arushAhead of tomorrow’s UK budget, retired industrialist and Labour Party member Anthony Rush takes a caustic look at the SNP’s plans for the UK economy.

 

There are still too many voters who believe that high oil prices will return and that tax revenues are the same as Brent Crude Spot Price. Ironically many of those that do would baulk at the idea of creating the sort of international crisis that will drive oil prices up, or for that matter paying more “at the pump”.

Whilst ever the US have large stocks of oil the prices will stay low and maybe go even lower. When higher costs and increased tax allowances are factored in any reliance by the Scottish Government on UKCS revenues is illusionary.

We will hear what Osborne is proposing on tax allowances tomorrow. I only hope he ignores Gordon Brown’s ideas on shared ownership which would result in the Treasury taking a much larger share of the burgeoning decommissioning costs. One Labour MSP tells me that he has heard the same insider estimates that I have. They could be at least £50bn in the next thirty years. Putting a figure on the Royal Academy of Engineer’s prediction that they will “be above £30bn”.

I like the “new style” GERS which under section 3 shows the reducing influence of the “Geographical Share” method of allocating North Sea revenues. I do not believe in that the geographical share is apt for anything other than assessing what an iScotland could (at best) expect. I think the UK parties should stop referring to it and base their announcements on the population share.

Barnett is supposedly based on hypothetical population shares. I have put together the following table to illustrate the current comparisons

% Barnett share Tax share* Population share
Scotland    10.03 8.3 7.9
Wales 5.79 4.8 3.4
NI 3.45 2.9 2.2
England 80.73 84 86.5

*I have referred to HMRC Disaggregation of HMRC Tax – October 2014 which gives the same value for Scotland’s population share. The ONS predicts a 0.6% annual growth rate in England’s population over the next twenty years, double that for Scotland and Wales.

The thorny issue for the devolved governments is that they have no powers over the Treasury’s budget or later expenditure adjustments. Consequently I don’t imagine that the SNP will be prepared to increase Wales’ allocation at the expense of Scotland’s – more likely they will want increases to both at the expense of England. The only way this can be done is by the SNP “tail” wagging the Labour “dog”. If Miliband and Balls don’t put an end to this right now – whatever it may mean at the ballot box – I think Frank Field may be right, it has the potential to factually split the Labour Party into English and Scottish Parties.

The SNP have no interest in “deficit reduction” other than to reduce the Treasury’s measures to cut it – austerity – which reflect in the sum allocated through Barnett. FFA is only a means of muddying the waters. That’s why I think Ed Balls needs to make it clear that under a Labour led Westminster Government any further tax autonomy will result in increased Treasury oversight on Scotland’s spending and that true FFA is in principle de facto the same as Currency Union.

The whole question of a replacement for Barnett is a very complex one which I am looking forward to thinking about in the next 12 months. At this point I am minded that the aims of the SNP are to get a bigger share of a bigger cake which they have either baked or have a substantive interest in baking.

But maybe the outcome of the General Election will not favour the SNP’s plans. Because they may be realised. It is possible that a coalition of parties who are not sympathetic to Scotland getting a larger share of the UK cake may give Scotland full spending and tax powers – subject to Treasury oversight. There is no international precedence which dictates that coalitions have to be only between two parties. A Tory, UKIP and Lib Dem coalition is entirely feasible.

With tax revenues barely exceeding £50bn and spending pushing £70bn there is no denying that Scotland would have at best the third largest deficit/GDP in Europe. In which case the First Minister’s vision of increasing Total Factor Productivity and at the same time reduce income inequality – plus other dubious give-aways like APD – thereby creating economic bliss would certainly be miraculous.

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5 thoughts on “Having your cake

  1. What is the logic in ignoring a geographical share of oil reserves? The whole debate around distribution of resources is about geography. The UK’s economic infrastructure is massively skewed towards London and the South of England; that is a fact of UK political life. To ignore in your economic analyses the fact that the bulk of the UK’s oil resources lie in Scottish waters is nothing more than an act of deception.
    So too is this sudden talk of replacing the Barnett formula. Plans to do so were constantly denied by all the unionist parties during the referendum campaign.
    The UK’s massive economic problems, nearly £1.5 trillion debt and a blinkered austerity strategy which is shrinking the economy and driving down demand, are of its own making. If its true that under the union, oil-rich Scotland now finds itself with the “third largest deficit/GDP in Europe” (I note we can’t have a geographic share of oil but we can have a geographic share of deficit and GDP!) that fact cannot be used as a stick with which to beat the SNP. Westminster, under Labour and Conservatives, created this terrible mess. Nothing I read here gives me any confidence that Labour can get us out of this mess.

