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Wings Over Scotland


The devil in the detail

Posted on November 21, 2013 by

We’ve had a closer look at the Institute for Fiscal Studies report from this week.

Basically, the conclusion of the report is that if an independent Scotland continued to do exactly the same things over the next 50 years as the UK does now, it would have to grow its GDP by 1.9% to cover a predicted fiscal gap, while the UK would only have to grow by 0.8% to cover a similar gap. According to the IFS, this 1.9% shortfall would mean a 6% cut in services or a hike of 8% in income tax in an independent Scotland.

However, close reading of the small print in the IFS document highlights facts and forecast figures that appear to contradict the IFS’s argument and instead point to a situation where an independent Scotland would actually be in a similar fiscal position to the UK. Confused? Yes, so were we.

On page 40 the document states:

“The current SNP government has, however, suggested that it would cut defence spending from £3.3 billion to £2.5 billion which would reduce spending by around 0.5% of national income.”

(Our emphasis.) That gets the fiscal gap down from 1.9% of GDP to 1.4%.

Then on page 45, Footnote 31 confirms the viability of a Scottish oil fund:

“It is worth noting, however, that HM Treasury (2013) cautions against being too optimistic about the amount of future revenue that can be expected from such a fund. HMT modelling of an oil fund for an independent Scotland suggests that even if an oil fund were started in 2021–22, all oil revenues were contributed to the fund each year and the fund received a real return of 4% per year, in the very long run the fund would still only provide an annual return to the government of around 0.5% of national income.”

(Our emphasis again.)

This is interesting on two levels. Firstly, it indicates confirmation from HM Treasury that an oil fund is achievable and could provide long-term returns, even at a modest 4% rate of return (In fact, Norway’s sovereign wealth fund grew 14% last year, not 4%.)

And secondly, that the fund could provide an annual return of 0.5% of national income, which would reduce the Scottish fiscal gap to 0.9% of GDP. That’s almost at parity with the IFS’s predicted UK fiscal gap of 0.8%, without any additional cuts or tax increases. Where could Scotland find that last 0.1%?

From the Executive Summary in the IFS figures, we can establish that 0.1% of Scottish GDP is £146 million (at today’s prices). Scots currently pay £163 million per year to maintain Trident, and will be required in future to pay a population share of its £20bn replacement build cost, as well as ongoing maintenance costs of £100bn. Getting rid of it would save over £200m pa – more than enough to bridge the 0.1% gap and put Scotland in a stronger fiscal position than the IFS forecast for the UK.

But there’s another way out too.

Earlier this week we highlighted Sir Ian Wood’s recent report looking at the regulatory framework for the oil and gas industries. Sir Ian’s report concludes that stronger regulation would, by itself, realise an extra £200 billion over the next 20 years.

According to IFS figures, the 1.9% fiscal gap is equivalent to £2.78bn (in today’s prices), meaning that Sir Ian Wood’s £10 billion per year would not only eradicate this fiscal gap, but would leave over £7bn a year to play with. That would pay off an inherited per capita share of the UK national debt in little over a decade, and then allow a Scottish oil fund to grow rapidly.

Such are the possibilities of choice, should we elect to give ourselves them.

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    93 to “The devil in the detail”

    1. ronald alexander mcdonald says:

      Why didn’t they indeed? Because they are a bunch of fucking wankers who would sell their grannies for a fiver. Scum of the earth.
      Stu. Why do you correspond with Kenny fucking Farquarson? He, in my opinion is the worst of them all, as he’s a hypocrite to boot.    

    2. BeamMeUpScotty says:

      Well since an oil fund will be our responsibility post independence I don’t think Westminster need worry their silly little heads about any of this.In fact why are they so concerned about our future without them being around?So kind of them to be concerned about our well being.Nice neighbours.

    3. GrahamB says:

      And as AS was trying to hammer into the space between Johann Lamont’s ears today at FMQs the IFS report was predicated on Scotland continuing with the same fiscal policies as the current UK. They noted that things could be done differently in an independent Scotland!
      BTW was Ian Wood’s report based on all UK oil and gas revenue, if so our share would be lower so we might only have a spare £5bn or so to play with.

    4. muttley79 says:

      But that nice Douglas Fraser says that an Oil Fund for an independent Scotland is not possible?  Although he also said Salmond was a dictator as well zzzzzzzzzzz…

    5. Rev. Stuart Campbell says:

      Why do you correspond with Kenny fucking Farquarson?”

      I don’t, much. But you get nowhere by only talking to people who agree with you.

    6. Murray McCallum says:

      It looks like the IFS didn’t even read their own report in enough detail. Alternatively, maybe they had written the summary before adding the detail?
       
      Economists can’t agree on cause, effect and remedy for today’s issues, or even for recent economic history. This article highlights that we are not dealing with mathematical equations here here but priorities and choices.

