23/07/2013 Newsnight Scotland

classes know who marry. Thank you. Tonight on Newsnight Scotland, the

government claims that the value of oil still under the North Sea is

greater than that of the oil which has already been extracted and would

make an independent Scotland wealthier than the UK. The first

Minister 's figures are disputed by opponents who say that he is

exaggerating and that he would need the oil money just to pay for

schools and hospitals. Today Alex Salmond gave his upbeat

response to the Office of Budget Responsibility. Who should we

believe? Oil. It is one of the issues that

was right to the heart of the debate over Scotland 's future. The SNP

's campaign to win control of Scotland 's oil, as they put it,

goes back to long before the party even had a sniff of power are north

of the border. Successive UK government have squandered the

opportunity is brought by its wealth with little direct reward for

Scotland. Today the first Minister reiterated that message, but he is

also keen to look forward to what oil production might do for Scotland

in the event of independence. In its latest paper on the issue, the

Scottish government says it wants to support and incentivise continuing

production to give the industry long-term stability. But Alex

Salmond says he is not planning a rise in the tax that it pays.

think that we now have about the rate level, it is about 62%. But the

problem is that the Westminster Government have had 16 tax changes.

They have also had 14 energy ministers in the last 16 years. They

have had a lot of uncertainty and volatility. If you want the maximum

benefit to develop the North Sea and benefit the community of Scotland,

you have to have stability in the tax regime and that is what we are

bringing forward in this paper today. Asked the state of the sector

is one thing, the point that we because of the argument is how much

oil is left. Today Scottish Government paper points to figures

which estimate there may still be up to 24 billion barrels waiting to be

uncovered. But other forecasts tell a different story. The UK 's

budgetary watchdog say that North Sea 's oil and gas revenues may be

much lower than thought. What we would take from looking at the way

in which oil and gas receipts were performed in the past eight in the

future is that this is extremely volatile source of income. The

numbers go up and down enormously from year to year and that means

that trying to project them even in the short-term is different and over

the longer term you would expect them to decline. Knowing at what

pace they will do so was uncertain. The man who used to hold the UK 's

purse strings shows that Alex Salmond 's case is weak. not only

has he inflated the amount that he thinks is left in the North Sea, but

this morning he said it was worth about �300,000 to everyone in

Scotland. That is grossly misleading. What he has done is to

take the price of everything in their North Sea, when in fact the

only thing the Scottish government gets as the profits. That depends on

production costs, which are increasing, and the price, which is

notoriously volatile. and then follows the roundabout whose figures

are more reliable. -- the argument about these figures. These

independent figures were actually relying on the Department

environment and climate change. Our estimates are in line with the

industry. The Scottish government says that the offshore oil industry

is planning to invest �100 billion in new projects and on that basis

argues things are looking rosy. How long it lasts however, nobody can be

certain. The Scottish Government 's energy

minister is your now. -- is here now. Can we say that this estimated

figure, it is not terribly helpful, it is like somebody saying that we

are going to build a lot of wings for airliners and that is worth a

certain amount for every person in the UK. So what? the figure, 24

billion barrels, valued at... are an ordinary Scottish man, woman

or child, you are not going to see that money. the figure is correct

figure, based on an industry estimation. Alistair Darling said it

was out by a factor of 12 times, it exaggerated the value. I think

you're talking about a different figure. You'll act now, he was not.

And Professor Alex Kemp has attacked... It is a meaningless

figure, in the sense that the people Scotland would benefit from it. What

really matters is how much tax revenue you get from these reserves

which I left. I using that you want to have an oil fund, and you see in

the paper, you will establish it when conditions allow. What does

that mean? You'll might let me try and answer all of your various

questions. The tax revenue is extremely important and it is clear

that the tax revenue will be very substantial indeed. Even if the

figures were correct, the tax revenue would be massive. Secondly,

in relation to an oil fund, there has been oil extraction in the UK

since the mid-1970s. And almost alone in the world, the UK does not

have a oil fund. Norway has been a producer of the same period and its

oil and gas fund is worth a believe �400,000. I am asking you, in your

proposal to establish an oil fund, once the skull conditions allow,

what that means? 1's fiscal conditions permit we will establish

one. What would be the fiscal conditions? Once it is appropriate

to put excess income into a savings account, just as you and I should do

prudently looking after our finances. When is that?I expect

fairly shortly after independence. What is the criteria? Normally did

not put a penny piece into their fund until five or six years after

they had set it up. That does not answer the question. It is not

possible to say. What are the criteria? It is with the obvious,

when we are in a position where there is a substantial surplus of

revenue over budgetary requirements, that is a time when

you save money just as you or I would save money. to be clear, I

using that you would not set up an oil fund until Scotland 's current

budget was in surplus without the use of any oil money? Until it is

appropriate to do so. you said a minute ago that when you have a

surplus of oil receipts over the money that you have to spend. People

have a right to know this, are you saying that your oil fund would only

be set up when Scotland 's budget is balanced without using oil money?

now. These decisions would be for chancellors. He would not expect if

the Chancellor of the exchequer for the UK was on this programme to set

what his future but it would be. he would tell me what his policy

would be about balancing the budget. He may not tell me exactly how he

would do it. we support an oil fund that would contribute to it. As

Norway has done, and others, when it is appropriate to do so. you seem to

say that he would not want to set up an oil fund unless the budget was

balanced without the use of oil. We will set up a fund and contribute to

it when it is right to do so. The greatest asset we have in Scotland

as the people in the oil and gas industry, an industry that we

support. I have spent some time... I am sorry, you are asking people to

vote for independence. What are your criteria for setting up an oil fund.

