Oil money “would fail to fill the gap” left by the loss of UK revenues if Scotland becomes independent, according to academics.
Spending cuts would be required to achieve the Scottish Government’s goal of establishing a Norwegian-style oil savings fund, Glasgow University’s Centre for Public Policy for Regions (CPPR) said.
Scotland could cut its defence and foreign-affairs budgets to a level similar to other small countries to bridge the gap, the academics said in a report.
The CPPR said: “Oil-related tax revenues would fail to fill the gap left from the loss of Barnett-related UK funding in an independent Scotland.
“However, such an outcome could be overturned, and possibly a small amount could be available to invest in a savings fund or to reduce debt levels, should budget savings be made in public services currently reserved to the UK Government, such as defence.” It added: “In order for there to be no net loss to Scottish public finances in moving from the current Barnett arrangement, there would need to be an increase in production levels, an increase in prices, or both.
“However, there is no predictable pattern in the movements of the oil price over time, so one cannot say that such a shift up is more likely than a shift down that would further worsen Scotland’s public finances.”
A Norway-style oil fund was “a worthy ambition” and “would be possible if spending was cut”, the CPPR said in the report.
It added: “Savings to the currently reserved spending areas such as defence and foreign affairs might be possible, specifically if they were to be in line with the spend per head experienced in similar, small, independent economies. However, even if this were manageable, the annual input into such a fund is likely to be relatively small.”
Alistair Darling, chairman of the pro-UK campaign Better Together, said: “The experts are clear that, even with all the money we get from North Sea oil, an independent Scotland would still be in deficit.”
A Scottish Government spokeswoman said: “The report confirms that Scotland is in a relatively stronger fiscal position with higher tax receipts per person than the rest of the UK as a whole, and the CPPR report confirms that we are now seeing record levels of investment in the North Sea.”
“To ensure the bonus from oil and gas is managed effectively and the benefits are spread across future generations, the Fiscal Commission Working Group has proposed, upon independence, establishing a short-term stabilisation fund and long-term savings fund.
“Had Scotland used its oil wealth to establish an oil fund in 1980, by 2011/12 Scotland could have accumulated financial assets of between £82billion and £116billion – equivalent to between 55% and 78% of GDP.
“We welcome the CPPR’s conclusion that the economic rationale for an oil savings fund is clear and a ’worthy ambition’. Only independence provides Scotland with the opportunity to make the significant improvements to the tax system which the IFS have highlighted in their report.”
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