    7. The Penman says:

      I find it so bizarre that such little analysis would provide a total contradiction of every newspaper’s headlines over the past few days. In my job, people get shot for less. 

    8. Stuart Black says:

      Thanks very much for this Catriona, why is it that this kind of analysis is not carried out – and reported – by the mainstream media?
       
      Yeah, rhetorical, ah ken…

    9. david says:

      sorry to say it but after watching rangers fans against independence over on twitter, i am now a staunch no voter. everyone should watch this video, it gives a truly in depth analysis on the trouble we would be in if we voted yes. we would have to live on a tenner a week ffs. say no to independence, you know it makes sense.

    10. MochaChoca says:

      Playing devils advocate with your calculations……
       
      The saving in the defence budget is undeniable, but isn’t the saving on trident mentioned later already built into that? Also the report was based on an (albeit pessimistic) level of oil revenues being put into our economy, so you can’t also put these into an oil fund (well not initially).
       
      As far as I’m aware the Ian Wood report suggested an additional £200bn of production rather than revenues, so while the revenues from £10bn in extra oil production pa would more than offset the gap, the £7bn leftover looks a over optimistic.
       
      My direction of attack on this report would more come down to the fact that the oil forecasts are overly pessimistic, and that with policies tailored to Scotland we will be more able to promote economic growth and population levels.

    11. Martyman says:

      Before I start sharing this to all and sundry, can I just double-check that you aren’t double-counting any figures?

      1) oil money – according to the report, with all the oil money availabel to us, we will be short by 1.9% of GDP. If we take that money and squirrel it away in an oil fund, then by my counting,  that income is no longer part of the package, so we will be short even less. OK – we’ll get a 4% return on what that fund makes – and can add that back in, but ….. not the same is it?

      2) Isn’t the cutback on trident already part of the £0.8bn (0.5%) defence cut?

      Now – I may have got the wrong end of this completely, but I thought I had better ask ….

    12. Castle Rock says:

      There has to come a point where the BritNats realise the damage they are doing to their own campaign.  
       
      The constant negativity and running Scotland down is really becoming tiresome and while it might appeal to the dwindling band of hard core unionists it’s just pissing everybody else off.
       
      If being ruled by London is that great I just wish they would give us some concrete examples of what it is that were meant to be happy about.
       
      Surely somebody somewhere must be advising the unionists of the backlash of all this constant negativity?  Their behaviour is really bizarre and goes way beyond acceptable politics, if this is the true face of unionism then I can’t wait until we get shot of it.

    13. JLT says:

      Well done, Catriona,
       
      I’m printing off your article above, so I can hand it around my family, friends and work colleagues.
       
      Absolutely brilliant!

    14. gillie says:

      Can we rework this report entirely and issue it as a correction. Let’s call it IFS 2 – The Scots Strike Back.

    15. Castle Rock says:

      Talking of bizarre behaviour:
       
      http://t.co/7pyBfQYEAy
       
      Speechless.

    16. Dorothy Devine says:

      “call it IFS 2” – could we call it FFS 2 instead?

    17. EphemeralDeception says:

      There is a corollary to all this.
      The IFS report makes its conclusions essentially by projecting the status quo and Scotland will face serious challenges if we don’t get an oil fund and take other measures etc
      However this is exactly what the UK is proposing.  The IFS are saying that Scotland will stagnate over the long term if changes are not made.
      The UK is not proposing anything other than continuation of exploitation of our resources for little or no return and no real change. Apparently it is better like that.
      The IFS report, can and should, be used against them.

    18. Martyman says:

      Not wishing to rain on anyone’s parade, but I wouldn’t go sharing this until Catriona or the Rev can come back and clarify the points MochaChocha and myself raised.

      To the layman’s eye – it looks like some figures have been counted twice.

    19. JLT says:

      Castle Rock,
       
      Jesus …the ‘Flower of Scottish Presbyterianism’ (knuckledraggers …every bloody one of them. They haven’t got the slightest clue as to what they are talking or singing about!).
       
      Honestly, I was shaking my head watching that. Unbelievable! I know there is a few of them out there that are like that, but there are many Rangers supporters who do not believe the drivel that was spoken about in that video.
      There are many Rangers supporters who do advocate Independence, and I know a couple who are DK’s, but are slowly coming around.
       
      As we have discussed many times on this site, if you were to ask the clowns in that video, what they about Knox, Presbyterianism, James VII, William of Orange’s conduct towards Scotland, I’ll bet that every answer given will be wrong!

      It’s pathetic that there are people walking around out there, who follow some twisted delusion of a history that they believe as fact, when, if they were to know the truth, I believe they would still deny it …even if you held the history book in front of them.
       