You are not giving me an opportunity to answer. We have an industry in

Scotland which is not only succeeding in Scotland, but which

now makes, and this is a point which has not been mentioned in any of the

pieces earlier, nearly half of its income from work that is done

throughout the world. The real challenge of the industry, and this

is what we should be debating, is how do we nature that we can

maximise the value of that by tackling issues such as

infrastructure, enhanced recovery, increased recovery. If you don't

want your first answer to this to stand, how about we set up an oil

fund with Scotland's current budget? Our debt is not much more than the

UK. The net fiscal balance, without oil, is 15%, compared to 8% with the

UK. If you got to a stage where it was 5%, would you set up an oil fund

then? The real tragedy is that the UK has saved zero over the last 40

years, almost unlike every other country, and used the vast benefits

for the benefit of their people rather than squandering it, as we

have seen under successive Westminster governments.

I'm joined now from Aberdeen by the oil economist Professor Alex Kemp

and from Edinburgh by Professor Gavin McCrone, the former Government

economist whose 1970s report on North Sea oil has an almost

legendary status in the political debate on the subject. Alex Kemp, on

the oil reserves, who should we believe? Estimating reserves is no

easy matter. It's fairly understandable that you get

different estimates. The Department of energy have a very good

database. Their current estimates are the remaining potential is about

20 billion barrels of oil equivalent. They have a high

estimate of 33 billion, and a low estimate of 10 billion. That, I

think, is a reasonable starting point. Obviously, the other thing

is, it doesn't really matter, in a sense, how much oil is physically in

the ground. What has got to come out as a function of the price is not

just the quantity. Obviously, further exploration is expensive.

What price would oil had to be, a barrel, if half of this stuff is

ever going to be extracted? research paper took for investment

screening prices of $90. We found that on that basis, we could,

economically, produce 16 billion barrels of oil equivalent. We would

still be producing nearly 400,000 barrels per day, and therefore, a

potential to go beyond 2050. Gavin, again, or oil revenues only matter

in terms of what it would do with your budget, which is why this idea

of an oil fund is fine, but what criteria do you think should be

there for setting up an oil fund, given that, as matters stand, you

would need most, all all, the oil money? I have been in favour of an

oil fund their ages, actually call -- actually, and it is a great,

mishandled opportunity that we haven't had one. The economic

situation of the United Kingdom would have been different now if we

had set up an oil fund at the start. And it was considered by ministers.

It didn't happen. What I'm tried to get tapped is do you set up an oil

fund even though you are in debt? don't you can do it at the moment.

You can only do it if you can get your budget into a reasonable

condition without using oil money. Now, that means you have to get the

budget deficit down and that could be done either by getting more

growth out of the rest of the economy all by putting up taxes or

cutting public expenditure. But you can't use or oil money twice to

balance the budget. By a miracle of modern technology, we have another

guest. And we're joined now by Professor Jo

Armstrong of the Centre for Public Policy for Regions. What do you make

of this budgetary side of it? Is there potential for an oil fund?

Gavin says, it is important you think about not just the current

generation of residence. You need to think about future generations. At

the moment, every penny that comes out of the oil for North Sea taxes

is needed to fund our current spending. You could argue you could

change the situation now but you would need to cut spending will

increase taxes elsewhere or increase borrowing, but that in itself would

be a challenge. As an economist, Gavin's point... Some people would

argue that Britain didn't set up a sovereign wealth fund but it did

pump or the taxes into the economy and meant taxes in Britain were

lower than they could otherwise have been. Perhaps some of it was used to

pump money into the economy through benefits and announced at the same

thing. It's important we didn't have an oil fund and we could have had a

large oil fund, to use Norway is an example. What did we use it for? To

restructure the UK economy. In this rather compressed discussion, I want

a comment from you on the fact that we are sitting here, talking as if

we were ten years ago. Isn't there a huge risk now, because of the new,

unconventional stuff, we have already seen gas prices in America

collapsing because of cracking, shale oil nor the rest of it, is

there a possibility that oil isn't running out and the price could fall

quite far? That has been used as the OBE are's forecast. Principally due

to demand because of the recession we all know about. There is no

question that oil prices go up and down and therefore, you have to

accommodate that in your budget by allowing for borrowing and for some

stabilisation or sovereign wealth fund. Gavin, you were saying you

don't think you could do it now, but the basic idea of an oil fund, if

the estimates of what is left in the North Sea are anywhere near right,

and if the recession will not go on forever, then it is still doable,

isn't it? I would hope so, but not for some considerable time. If we

are talking about an independent Scotland, it depends how the rest of

the economy is doing. That's the problem. The real difficulty is that

it is extremely difficult to forecast what will happen in the

future. Forecasting all revenues are like forecasting the long-range

weather forecast. The only thing you be sure about is you will get it

wrong. We will sadly have to leave front pages! Bonnie Prince tardy is

storms yet. In the last few hours, it has been very thundery. As far as

Wednesday goes, I don't think the thundershowers and downpours will be

as widespread. In Northern Ireland, a chance of some showers growing

through the course of the afternoon. The morning, across eastern

Scotland, will be wetter and more thundery than the afternoon. Looking

at the rest of the country, the heat of the day will develop big shower

clouds, but they will be well scattered so that means there will

be plenty of fine and dry weather. Temperatures will get up to 25

Celsius. These thunderstorms haven't quite cleared away. Much pressure

conditions reach the country, but that has not been the case. On

Thursday, this area of rain will splash its way across the north of

the UK. But look at the temperatures: In many areas, still