31/07/2013 Newsnight Scotland

some serious stuff out there. Tonight on Newsnight Scotland, we

will be talking to a man whose views on the independence debate have more

than the usual interest. 40 years ago, Gavin McCrone wrote a report

which has entered the annals of nationalism, suggesting that North

Sea oil could make Scotland as rich as Switzerland. I will be asking him

if he still believes that. Also tonight, how farmers have been

coping with the unpredictable weather this year.

Good evening. There is a book published tomorrow called Scottish

Independence: Weighing Up The Economics. The author is not only a

former chief economic adviser to government in Scotland, he is the

one who wrote perhaps the most talked about civil service briefing

paper in Scottish political history. The new book by Professor Gavin

McCrone asks whether independence would make people better or worse

off. He looks at the key areas of the economic debate, including

growth, currency options, choices about society's priority and Europe,

and oil. This extract from a previous edition of this programme

may remind you why the name is so familiar. In 19 seven four, a report

commissioned either Tory government was buried for three decades. Why?

It said an independent Scotland could be economically prosperous.

This paper has shown the advent of North Sea oil is completely

overturned the traditional economic arguments used against Scottish

nationalism, wrote the author, would never have expected the civil

servants briefing paper to have a made public. That is not what they

are for. But he reckons he was right then and that history proves his

point. I'm joined now by Professor Gavin

McCrone in the flesh. Let's start with oil, as that created all the

fuss. Actually, you like Alex Salmond's idea of an oil fund.

The only thing is whether you can afford to put money in it at the

moment. But in principle, that is what they should do? There should

have been an oil fund way back. If there had been, the whole economic

situation of the UK would be different now. But things have

changed. What I take from your book is that the question we asked a

minute ago, whether Scotland could still be as rich as Switzerland from

North Sea oil, your answer would be? It has changed. In the early 1980s,

the oil revenues, in present-day prices would have been �28 billion

to �30 billion. They are now between �5 billion and �10 billion, so there

is a big difference between the situation is now and then. What I

wrote in 1974 was intended as a briefing paper for the incoming

government. But you think the problem now is that even if an

independent Scotland took all its oil income, it would still need all

of it to pay for basic spending? problem is that Scottish public

expenditure per head is substantially higher than the UK

average, 10% higher. The income from taxes for the government without oil

is only equal to the UK average, so there is a gap, and that gap would

have to be filled by all revenues at the moment. And even so, according

to the Scottish government's own figures, there would be a 5%

deficit. But the crucial point is that we are in the middle of a

financial crisis. Written has a deficit. But your point is that even

if we could put that to one side, you would still need the oil money

to meet current spending. An issue came up last week - what criteria

should be used in the future? Let's say Scotland that become

independent, and in the future, there was some possibility of

setting up an oil fund. What criterion should be used? I was not

clear from your book what you thought on that. Do you think that

when you managed to balance the budget without using oil money, you

could put the oil money in an oil fund? Or perhaps would you try to

balance the current budget without using oil money? Normally, one would

try to get the budget deficit down to at least 3%, which is what the

European Union rule is. If you are at 3%, the debt is not growing,

because if the economy is expanding at the normal rate, that is more or

less equal to the 3%. So if you can get it down to about 3% in normal

times, anything over and above that could be put into an oil fund.

you get the current budget to a 3% deficit, and then you can use oil

money or the oil money that remains to put into an oil fund or use some

of it for capital projects. Norwegians have put a substantial

amount of it into an oil fund, and it is now the biggest wealth fund in

Europe. That means there reserves are bigger than their national

debt. This 1974 paper, you say you were a civil servant at the time.

But in a way, that is not the point. The point is that had it been

published or the information in it been made public, it could have had

a substantial effect on both the chapters of the SNP at the time, and

arguably, the chances of the British government, saying, we had better do

something different with the oil money? The time I wrote it was just

between the Labour and Conservative government. The Labour government

had just got a depth of the situation. In that paper, I was

saying, we know how much oil we produced in 1980, and you ought to

be able to get this amount of revenue from it. But you will not do

that unless you do something about it. When the Labour government came

in, it did take the measures necessary to do that. So the revenue

in 1980 was actually larger than I predicted. But the point is that it

would have been helpful to the public debate, had that information

being made public, and the British government deliberately did not make

it public. I don't know about that. In the period running up to that

election, there were two issues of the Observer newspaper on two

successive Sundays, and they both said approximately the same as I was

saying. So it was known by a lot of people. Let's come back to the

present. Setting up an oil fund, any idea when you think that might even

be a possibility? Not for quite some time. It depends on how any

government would manage the other finances in Scotland. Would we cut

public expenditure or raise other taxes? What would we do to get the

balance budget in balance? The SNP have an idea of a currency union

with the UK. You are sceptical about that. We have seen how difficult it

is in Europe at the moment. It means there would be very little

separation. You don't think you could have a separate fiscal policy?