      What is it they say about people who follow blind hatred …oh aye, ‘they are ‘lost”. Only God knows what their redemption will be…

    20. JLT says:

      Martyman
       
      Fair dos! Will hold fast.

    21. msean says:

      O/T Watching documentary on Scottish independence on Al Jazeera news channel now.

    22. Murray McCallum says:

      The way this IFS forecast stuff has been portrayed in the media is pretty ridiculous.
       
      If you look at this report
       https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/260252/201311_ForecastComparison.pdf
      on page 3 you will see a summary that includes 24 new independent UK economic forecasts received between 1st and 13th November 2013.
       
      Bearing in mind there is only about 6 weeks (please compare that to the concept of 50 years) of 2013 left, consider the variation in forecasts:
      GDP growth 1.2% low to 1.6% high (i.e. a 0.4% variation)
      Inflation 2.0% to 2.9%
      Current account deficit -£63.1 billion to -£33.4 billion
       
      Economics is not a science. It is highly subjective. Even after events have unfolded, economists cannot agree on what caused something to happen let alone the remedy to address it.

    23. david says:

      i took 2 things from the rangers video,
      1/ at last, a positive case for the union
      2/ at last, a positive case for euthanasia

    24. Juteman says:

      Amongst all this fiscal hailstorm, is there room for a simple man like myself that couldn’t care less about the numbers?
      I’m a Scotsman, and I want to live in a country governed by my fellows, not the likes of Cameron, Blair, Osbourne and Broon.

    25. Andy-B says:

      Well done Catriona, in determining, that the IFS report, doesn’t represent, the true future of Scotland.
       
      I honestly feel that the rUK will suffer some sort of financial set back, long before an independent Scotland will, as Westminster badly manages the UK’s revenue.

    26. Jim Mitchell says:

      O/T but can someone help me out with a couple of things?
      First, how many official enquiries are labour or some of their supporters involved in at the moment, including Glasgow council, Falkirk , the Co-op bank and also did Tony Blair and Co give America permission to dig into our e mails etc?
      Secondly, Am I right in thinking that there are companies exploring for oil to the west of Scotland, with high hopes of  the kind of success that would make North sea oil finances look like sweetie money, and if so does anyone know when they are due to issue reports on their work?
       

    27. tartanfever says:

      For those doing sums, don’t forget to add in HS2.
       
      (Remember, there are no Barnett formula effects to calculate, and anyway, Barnett will be scrapped)
       
      HS2 – calculated somewhere now between £40 – £50bn (and rising) of which we will have to pay our population share of around £4bn or £400m a year for 10 years.
       
      By Catriona’s calculations, thats around 0.3% of our GDP each and every year for 10 years.
       
      That more than makes up for the 0.125 % you would lose if Trident has been calculated twice in the above figures.
       
      And for an extra £400m we would not have to pay for London’s new sewers at a cost of £4bn which has been moved to come out of the DEFRA budget so that it escapes any Barnett consequentials.

    28. The Cat says:

      Some people have raised the possiblity that we’ve been double counting here.
      That is, that the £163million Scots spend on Trident is already part of our current payment to Westminster of £3.3 Billion a year for defence.
      That might be the case but it’s neither here nor there as far as the argument goes.
      (I’ve hunted and hunted and can’t confirm one way or the other that the £163m is indeed already part of the £3.3 bn we currently pay out. If anyone can confirm this one way or the other that would be great)
      It’s neither here nor there because if we vote no we’ll also be paying out heavily for the Trident replacement as stated in the article. This amounts to 8.4% of the 20bn build cost and 8.4% of the £100bn maintenance cost over its 30 year life span.
      This comes to a sum spread over 30 years (Trident replacement lifespan) of 336 million a year (if we also pay off the build cost over the 30 years).
      This represents 0.23% of Scottish GDP.
      So any way you look at it, scrapping Trident will save us a packet and put us in a stronger fiscal position than that forecasted for the UK by the IFS.
      If you look closely you’ll see that this is mentioned in the article.

    29. Alex Taylor says:

      @JLT and Castle rock
       
      I agree that behaviour was shocking but every country has its eejits. It was the only really jarring part of what was a very nice wee 25 minute report by PressTV. It’s worth a watch and I thought the presenter was excellent.
      http://www.youtube.com/watch?feature=player_detailpage&v=N1l3F6n8i-A#t=549
       
      alex

    30. Jim Mitchell says:

      Am I the only one who thinks that once we have our independence we are going to find a whole lot of other ways that we were being financially screwed by Westminster?

    31. Castle Rock says:

      @JLT
       
      I took the link from Stuart’s twitter feed.  My best mate is a Rangers supporter and he’ll be voting for independence so yes, I agree, not all Rangers supporters behave or think like that.
       
