Oil price drop would have forced an indy Scotland to borrow 6% of national output

So as we go paddling towards some form of resolution to our budget crisis, the FT has some, er, good news for thwarted Scottish Nationalists, on foot of a simulation of oil revenues by the Office for Budget Responsibility…

Had Scotland voted Yes to independence, it would now be looking at oil revenues of £1.25bn instead of £6.9bn in 2016-17 — its first year as a new country — while facing a deficit of close to 6 per cent of national income, compared with a UK forecast of 2.1 per cent.

Paul Johnson, director of the Institute for Fiscal Studies, said the OBR scenario highlighted “the uncertainty and volatility of oil prices . . . and their impact on Scotland, which is far more dependent on oil revenues than the rest of the UK”.

North Sea revenues are already falling to negligible levels, after Brent crude oil prices plunged from $97 a barrel on the day of the independence referendum to $61 last week. Meanwhile, delays to east coast investment projects are forcing the government to consider cutting taxes further in an attempt to stem the slide in new exploration.

Sort of unbolting a door after it’s been (fairly) firmly shut? John Swiney was having none of it in written Parliamentary answers last week:

A range of institutions have published forecasts for oil prices in recent months. The recent dip in prices has been driven by a number of factors, many of which are anticipated to be temporary, and the majority of forecasters expect prices to start rising again next year.

For example, in their 2014 World Oil Outlook report published last month, the Organization of the Petroleum Exporting Countries assumes a nominal oil price of $110 over the period to 2020. This is in line with the price assumption used in Scotland’s Future.

One of the reasons for the drop in oil is indiscipline in the OPEC cartel. Other contributory factors are the growth of oil production outside OPEC, and the decreased dependency of the US on imported oil on foot of the shale oil revolution.

But the Rouble crisis is a reminder, if such were needed, just how volatile dependency on the oil market can make an economy. The FT again…

The most pessimistic scenario assumed crude prices higher than those today with $77 a barrel in 2015-16, but following a path similar to the current oil futures prices with a $75-a-barrel price in 2018-19.

Under this scenario, even taking into account lower investment in the North Sea, the OBR forecast that between 2014-15 and 2018-19, revenues broadly applicable to Scotland — 90 per cent of the total — would reach £8bn.

That figure is less than a quarter of the Scottish government’s preferred forecast of £34bn for the revenues it believed it could expect over the same period based on what it thought was a cautious estimate that oil prices remained at $110 a barrel, encouraging stronger output.

It is half the Holyrood government’s most pessimistic scenario of £15.8bn, which was based on the oil price drifting down to $99 with lower output.

The Scottish government’s rule of thumb is that every £1bn lost to the exchequer in oil revenues accounts for additional public borrowing of 0.6 per cent of Scottish national income. It suggests that with a UK forecast for borrowing in 2016-17 of 2.1 per cent of gross domestic product, a newly independent Scotland would have faced borrowing close to 6 per cent of national income at current oil prices, due to the higher public spending per head that people in Scotland receive.


It looks like the SNP have inherited the best of both worlds. Ducking the awkward question of oil, and routing Labour north of the border. Having ducked independence, there are some sobering questions for nationalists to ask of Scotland’s long term constitutional future, to go along with those Gerry Hassan’s.



  • zabazoom

    bitter together told so many lies this seems to be nostalgic

  • Bryan Magee

    Er. The current actual price was what the Better Together campaign warned was possible; it was the Yes campaign that played down the volatility of oil prices.

  • Scots Anorak

    There are a few points that one could make here. First, had Scotland become independent when the oil first came on-stream, it would now have no deficit and an oil fund worth £222 billion.

    Secondly, if Scotland became independent tomorrow, it would immediately no longer be paying for Trident nuclear weapons on its doorstep and within a few years be benefiting from massive oil reserves off the west coast currently left unexploited to make room for the submarines.

    Thirdly, the currently depressed oil price is not the result of market forces but of deliberate geopolitical decisions, either by the Saudis against the Americans, or by both against the Russians. It is highly unlikely to stay down.

  • Comrade Stalin

    This is a bit facetious.

    There’s a mad panic in the North Sea right now for understandable reasons. But the chances are that this will blow over before long – probably within the next six months, and oil prices will spike right back up to where they were.

  • Keith Muir, Edinburgh

    given a £155 billion gdp and a estimated deficit of 7 billion

    There are a number of currently unexploited methods to raise revenue or make cuts:

    raise vat to 22% worth 1 billion

    put a £1 on every bottle of whiskey another billion

    cut 1.8 Billion from defence the budget

    the whole of government accounts reveals that Scotland could receive up to
    3.5 billion for 30 years from the UK for its share of assets worth 109 billion

    getting 10% of higher rate tax payers to re-domicile raises £1.75 billion

    so with 1.25 billion in oil revenue even without implementing some of these
    measures it could run a small sustainable deficit indefinitely.