No. Why not? Look what happened in Europe. They are moving towards a

situation where they are tried to get control of each other's fiscal

policy in order to stop some countries building up huge debts. It

makes it very difficult to run a separate fiscal policy. So if you

had an independent Scotland that was in a currency union, do you think it

would be possible for Alex Salmond to carry out what appears to be his

flagship Wallasey, to reduce business taxes 's -- flagship

Wallasey. I don't think so. There would be all kinds of problems with

that. If Scotland tried to cut its corporation tax to the kind of level

that the Irish have, the northern part of England is in a worse state

than Scotland economically. Scotland is actually one of the richer parts

of the UK now. The north of England and Wales would be up in arms about

it, because the whole point would be to attract investment that otherwise

might have gone to them. Let me quickly go through some of the

points that struck me in the book. You say that whatever arrangements

had been in place in banking regulation, you don't think Scotland

could have survived. It would have been in the same position as Ireland

or Iceland in 2008. Well, it banking industry in relation to GDP is

bigger than either of them. It depends a lot on whether the

headquarters were in London or in Edinburgh. If you think it would

have been a problem before, what is the solution? If Scotland became

independent, do you think the best thing that could happen would be

that RBS and HBOS are headquartered in London and would therefore come

under the rest of the UK's regulatory system? In the case of

Lloyds, which owns HBOS, it would be bobbly be headquartered in London,

and its Scottish bit would just be subsidiary. And the Scottish bid

would be regulated by the Scottish regulator. What about RBS?We don't

know. It might be tempted to move to London. But you think it would be in

the interests of Scotland if it did? It would have to be separately

regulated in the two countries. What went wrong with Iceland was that one

of their banks operated simply as a branch in Britain. You have written

this took about the debate. What do you make of it? Do you think the

pro-independence people are running a good campaign? I don't want to

comment on that. I don't want to fall on either side. I have tried to

be impartial. I think the pro-independence side have a lot of

questions to answer about the currency and the European Union and

so on, and about the financial sector. The financial sector would

have to be we struck did if we became an independent country, and

that would be quite a headache. And what about the no party? They can't

agree on what they would put in its place instead. Do you think they

should be trying to do that? Yes. Public opinion polls have shown that

image or to your people would like to see more devolution. In fact,

more people seem to say that Dan that they would like independent at

the moment. We know the Scotland act 2012 will introduce a lot of

additional powers. But perhaps we should go beyond that. The Liberal

party want to set up a system which would be like a federal system in

the UK. We have had various people reducing papers on that. You think

there should be more debate on that. I understand you claiming you

do not want to take sides. What I got out of your book was that the

gist of it seems to be that the independence thing is not a very

good idea, and it certainly is not a very good idea right now? In a way,

this is a bad moment. The UK as a whole is heavily in deficit. That

adds a problem. Let me ask you a very blunt question. What would have

two happen to convince you to vote yes? I don't think I want to answer

that question! In the terms of the book? I think a lot of the issues

which I mention in the book really have to be given answers to. And

they are not at the moment. The European thing, we don't know what

is going to happen. I tend to think on the whole that it might be easier

for Scotland to become a member state of the European Union than a

lot of people make out. It has to be agreed by the other 28 members. One

of them could veto. What else would you need to know to vote yes?

would need to know what is going to be done about the financial sector.

We will have to leave you there. Thank you. Now, as we witness the

clouds gathering tonight, this year has been a bit of a mixed bag for

weather. A nondescript winter followed by a late cold snap meant a

delayed spring. Consequently, it was a tough start for our growers and

farmers. However, since then things have picked up with the warmest July

in years for most parts of the country. Notably in the North East,

where they have been enjoying some good growing conditions with hot dry

weather. At least they were until Ian Hamilton turned up to find out

how things were doing. This year has been a bumper crop fur

fruit growers, thanks to a warm, dry, sunny summer. Well, until I

arrived. Even the dog will not come out of the car. In this part of

Scotland they grow food on an industrial scale. On this form alone

outside Arbroath, they employ more than 300 people at the height of the

growing season, picking and packaging fruit. Mainly

strawberries. They are grown under 200 acres of tunnels, each of 100

metres long. The fruit is sold directly to supermarkets the UK.

certain times of the year, the Tayside region, if you like, would

produce a large percentage. It is probably going on for 35%. That is

quite a lot? Yes. At certain times of the year. Other times it would be

less. It is a significant part of the UK fruit total. North of here is

Aberdeenshire. There you will find some of the best farming land in

Scotland, growing a variety of crops and raising some of the best beef

cattle in Europe. Like the fruit growers of Angus, these farmers have

also had a good season. Andrew Booth runs a family farm. They will open

the doors and their books for others in the industry to scrutinise. I

cannot think of any other sector would do that. But they do not view

it that way. We are competitors but also friends and colleagues. Farming

is not an industry with mass of companies with lots of employees.

For us to improve the system, we need to learn of them, and they

learn from us. The opportunity is to get ten years worth of business in

three years. You are open to criticism but I have got pretty

thick skin. I can handle that. European Union are making some

radical changes to the common agricultural policy. But any changes

make winners and losers. One major concern is that farmers will be

discouraged from being productive as the subsidy shifts from productivity

to how much land they have. European Union as commanded it wants

to play on the active farmers. -- has demanded it wants to pay only

active farmers. No further criteria to say they will give more money to

more active people and less money to less active people. The risk is that

the money will go from people who are active and productive, to people

who are relatively inactive and unproductive. If all I have to do is

keep what will actually amount to one 40 acres, -- one Cal to 40

acres. , than I might very well be tempted to say I will keep my money

and cut my level of production and has -- have a nice easy life.

farmers, to survive it is about diversifying. For some it is about

tourism and farm shops and cafes. For David Smith, it is renewables.

You cannot see them because of the low cloud over the Aberdeenshire

Hills. But he assures me that he has invested in four large wind

turbines. That has more than doubled his farm income. But he has got

concerns that farmers like him are being squeezed out of the market by

foreign developers. I am really frustrated at the difficulties of

trying to get finance. It is sad to see there are several farmers who

have actually got planning permission, and because of the

difficulties they are encountering, they have had to sell to foreign

companies and all the profit is going abroad. It is a shame. Money

should be staying in Scotland. It is our facilities so we should be seen

the benefit. Farmers are a canny lot. They know that one good summer

will not make an agricultural business. But at least this year

they are enjoying the fruits of their efforts.

Now a quick look at tomorrow's front pages. Starting with the Scotsman,