would have been different now if we
:14:50. > :14:56.had set up an oil fund at the start. And it was considered by ministers.
:14:57. > :15:03.It didn't happen. What I'm tried to get tapped is do you set up an oil
:15:03. > :15:07.fund even though you are in debt? don't you can do it at the moment.
:15:07. > :15:12.You can only do it if you can get your budget into a reasonable
:15:12. > :15:19.condition without using oil money. Now, that means you have to get the
:15:19. > :15:27.budget deficit down and that could be done either by getting more
:15:27. > :15:31.growth out of the rest of the economy all by putting up taxes or
:15:31. > :15:39.cutting public expenditure. But you can't use or oil money twice to
:15:39. > :15:41.balance the budget. By a miracle of modern technology, we have another
:15:42. > :15:47.guest. And we're joined now by Professor Jo
:15:47. > :15:57.Armstrong of the Centre for Public Policy for Regions. What do you make
:15:57. > :16:02.
:16:02. > :16:07.of this budgetary side of it? Is there potential for an oil fund?
:16:07. > :16:17.Gavin says, it is important you think about not just the current
:16:17. > :16:23.generation of residence. You need to think about future generations. At
:16:23. > :16:28.the moment, every penny that comes out of the oil for North Sea taxes
:16:28. > :16:33.is needed to fund our current spending. You could argue you could
:16:33. > :16:36.change the situation now but you would need to cut spending will
:16:36. > :16:46.increase taxes elsewhere or increase borrowing, but that in itself would
:16:46. > :16:50.be a challenge. As an economist, Gavin's point... Some people would
:16:50. > :16:54.argue that Britain didn't set up a sovereign wealth fund but it did
:16:54. > :16:58.pump or the taxes into the economy and meant taxes in Britain were
:16:58. > :17:03.lower than they could otherwise have been. Perhaps some of it was used to
:17:03. > :17:10.pump money into the economy through benefits and announced at the same
:17:10. > :17:16.thing. It's important we didn't have an oil fund and we could have had a
:17:16. > :17:23.large oil fund, to use Norway is an example. What did we use it for? To
:17:23. > :17:30.restructure the UK economy. In this rather compressed discussion, I want
:17:30. > :17:37.a comment from you on the fact that we are sitting here, talking as if
:17:37. > :17:43.we were ten years ago. Isn't there a huge risk now, because of the new,
:17:43. > :17:48.unconventional stuff, we have already seen gas prices in America
:17:48. > :17:53.collapsing because of cracking, shale oil nor the rest of it, is
:17:53. > :18:03.there a possibility that oil isn't running out and the price could fall
:18:03. > :18:10.
:18:10. > :18:15.quite far? That has been used as the OBE are's forecast. Principally due
:18:15. > :18:19.to demand because of the recession we all know about. There is no
:18:19. > :18:26.question that oil prices go up and down and therefore, you have to
:18:26. > :18:32.accommodate that in your budget by allowing for borrowing and for some
:18:32. > :18:39.stabilisation or sovereign wealth fund. Gavin, you were saying you
:18:39. > :18:48.don't think you could do it now, but the basic idea of an oil fund, if
:18:48. > :18:51.the estimates of what is left in the North Sea are anywhere near right,
:18:51. > :18:56.and if the recession will not go on forever, then it is still doable,
:18:56. > :18:59.isn't it? I would hope so, but not for some considerable time. If we
:18:59. > :19:08.are talking about an independent Scotland, it depends how the rest of
:19:08. > :19:11.the economy is doing. That's the problem. The real difficulty is that
:19:11. > :19:19.it is extremely difficult to forecast what will happen in the
:19:19. > :19:22.future. Forecasting all revenues are like forecasting the long-range
:19:22. > :19:32.weather forecast. The only thing you be sure about is you will get it
:19:32. > :19:44.
:19:44. > :19:54.wrong. We will sadly have to leave front pages! Bonnie Prince tardy is
:19:54. > :20:09.
:20:09. > :20:14.storms yet. In the last few hours, it has been very thundery. As far as
:20:14. > :20:19.Wednesday goes, I don't think the thundershowers and downpours will be
:20:19. > :20:24.as widespread. In Northern Ireland, a chance of some showers growing
:20:24. > :20:29.through the course of the afternoon. The morning, across eastern
:20:29. > :20:34.Scotland, will be wetter and more thundery than the afternoon. Looking
:20:34. > :20:38.at the rest of the country, the heat of the day will develop big shower
:20:38. > :20:44.clouds, but they will be well scattered so that means there will
:20:44. > :20:52.be plenty of fine and dry weather. Temperatures will get up to 25
:20:52. > :20:57.Celsius. These thunderstorms haven't quite cleared away. Much pressure
:20:57. > :21:01.conditions reach the country, but that has not been the case. On
:21:01. > :21:08.Thursday, this area of rain will splash its way across the north of
:21:08. > :21:16.the UK. But look at the temperatures: In many areas, still