12/03/2014 Newsnight Scotland

sports. You know, talent will always shine through and take you... Take

you as far as you want to go. Thank you very much. Thanks. Thank you.

Tonight, on Newsnight Scotland: Scotland's deficit grows, and a drop

in North Sea taxes is the main culprit. What does that mean for the

independence debate? Good evening. The gap between money earned in

taxes and public spending in Scotland is growing. A cut in tax

receipts from North Sea oil is the main cause in the increase of the

deficit. Somewhat predictably, both Yes and No camps are claiming the

figures support their case, as Huw Williams reports. Brace yourself

there are lots of facts and figures coming up. I'm at the People's

Palace to show it's about balancing the books. The results you get will

depend on what you put on either side. How you count Scotland's

income. And expenditure. How much weight you give to all the different

elements. As an example of that, look at the impact of the way you

share out taxes from North Sea oil and gas for the last financial year.

Divide them up by population and gas for the last financial year.

figures are huge. Share them out gee graphically and the statistics look

better for Scotland. Looking at the financial year 2 12-2013 in

isolation, Scotland's deficit was worse than the previous year. And,

worse than the rest of the UK's as a percentage of national out put. All

that allowed both sides of the independence debate to draw their

own conclusions. No surprises there. The gap between what we raise and

what we spend is ?500 greater for every single person in Scotland last

year. That is expected to rise to be ?1,000 greater for Scotland than the

rest of the UK in 2016. An independent Scotland will be off

rest of the UK in 2016. An a bad start financially. We would

have businesses damaged by the new border that the SNP want to erect on

this small island. For people thinking that they can vote for

independence and have all these unfunded promises by the SNP, the

truth is Scotland couldn't afford it. Our opponents started the

campaign by saying they wouldn't question Scotland's ability. The

14th most prosperous country in the world to be an independent,

economically viable nation. They will question it as the campaign

goes on, that is their underlining message, a message of fear. Most

people look at the common sense position. A country with great

national resources and outstanding people is more than capable of being

an economically successful country. The through the recession we would

have been better off. Through recovery we will be even better off.

have been better off. Through The figures reveal a drop in revenue

from the North Sea of more than 40%. Down from more than ?11 billion in

the previous year to just over ?6. 5 billion in 2 #0 -12013. It's a huge

mistake to have an economy over dependant on a single comodity which

is highly volatile like oil. What allows us to keep our economy stable

has been part of that bigger economic unit, the United Kingdom.

The figures demonstrate that is by far the strongest position that

Scotland could have going forward, not just into the next year or five

years, but the next 200, 300 years. The Scottish Government and its

allies in Yes Scotland say the fall in revenues was explained by

investment, which reduced the tax take in the short-term, but will

increase revenues for the future. If you look at the oil price, the oil

price hardly moved $111 average. The issue has been production. The

production is down to the 16 changes to the tax regime in the North Sea

that the Chancellor of the Exchequer has imposed on industry. If you look

at the Wood Report it calls for stability in the sector and a better

management the of the resource there. The Scottish Government would

be able to manage that resource better and have more stability in

the oil revenues to help to support the Scottish economy. Today's

statistics will tip the balance on what they think about independence.

There will be plenty more who will find to use the statistics to

support what they find. In the end we perhaps have to weigh up the

evidence for ourselves. I'm joined in the studio by Jo Armstrong who is

an economist at the Centre for Public Policy for Regions. The main

reason for the worsening of the deficit, in Scotland, when you

include oil revenues, is oil revenues. Why have they fallen so

much? As your package showed, production has definitely reduced

significantly in the last 12 months. It's reduced significantly in the

last two years. As a consequences of unexpected, unplanned outages

because the North Sea is an ageing asset and more of these pipe lines,

these platforms need to be maintained. That is less rest

production when they are shutting down to be maintained. While it's

true that outages, platforms shutting down because

true that outages, platforms be repaired or something happens are

one office, your argument would be they are one-offs more likely to be

repeated in the future? Yes. Oil and gas UK last year were anticipating

the bounce back coming this year, 2013, it didn't happen. There is an

expectation you will see that coming through. There is record levels of

investment that should help reduce that effect and increase

exploitation of fields that we wouldn't otherwise be able to get

access to. The expectation of that leading to significant additional

tax revenues is not yet coming through in any of the official

projectionses. That ta is Alex Salmond's argument. He says, much of

the fall in oil revenues is because companies can set it against - set

investment against tax. There are huge levels of investment going on.