  • Keith Muir, Edinburgh

    Would be the only time they told the truth then?

  • Thomas Girvan

    Any tips for Newmarket tomorrow?

  • Starviking

    But Scotland didn’t become independent when the oil first came on stream, and it was oil prospecting that was limited in the west coast area – there are no guaranteed oil fields there.

    Wishful thinking is no way to plan a nation.

  • Comrade Stalin

    No, but facetiousness aside, you are welcome to short oil stocks. I’m fairly sure if you do, you’ll lose money.

    The current drop in oil prices is about OPEC sweating out the frackers in the USA. They’ll all go bust, and when that happens they’ll merrily allow the price to float right back up.

  • Bryan Magee

    That’s one theory.

  • mickfealty

    Interesting Comrade. I’ve not heard that one before. Got any linkbacks? (Bloomberg says it will hit some and not others: http://goo.gl/gypuwO). I’m not sure there’s a single straight line in the oil price drop issue. But however long or short it continues Russia’s economic vulnerability is very plain for all to see.

    I’d say the SNP and Scots generally would be well put to get some diversity into the home energy market (there’s huge potential up there) and work on a diversification programme long before having another go at an IndyRef.

    PS, this also gives us a taste of what ‘burning the bondholders’ would have meant to the Republic. Having to look for a loan on six per cent of your economic in year one would be a tough ask. Burnt bondholders would likely have meant no credit worth talking about.

  • chrisjones2

    borrow 6%?

    Our cut thgeir spending to match what they can afford

  • chrisjones2

    Yes…don’t bet its a mugs game

  • This a very disingenuous piece here by the FT and gloatingly regurgitated by MF. If Scotland had voted ‘Yes’ on 18 September, it would not have been an independent country for 18 more months – April 2016. That means that had there been a ‘Yes’ vote in September we would still only be in the very early stages of negotiating the details with Westminster. The UK would still currently be responsible for collecting the North Sea oil tax receipts and the current (temporary) fall in oil prices would be the UK’s problem, not Scotland’s. This story is nothing more than more of the same Unionist scare tactics and misinformation as was witnesses incessantly during the referendum campaign. These tactics are re-emerging again now because Westminster and the rest of the Unionists are getting scared, very scared!

  • Cue Bono

    If there had been a Yes vote the people who voted for it would have been looking extremely foolish right now, and I suspect that the SNP would have been rightly punished in the aftermath.

  • Bryan Magee

    Another theory is that fracking has increased supply and demand has fallen because China’s growth has fallen.

    A predatory strategy may not be a credible one: fracking can re-start as soon as oil prices go up.

  • Bryan Magee

    I think that Gordon Brown pointed out that the avoidance of volatile extra distortions and regressive VAT tax measures represent one of the arguments for union: such supply side shocks and their concomitant fiscal adjustments – with further monetary policy and exchange rate volatility depending on the currency arrangements that Scotland enters into – can be be smoothed out better if shared out across Great Britain.

  • barnshee

    Most whisky is sold outside Scotland how would the £1 a bottle work?
    Vat is a UK wide tax how would Scotland get the 22% without setting up its own Vat system? Scotland don`t pay the defence budget:
    I suppose the “re-domiciled” tax payers would be brought back at the point of a gun?

    Etc Etc
    (Personally I would rebuild Hadrian`s wall (except higher) tell the jocks to phuckorff )

  • Keith Muir, Edinburgh

    The idea that Gordon Brown was a competent chancellor is one the greatest myths of our time
    I wouldn’t put much faith in anything he said.

  • Keith Muir, Edinburgh

    Bonded warehouse

  • Bryan Magee

    But on that point its quite interesting to click through Chokka’s slides here. It does underline the importance of independent agencies in statistical data.


  • CB – such utter b****x. If there had been a Yes vote, Westminster and rUK would be in complete and absolute panic s*****g themselves mode with the imminent breakup of the UK looming over them. The SNP would be on a total high and the people of Scotland would celebrating their victory and what would be an incredibly exciting countdown to 2016 and Scottish independence after 309 years of being 2nd class members of a forced union. You clearly live in fantasy land CB, so dream on but the inevitable is still happening and a 2nd referendum is not that far away. Your precious union’s days are numbered.

  • Bryan Magee

    Lets not get so heated over a counterfactual.

  • Bryan Magee

    What about Bank of England independence? Wasn’t that a good move?

  • Craig Fisher

    Hi Mick,

    If you look at this years figures, Scotland already has diversity in their energy market, with around a third to each sector, Nuclear Fossil Fuel and Renewables – http://www.thecourier.co.uk/business/news/renewable-and-fossil-fuel-power-generation-on-a-par-in-scotland-in-2013-1.744233

  • Keith Muir, Edinburgh

    Eh actually no it isnt if you do matched betting on free bets you can make a nice profit until you run out of free bets.

