SNP Scotland: Can't Budget, Won't Budget

Scottish TV's political editor, Stephen Daisley, on an 11 March blog accused the Scottish National Party (SNP) of pulling a con trick on Scotland's public regarding their case for Independence and poked fun at the party's White Paper, Scotland's Future (2013). He reminded us, no doubt with some pleasure:

"It covered everything from tax and welfare to the health service and immigration. There was even a section titled: "Regulation of Outer Space Activity in an Independent Scotland".

Mr Daisley's article punchline is yet to come though, for first he emphasizes that the country's annual audit is published by the Holyrood's own Government Expenditure and Revenue Scotland (GERS). Nothing to do with the UK authorities.

The figures for 2014 – 2015 issued last week for the difference between what Scotland spent and its receipts are very bad. A Budget Deficit of £13.7 billion – just under 10 per cent of Scotland's Gross Domestic Product (GDP). This is reduced to 7.8 per cent if a geographical share of the UK's oil and gas receipts is included, although this surely is of little relevance to most in the UK, until and if Scotland ever becomes truly independent.

Once, Capital Investment Expenditure is added however, the Fiscal Balance Deficit balloons once more to £14.9 billion with all those North Sea revenues, or £16.9 billion without. Not bad going for a country with only 5.4 million people.

Governments are at least meant to try to balance their budget and considering that if the "Yes" vote had won the Independence Referendum in 2014, Scotland's "Independence Day" was to be 24 March, a little over a week away. Any celebrations would have been overshadowed by an almighty fiscal crisis. Maybe: "Welcome to a new Scotland and an immediate eight pence increase in the basic rate of income tax with more to follow"!?

Scotland's First Minister, Nicola Sturgeon, can bluster all she likes but Mr Daisley asserts:

"She knows what the GERS report confirms: The economics of independence are challenging for a party which favours low taxes and high spending. No alternative economics arguments have been forthcoming because they would involve hard choices and populist parties do not do hard choices".

This, Mr Daisley suggests, is what has led the Scottish Government to be rather inconsistent in its policies over so many issues like Income Tax, Council Tax, Welfare, Fracking, and he closes with a sting in the tail as to what this means:

"This is a party that does not know what it believes".

Although I suspect that he is wrong on that last score, the disagreement being more how best to achieve the best political outcome, he like many others, points to the swelling deficit being due to the collapse in the price of oil as the major factor.

The importance that oil, with related industries, plays in Scotland's economy is much greater than its impact on the rest of the UK. It accounts for some 10 per cent of Scottish output and the continuing low price of oil and gas is undoubtedly being felt, not simply for Edinburgh's coffers but also in the jobs market.

No one foresaw the extent of the current collapse in the oil price and its duration, so there is some credibility in this "excuse" for such dire economic figures. Yet there were all too many voices in the oil industry who warned of the potential and/or likelihood of a significant fall sooner or later in the price of this volatile commodity.

The warnings were happening even when the price had remained well above $100 per barrel for years as the industry had seen high prices time and again since that first quadrupling in 1973, but oil was never so scarce as its high price would imply. A large component of its price was, since 1973 at any rate, was of a geopolitical nature.

Iran's a good example of a factor affecting the current market. For so long under sanctions imposed by the West, could probably pump four million barrels per day for the next hundred years, once its industry is properly running again – maybe by early 2017?

The SNP took the political gamble that any drop, let alone one as severe these past eighteen months, would occur after they had reaped the rewards of the very strong surge in their support. Former SNP leader Alex Salmond had based much of his strategy back in 2007 on gaining independence for Scotland "in a decade".

Surely, he of all people, knowingly committed the Party to this high risk strategy. In 1980, Mr Salmond joined the Royal Bank of Scotland (RBS) as an economist and in 1982 was appointed to the post of Oil Economist, which he held until 1987 when he left RBS and was elected to Westminster as MP for Buchan and Banff.

Writing in The Scotsman on 12 March, former Labour MP and Minister, Brian Wilson accuses Mr Salmond, Ms Sturgeon and SNP Finance Minister John Swinney:

"...For them, the mission was to concoct an economic case (largely around "high" oil) they knew to be thoroughly dishonest but which they hoped would avoid exposure long enough for them to win."

Ouch!

Worse for the SNP's credibility is Mr Wilson's accusation that John Swinney warned his fellow Cabinet members: "...oil price volatility could jeopardise an independent Scotland's ability to pay pensions and benefits," and possibly more embarrassing, "For years...benefits from the Barnett Formula (money from Westminster to Scotland on a very favourable formula) had exceeded what additional revenues from oil would have brought in."

A resigning matter? Dream on, but it only emphasizes that over many years, even allotting 100 per cent of oil and gas revenues to the Scottish exchequer would not eliminate what has become Scotland's annual Budget Deficit.

On 14 March, the Scottish Government launched a consultation on (halving) Air Passenger Duty (APD); on 15 March it launched a new £100 million cancer strategy which looks really good. Holyrood under SNP control is rarely short of ideas on how to spend money (Health) or reduce some of the more unpopular methods of raising its income (APD) but the Government seriously needs to address the issue of how to secure more and greater income streams, or one day a nasty government at Westminster will get fed up and tear up that nice Barnett Formula!