    1. Thank you for your comments. I will try to give you some answers.
      It is a fact that spatially London is the core of the UK’s economy. In the same way Oslo is for Norway for example. Edinburgh is for Scotland, although Aberdeen is almost as important. It is also a fact that London is one of the financial capitals of the World.
      Using descriptions such as “massively” can be pejorative. As a matter of fact it is open to challenge, I would refer you to pages 63 and 64 of GERS. Capital spend/head in London is 1.4 times the average and in the South East of England it is only 0.8 times. In Scotland it is 1.2 times. Current spending for London is 1.02 times and the South East is 0.92 times. Scotland is 1.1 times.
      I wouldn’t argue that London has a stand-out GDP/capita but Scotland’s on-shore GDP is very similar to the South-East and the UK average. They rank just below London, but there are significant differences across Scotland as there are across the UK.
      Professor Kemp uses the boundaries employed for fishery management when calculating the “geographical share” of tax revenues from the North Sea. In truth there is no legally established Scottish Continental Shelf. It is part of the UKCS. The UK Government issues the licenses for oil and gas extraction. Those licenses could be transferred but they would be subject to renegotiation. The benefits and burdens of the North Sea are spread across the UK.
      The political excuse for not warning the taxpayers that oil revenues could almost disappear, as the current forecasts show, has been that they are volatile. The fall in oil prices and increase in costs of exploration and exploitation is not something which has just become apparent. Nor has the burgeoning costs of decommissioning. The Chancellor’s budget give-away preserves UK wide on-shore jobs and relevant infrastructure at the expense of revenues. Professor Kemp is redundant as the tax revenues will be de minimis and the geographical share now only has relevance to FFA.
      It is the SNP who are seeking to put an end to Barnett by proposing FFA. I suspect that they realise that such a high hypothetical population share is not sustainable because it is unfair to other parts of the UK where the population is increasing at a faster rate. Wales is an example where GDP/capita is significantly low.
      I do not agree with the need to reduce our deficit as quickly as the Chancellor is proposing. I have to say I don’t think he does either. It is another example of political posturing. I don’t think it is constructive to blame Westminster for “getting us into this terrible mess” – although there is no denying that they are responsible for managing the economy. My disagreement with the Conservative Party is that they are genetically wedded to “low taxes and low spending”.
      As for “beating the SNP with a stick”. Frankly I have yet to see an economic strategy from them that has been thought through. Correction, I have yet to see any strategy which I believe has been either thought through or communicates their true aims. I believe their one aim is to get unassailable power in Scotland.
      The two issues which I believe should drive our economy and society are equality and low carbon emissions. Depending on society’s level of ambition to better both will require higher taxes (across the board) and high public investment in appropriate infrastructure.
      You refer to the “mess we are in”. The UK, including Scotland, is not on its own in the midden. We suffer career politicians who have little or no experience of life outside politics. They are institutionalized. When they rise to the top they amass wealth, sometimes great wealth. The path they are on is opposite to the less well-off in our society.
      I fear that no political party will lift us “out of the mess”. None of them appear capable of persuading voters that we need to change if we are to collectively address the “exceptional challenges and threats” referred to by Prince Charles. Rather they pries open divisions in our society which should have been long since buried. They seek to rally support by marginalizing sections of society who are able to retaliate in kind.
      Just yesterday we heard the First Minister’s act of mea culpa – “we all got it wrong”. No we didn’t. “All” suggests that everybody not only believed her predictions for North Sea revenues but that we all agreed with the strategy to which they were being applied.
      Our political system and the personal ambitions of our politicians mitigate against a long term plan which will persuade society that we should be “all in it together”.

  2. You are quite simply wrong about there being any dispute or misunderstanding about what the extent or status of the Scottish EEZ would be post a future Yes vote. The international legal position is quite clear, and the delineation of the respective Scottish and rump UK EEZ and territorial waters is not open to any dispute. This would place > 90% of oil reserves in what would be Scottish waters. The same is clear for that favourite meme of unionists insisting that if Shetlanders decided to stay with the UK or declare their own independence, then much of the oil would be in their waters, when international law and ICJ judgements prove that not to be the case.

    There may be disagreement and argument about the economics of independence, but there is none about the boundaries of Scotland’s future EEZ or territorial waters.

  3. Am I to assume when speaking of “spending on London” that you’re talking about identified expenditure? It certainly doesn’t seem to include Crossrail (no benefit to anyone outside London), London’s sewers (no major benefit to anyone beyond the Thames estuary) and HS2 (no benefit to anyone except those London workers preferring to commute from the sleepy dormitory town of BIRMINGHAM.) Those are all “national” projects that we all have to fund despite them being all about propping up London. It also doesn’t factor in that the majority of the civil service is in London, plus most of the major businesses are controlled from there. The entire UK operates as a funnel to pour money into London and then when a few drops leak out on to the parched tongues of the Geordies and Scousers and Scots and Welsh and Irish, they call it a success for trickle-down economics. I’d be a lot happier with my trickle if I didn’t spend the rest of my life pumping money up to them.

    1. I hope that your description of Birmingham as a “sleep little dormitory town” is intended to give a sense of irony to your comment. Of course Birmingham and the West Midlands is anything but that. Their population of 5.6 million is enjoying an economic revival which is are emerging from the recession with flying colours.

      You are absolutely right in describing projects as being “national projects”. Our planning system requires the government to review the National Planning Framework and national projects every few years. The Scottish Government has recently carried out a review and included its own list of national projects.

      You are wrong to asserting that no benefit accrues to Scotland from English located national projects. The contrary may apply – less benefit accrues to England from Scottish priorities. For example what benefit does the rest of the UK get from the Forth Road Bridge or the upgrade of the A9? Collectively costing several billions.

      The serious question which underlines your comments is whether National Planning Strategies are right. And in that we can agree. They are not. But to change the outcomes we need to objective comment because pejorative rants allow our politicians freedom to avoid the difficult decisions.

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