  • Is that all you’ve got to say, pointless effort really BM. I made a factual point about this piece by the FT and MF being disingenuous and erroneous and both you and CB have countered with nothing more than BS. Pathetic.

  • Bryan Magee

    There’s little point in getting so hot-under-the-collar for a counter-factual “what if” type question.

    On a personal, and quite separate, note, I would like to say that my thoughts and prayers are with the families in Glasgow who are mourning today their loss from yesterdays tragedy. What a sad time, and such a sad and tragic event.

  • It’s not ‘what if’. The referendum was agreed jointly by the SNP governement and the westminster government under the Edinburgh Agreement. It set out the process under which Scotland would become independent. This process began with a referendum and following a Yes vote, the two governments would then begin negotiations for Scotland’s countdown withdrawal from the UK by April 2016. We are currently 3 months into what would have been an 18 month negotiation process if there had been a Yes votes. During this 18 month period, Scotland would have remained 100% fully within the UK and all current North Sea oil tax revenues would belong to the UK treasury. The drop in oil price, which most ana lysis believe is geopolitical in nature would therefore be temporary and market forces would eventually override and prices would return to ‘normal’. The falling tax take on oil is currently the UK’s problem and still would have been had there been a Yes vote. Therefore this whole piece by the FT is BS.

  • Bryan Magee

    It is a “what if” – strictly speaking – as the question is what would have happened in the counterfactual scenario of a YES vote. Would people have been nervous about the oil price being lower than SNP’s assumptions and the impact on Scotland’s finances. It seems quite reasonable journalism to hold the SNP accountable to the assumptions that they made and set forth in the public discussion.

  • barnshee

    Bonded Warehouses contain untaxed goods they remain untaxed as long as they stay in there. The “Bond” is a guaranteed promise to pay tax on removal of goods from warehouse hence “bonded ” warehouse
    There is currently on a bottle of whiskey( at £15) in The UK
    Approx £8 Excise duty VAT £2.50 Total £10.50

    With most Whisky sold outside Scotland good luck to getting the extra £

  • Keith Muir, Edinburgh

    The article was in relation to the economy under independence.

    Scotland cant set up it own VAT system unless its independent it would breach EU law or at least that is the belief of the UK government.

    Scotland has barely 18,000 earning over £150,000 England has many more, offer some of them a 35% rate and we wont need guns they’ll be banging the door down.

  • Scots Anorak

    What could have happened if the country had become independent earlier is relevant because the Westminster Government deliberately hid the truth about oil at the time, for which reason everyone in Scotland should take any Jeremiah warnings on that topic today with a large pinch of salt.


    The drilling ban, which was imposed after a good deal of survey work had already been undertaken, affected oil extraction around the Firth of Clyde. There are also huge fields further north and west — left out of the initial oil boom because they were in deeper water but capable of being exploited with today’s technology.



    Depending on the arithmetic of the next Westminster Parliament, we may in any case be about to see fiscal autonomy, at which point it will become crystal clear if Scotland will sink or swim.

  • mickfealty

    Yep, just saying that it needs to be pushed onwards in the meantime.

  • mickfealty


    I did say someone was trying to re-open what is now a closed proposition. If you buy Swiney’s proposition (quoted above as a counterbalance to the FT) that this will all be very temporary, yes.

    But are you seriously saying that going into negotiations with a hurt rUK government and your own business plan projections in tatters would be a strength for iScotland?

    If so, how so?

  • Comrade Stalin


    I saw this story circulating a couple of weeks ago and it immediately sounded like the best fit to me. If you google “OPEC” and “fracking” you will find numerous stories about it.

    The Saudis did this back in the 1980s at the time of the oil glut. They tried to cut their oil supplies and ended up losing market share, so instead they flooded the market and forced out all the small oil suppliers before allowing the price to rise again.

    Russia’s problem is that their economy is highly geared to the oil price (as well as having a big military, nuclear weapons and power stations, and space exploration etc. to pay for). The Saudis have a lot of reserves and can afford to weather the storm for a little while – but not too long. At the end of the day they need the price to go back up again. They’re putting out statements about allowing it to go to $10/barrel if it had to, but I think they’re just trying to encourage short selling to push the price down even further.

    PS, this also gives us a taste of what ‘burning the bondholders’ would have meant to the Republic

    I am not sure that the two situations compare.

    The bondholders in question in the RoI were those (mostly German pension funds) who had sold corporate bonds to Irish banks, which then went bust. There was absolutely no obligation upon the Irish state to underwrite those debts – they were bullied into doing so by the Germans and the Americans.