That will ensure production in the future and will ensure revenues in

the future. Is it as straight-forward as that? It will -

it is instended to ensure proUKs d. It is intended to ensure revenues.

Whether it's taxable revenues is the issue. As the Wood Review suggested

we need a flexible tax regime to exploit as much of the North Sea out

there. Is the point, to try and understand this, is the point that,

as it being abouts more expensive in the North Sea because the stuff is

running out, the stuff that's being discovered is more difficult to get

out, that, for each barrel you get out you are libel one way or another

through whatever mechanism to get less tax? It's more expensive to

exploit, if it's more expensive it is less profitable. If it's less

profitable there is less tax to make. I know there is talk of huge

decommissioning projects in the North Sea I don't know if they have

started yet? They have started, but not significantly. The key to the

North Sea, and the key to maintaining a vibrant industry with

lots of high value jobs is to maintain activity as long as

possible. These tax breaks are aimed at trying to maintain the integrity

of that ageing infrastructure so you can continue to exploit harder to

get at more remote resources that doesn't necessarily mean more taxes.

The Scottish Government also argues that if you include oil revenues

Scotland has been in better fiscal position than the UK over the last

five years. Should we take that at face value? We have been looking at

these numbers for quite some considerable time. We would be

prejebthing we thought there would be a flipover that in some point in

the not so distant future Scotland future. It might not have flipped

over and continue in that way? Again, the projections for any kind

of official projections of North Sea taxes is for them to continue to

stay low. Maintained, but stay low. Given that you have a fairly steady

rising expenditure per Capita. Much has been made today by both sides of

the argument about independence about the difference between the

deficit for the UK, the UK as a whole and Scotland. Which rather

ignores that both of them are absolutely horrendous? Yes. We are

talking about relative deficits. The UK and Scotland both have fiscal

deficits. The budget coming up next week is going to continue to suggest

we will have to keep facing budget cuts. So that we can continue to get

fiscal austerity measures to get that fiscal deficit down. Scotland

isn't going to escape from that. We have as bad a fiscal deficit as the

UK. The other side is, given the deficit is much the same, one of the

points sland made today, this was a particularly bad year for North Sea

oil receipts, he argues, we are the same deficit as the UK it backs up

the argument, it is a deficit that needs to come down, it is not in

much a different position if independent than the rest of the UK.

It's not radically different to the rest of the UK. The outlook is the

challenge here. We have spending levels that we know are relatively

fixed and we would expect them to rise. We have revenues looking like

they are likely to fall. The fiscal position for Scotland looks like it

will deteriorate not improve against the UK unless you have a significant

bounce back in oil prices. That has negative affects on the economy. It

is not an upside. Thank you very much.

