Maybe unusually for an SNP economics anorak, I don't write all that often about the North Sea. However, with oil prices and the UK public finances as they are, and in the aftermath of this BBC Scotland documentary, it's an issue once more creeping up the agenda.
This was written for the Scots Independent newspaper a week or so before 'Truth, Lies, Oil and Scotland' was broadcast north of the border (It's on the BBC iPlayer for a few more days for anyone who missed it). In the event, the programme was no-where near as incendiary as its title. However, when you've been told as I have by middle aged oil workers that despite the decades of production to come from the North Sea and into the Atlantic, that there's a shortage of young people coming into the industry because they all think the oil's going to run out tomorrow, you begin to realise what a good job people did in the 70's and 80's of persuading Scots, against all the available evidence, that this was just a transient windfall.
The first 30 years of revenues have been peed up against the wall. The kneejerk reaction to Alex Salmond's call for just 10% of the current North Sea windfall (not 95%, not even a percentage of the total tax take) to be invested in an oil fund for Scotland, should tell us all we need to know about how important the resource, and its revenues continue to be to the UK Treasury. It should also tell us why so many of the British political classes are so opposed to Scottish Independence - the cheek of some in continuing to claim subsidy as an argument for Union while raking in the taxes, still takes the breath away.An Invisible Giant
What is it about the oil industry that causes many otherwise sentient minds to shut up shop? To some, North Sea Oil has been about to dry up imminently for the past 30 years. To others, it would have been ‘selfish’ to see the revenues as being anything other than British. Some, meanwhile, prefer a zero sum view that because a resource is finite, no benefit can arise from its use.
Perhaps one of the reasons for this is because with one or two very obvious exceptions, the onshore signs of the industry are few and far between for the majority of Scots. It’s simply never become part of our iconography in the way that Ravenscraig or Clyde shipyards did – remarkable, when you consider that the offshore industry is worth something like a sixth of total Scottish economic activity.
[Scottish GVA without oil = 96% of UK GVA including oil. Scottish GVA including oil = c. 110% of UK GVA including oil]
Figures from the UK Offshore Operators Association show that in 2006, the industry invested more than £5.5 billion in the North Sea; spent a further £5.5 billion on operations; and contributed £9 billion in direct taxation to the Exchequer. It employed, either directly or indirectly, some 480,000 people across the whole UK – with 380,000 jobs related to domestic production and a further 100,000 to the export of oilfield goods and services.
That latter number is of particular significance to Scotland. Thanks to the experience gained over the past 40 years, Scotland is now a major provider of oilfield goods and services throughout the world, with exports growing at 10% per annum and worth some £4bn every year. Like financial services, this is another Scottish industry with a truly global reach.
But it's not just onshore that our visibility of this giant is restricted. When it comes to UK economic data, North Sea revenues are always included in overall UK accounts, but excluded from the Scottish accounts as 'Extra Regio'. This means that when a Scotland shorn of oil and gas revenues is compared with a UK figure which does include these revenues, Scotland is made to look relatively less prosperous than she actually is.
One of the most flagrant examples comes when measuring the size of the Scottish public sector. We’re often told that Scotland enjoys Scandinavian levels of public spending, yet pays only UK levels of taxation. The statistic used to back this up is that Scottish public spending exceeds 50% of GDP, while UK spending is sitting at 43% - a statistic from which we are then invited to believe, entirely falsely, that the Scottish public sector is uniquely inefficient and further, that Scottish public spending is being subsidised from elsewhere in the UK.
Let’s leave aside the fact that even if resources were being transferred to Scotland by the Treasury, present UK debt levels mean it would be being done with money borrowed internationally. Let’s also leave aside for a moment the fact that with 1/12 of the UK population being spread over 1/3 of the UK landmass, it’s always going to cost more to deliver the same quality of government services in Scotland than it would in more densely populated parts of the UK.
When you include the 90% plus share of North Sea revenues which would accrue to a Scottish Treasury, Scottish spending isn’t above 50% of GDP – it’s 41% - lower than the equivalent UK figure. In fact, pull the same stunt of removing those North Sea revenues out of UK accounts completely and the UK would have failed even to meet the Maastricht Eurozone convergence debt criteria from 2003/04 onwards.
It was in 1999 that the late Donald Dewar stood before the Scottish Grand Committee and intoned gravely that the $10 barrel of oil would be with us ‘for the foreseeable future’. Today, with greater competition for resources and increasing consumer demand, high energy prices and the challenges which flow look like they are here to stay. With our surfeit of renewables potential, and with as much to come from the North Sea as has already been extracted, Scotland is almost uniquely well placed to ride out the transition to this new world of energy insecurity.
We’re looking now to the second age of the North Sea, founded not on the prodigious rates of extraction of the early 1980's, but based on the high prices which make development of smaller resources worthwhile. However, the capital needed to maintain this success is both finite and highly mobile. To make the most of the remaining opportunities in the North Sea, government is going to have to focus on how to maintain an environment that makes Scotland at least as attractive to investors as other fields throughout the world.
Labour, with little or no affinity for the industry or those who work in it be they 'fat-cat' or 'roughneck', has only ever seen it as a convenient source of cash when the books won't balance. A Scottish Government could never afford to be so cavalier. This surely bodes better for the long-term future of the industry than the erratic behaviour of Whitehall debt junkies, desperate only for their next fix of corporation tax revenues.