  • Comrade Stalin

    Economic slowdown does not explain this.

    Oil prices continued to rise during the prolonged slowdown that began in 2008.

    A predatory strategy may not be a credible one: fracking can re-start as soon as oil prices go up.

    Not necessarily.

    Fracking has been financed by various investment banks. If it goes to the wall, those banks will foreclose on the loans and the equipment and investment involved will be written off. Nervous banks mean that it will be much harder to raise financing to launch any kind of fracking operation in the immedate future.

    There are some who think that killing fracking might even cause some banks to get wiped out.

  • Am Ghobsmacht

    A plunge in the oil price(not for the first or last time) is happening now i.e. on Westminster’s watch.
    If you chaps had voted ‘yes’ then possibly it might just make some of your politicians a wee bit more aware of Dutch disease, an awareness of which is no bad thing.
    In the meantime it would be more of London’s problem than Edinburgh’s (though all bets are off in Aberdeen and the Moray Firth…)

  • No Mick, obviously not saying that the fall in oil prices would be a strength for iScotland in what would have been the independence negotiations at this time. I am saying that the current price volatility means it is impossible to say what the effect will be on medium term global oil price forecasts 12 months from now – which is probably around when the price forecasts would need to realistically get factored into medium term economic strategic planning for an iScotland.

    Anyway, it’s academic as we lost the referendum this time, in part because of the promises made by Westminster such as Scotland would be protected and insulated from these economic shocks and supported by the ‘broad shoulders’ of the UK, which was big enough and strong enough to weather these storms. However, barely a few weeks since the No vote has passed and all we hear now is how the North Sea oil industry is practically on life support and tens of thousands of jobs in the North Sea are now in jeopardy.

    The ducks are all lining up now for a 2nd go at independence, and next time we won’t be fooled as easily. Every move and non-move made and not made by Westminster is being scrutinized by ordinary people in Scotland now in a way that has never happened before. All the unionist promises are being monitored now and it is up to the UK government and its cheerleaders to convince Scots that they were not cheated out of their birthright last September. This article by the FT and many others like it which emanate from all the usual suspects does not help to convince all those Scots that the correct outcome was achieved in this referendum.

  • BM, no, it isn’t ‘what if’. The FT article assumes that Scotland would have been independent on 19 September 2014, it wouldn’t have! The current oil price of about $62 has fallen steadily since July 2014 – exactly 6 months. The price had been very stable during the previous 6 months at around $112. There is no way of predicting right now what the exact price will be 15 months from now or 36 months from now or 60 months from now. The price in the medium to long term could well be above $110 or sitting steady at $110. I haven’t seen any predictions for it to remain at or below $60 for any sustained period.

    Opec published a report last month forecasting oil prices of $110 up to 2020. Governments need to take medium to long term predictions into their strategic planning and not be over swayed by every blip along the way. Most commentators see the current price volatility as a temporary geopolitical blip likely to rectify during 2015, perfectly in time for what would have been the final stages in the economic strategic planning targets for an independent Scotland. So just wait another 12 months or so before attempting this unionist mega gloat. It’s unbecoming of a true unionist you know.

  • mickfealty

    The point I was making above is pretty simple. More work needed by the Scottish Government on the sustainability question. It ought to take up the next two/three programmes for government at least, and if so it would be time well very invested in the cause of independence.

  • Derick Tulloch

    Or adjust tax rates and reduce indirect taxes so the poorest actually have money to spend – just like every other social democracy does yes even those with no oil and improve corporate taxation even a little from Ye Olde UK’s pathetic level. AND stop paying for 9% of infrastructure in England while the courtesy is not returned (yes infrastructure in England is ‘national’ so the whole UK pays, but the 200+ miles of the A9 is ‘local’ so Scotland pays 100%). And save a billion pounds a year on our contribution for ‘defence’ – £3.2 billion contribution for £1.7 bn return. And (my favourite) save £50m a year not paying MPs and ‘Lords’. Et era cet era.

  • Starviking

    But the problem is, with Scotland relying on the rest of the UK to balance the load from their renewables, it is not really diversity – it is dependancy.

    Considering that the SNP want a 100% renewable energy supply by 2020 – that dependancy, and lack of diversity, is going to grow.

  • Starviking

    On the McCrone Report, so what? Do you think a government is obliged to reveal information that could lead to the break-up of the nation?

    Also, were the report’s prediations accurate?

    From your second link:

    “possibility of finding oil or gas in exploitable quantities cannot be confirmed until exploration drilling has taken place.”

    So, as I wrote, no guaranteed oil boom.

  • Keith Muir, Edinburgh

    Eh no doesn’t count almost any Scottish Enlightenment Scot would of done that. He didnt do anything that wasn’t highly predictable to those that he was born from.