I'm joined now from Dundee by the SNP's Treasury spokesman, Stewart

Hosie, and from Edinburgh by Conservative Finance spokesman,

Gavin Brown. Presumably, you would have preferred to go into the

Gavin Brown. Presumably, you would referendum with a set of figures

showing the deficit was lower than the UK? Any one year figures can be

better or worse than the previous and I think the key thing is the

package needs to be explained carefully and was the reasons we

have those numbers. A substantial amount of tax deductible investment

in the North Sea which is due to begin tax return dividends in three

years and the Scottish government capital expenditure programme

investing in infrastructure nine and keeping many thousands of people in

jobs during that downturn. It does not change the long-term prognosis

or the arguments we have been making about the relative position being

better, but just for five years but 30 years. I am quite relaxed and

better, but just for five years but basic arguments do not change. Gavin

Brown, they do not? Especially if Alex Salmond and Stewart are correct

in arguing that there were one of factors with the 40 present fall in

revenue and part of that is investment which will mean more

revenues in the future? They are not one-off, we heard in the package

that this does not lead necessarily to greater revenues next year. We

know from the oil and UK gas report that next the tax take is predicted

to be 20 percentage aware than the figures we have just seen, under ?5

billion. When the Scottish government published figures, they

said it would be over ?7 billion so they are ?2 billion out, even though

they had all of the facts they are ?2 billion out, even though

and given that production costs are up by 15% and projected to rise

again and given the asset integrity of existing assets needs to be

invested in, it does not flow at all that you get greater tax revenues

and the Scottish government needs to publish updated figures for all

revenue because most other analysts seem to think they will decline over

time. If you click ?53 billion in tax, and collect 7 billion pounds

you have a big problem. Part of the UK, losing ?5 billion is not quite

as big a problem. Whatever the problem with Jo Armstrong, it might

be that the Scottish deficit is slightly worse than the rest of the

UK but the basic point is both figures are horrendous? Both figures

are very poor but the Scottish government argument has been that we

were the better of independent and that the Scottish deficit is lower

than the rest of the UK. They can still argue it is much of a

muchness? They are not arguing that and in a leaked paper, Mr Swinney

said it would flip by 2016. It is projected to remain that way because

we know that the oil tax will be lower next year and is projected to

remain low and we know Scottish -- Scotland has a demographic issue

greater than the rest of the UK and as the Institute for Fiscal Studies

said, we have greater medium-term and longer-term challenges but the

Scottish government is trying to pretend we would be that of

independence and that is clearly not the case. Again, this point that if

we forget about the differences, it is horrendous everywhere and to give

people some perspective, the Maastricht criteria called for a

deficit ratio of 3% and were talking somewhere between 7% and over 8% in

the case of Scotland. I do not notice any programme in your White

Paper to get that down? Or a number of things and firstly, you are

right, the deficit needs to come down but it is worth pointing out

that it was the collapse of the banking sector which led to this but

nevertheless, we are where we are and the case made in Westminster is

you needed a medium-term strategy to tackle the deficit while growing the

economy and what we are faced with is just stare territory on top of

hostility, which is not helping. Witness the fact that the UK deficit

is to rise to somewhere over ?1.5 trillion so we can take if granted

that any Scottish government, SNP or the other 1... But in your White

Paper you forecast that in 2016 to 17, the figure will be somewhere

between 2.5 and 3.2%. Whether they have worked or not, at least Gavin

Brown can say the British government has a strategy for reducing the

deficit. You appear to have no strategy in the White Paper. Just

all sorts of plans and we think the Times could be difficult but you

only have plans to spend money. What we needed is

only have plans to spend money. What austerity, which has intensified the

difficulties, but we need to grow our way out of these problems. So

there is no need for any programme of fiscal discipline at all? Should

these figures be what you inherited? Quite the reverse, I have

argued that there needs to be fiscal discipline I am happy to make is if

you are going to tackle the deficit problem of the extent the UK has,

you need to do it over the medium-term, you cannot slash and

burn over one Parliament over four years, which the other party

suggests, because that leads to no room to manoeuvre when times get

worse, which is precisely what we saw, apricots and austerity. And not

a decrease in the deficit or debt, but an increase. What would you say

to people? Under your lot, we still have horrendous debt after you have

been in power since 2010. Why not give Stewart Hosie and his friends a

chance to do something different? They ignore the reality on the

ground which is that growth has returned and is projected to

increase and unemployment is down, employment is at its highest level

ever, both in Scotland and the rest of the UK and the deficit is due to

be zero by 2018 and we have projected to be... You will find it

was forecast to be lower now than it actually is! Excuse us if we take

this with a pinch of salt. You cannot ignore the European crisis a

couple of years ago and if you compare us to our competitors and

trading partners, we are doing far better than most and our growth

projections and employment projections, while we are not out of

the woods, are looking better than others and the deficit itself, I am

sure Stewart Hosie once the plan, and there is one and it is projected

to be small, a small surplus in 2018. We have to leave it there. Now

a quick look at tomorrow's front pages. The Telegraph, Scottish

finance is weaker than the UK. The story we have been talking about.

Alex Salmond challenged to say hi he would finance the country after

these figures. The Guardian, NHS told to spend billions on reform or

face oblivion. This is retiring Chief Executive. And a great mental

health betrayal in the Independent. That's all from me. More news is

always on BBC Scotland's website and Good Morning Scotland is on Radio

Scotland tomorrow morning at 6.00am. Goodnight.

It is a cold night and there are some foreground and that could be an

issue by the morning across England and Wales, and particularly

low-lying areas. It should disperse others some places would stay grey

but the vast majority is bright with sunshine. Different story across

parts of Northern Ireland and Scotland, with a weather front

brings more cloud. Generally, in decline for and as we head south,

was the forecasters burst, another stunning day for many parts of

England and Wales and after that chilly start, temperatures bounced

back into the five teams. Along the coastal fringe, there could be mist

lapping onto the shoulders but head any distance inland