      I still can’t work out why he’s banging on about Rule Britannia and wearing an England top then slagging off England because its full of immigrants and then saying he wouldn’t live in England and the first stop would be Wales.
       
      His pal was also top entertainment, no idea what he was saying though!

    32. msean says:

      No,i think we’ll find a few ways we’ve been getting done over that we haven’t noticed as yet.

    33. james s says:

      I agree with the posters above who challenged the validity of this article. It needs to be checked before sharing. 
       
      The IFS report is flawed on many levels but any rebuke has to be accurate and I fear this one is not sadly.

    34. Macart says:

      So
       
      Trident out: Check
      Defence spending reduction: Check
      Promised Oil Fund: Check
       
      All before any other array of measures are taken.
       
      And mate.
       

    35. EphemeralDeception says:

      @msean.
      What a terrible and factually inaccurate, cinringing report.  That fisherman in Aberdeen was also a complete  numpty.
      Not seen such a bad Al Jazeera report for a long time.

    36. JimW says:

      Thanks, David, for the heads up on Rangers for independence. How do you debate your way through attitudes like that ?  The only saving grace is that they threaten to move to England or Wales after independence. Can we hold them to that ?

    37. Martyman says:

      Cat – I think the main worry is the oil figures. If we put all the money into an oil fund, then the fiscal deficit will be larger than 1.9%. Didn’t the IFS report claim the 1.9% shortfall was wilth a geographic share of oil revenue? If you take that revenue out of the equation and stick in the piggy bank, then the shortfall will be a bit more than 1.9%

    38. Castle Rock says:

      @David
       
      1/ at last, a positive case for the union
       
      Yip, I’m now supporting No…

    39. Cal says:

      Article on Yes Scotland website called “What About Faslane” says defence spending in Scotland is currently 2 billion not 2.5 billion.

    40. Davy says:

      Thanks Catriona, I hope that further analysis confirms your figures which I believe will be correct, it will indeed put a kick right where its needed in the unionist erse.
      Also thanks to “wingman 2020” for the best Christmas carol.
       
      If this IFS report can accurately be shown to be missing relevent figures that put Scotland in a more positive situation then it will blow the No campaign’s credability out of the water forever.    

    41. X_Sticks says:

      @Jim Mitchell
       
      No.

    42. call me dave says:

      Lord Wallace is worried that business is being bullied and wont come out for the NO’s.
      The comments page responders have their own view!
       
      http://archive.is/QtIGn
       
      Last time he raised his profile on a tv debate he was thoroughly discredited.  He thought it would be a walk over, boy did he get a surprise, didnae do his homework.
       

    43. ronald alexander mcdonald says:

      Two things. Firstly, Norway started their oil fund when their annual deficit was 3% of GDP.
      The larger the amount invested the greater (over the first few years) that can be invested in capital expenditure internally. That in turn will bring about a faster increase in tax revenues, reduce social security payments, and reduce the annual deficit.  

    44. Cal says:

      Oops sorry I see now. SNP plans are to spend 2.5 billion in future. OK got now! Carry on….

    45. Murray McCallum says:

      Should we not count the number of paper clips we currently have in Scotland? Can’t commit to independence till I know the exact number we have and a projection for future requirements (or maybe a fund).

    46. Alex Grant says:

      AS was excellent today but why the hell couldn’t he have done all of the arithmetic and used this stuff. Is anyone in the SG semi fuckin literate on economic detail??

    47. tartanfever says:

      Martyman
       
      Remember, the IFS report uses OBR oil price predictions which are so unbelievably low that a barrel of oil would be worth less than a penny chew.
      And amazingly, they see a long term decline in oil prices – funny that the entire history of the world shows that when a resource becomes scarce it’s value somehow seems to rise. Not according to the IFS and OBR though.

    48. Ken500 says:

      The Business community won’t speak out because they can read a balance sheet and know how Scotland has been lied to and deceived by Westminster. Unlike the shameless Westminster Politicans.

    49. Ken500 says:

      There is another analysis Scott Minto ? did a few articles back, which showed the flaws in the IFS Report.

      Eg the Oil price will increase, not likely to decrease.

      A tax on cheap drink will cut NHS spending £1Billion? Scotland drinks 20% more than the rest of the UK.

    50. john king says:

      major bloodnok, decanmore, ian brotherhood, ronnie anderson, gillie, ken500, vincent mcdee, neil macadam,
      handandshrimp, jasonf,macart, roddy macdonald, robin ross, murray, mcCallum, gray,beammeupscotty, tris, greannach, jingly jangly, alba4eva ,fraser leith, vincent mcdee, wingman2020, jlt, another london dividend, heraldnomore, john king, marker post, creigs1707repeal, david,john g,atypical scot,andy a, roger mexico, handclapping,luigi, the penman, dave mcEwan hill, heather mclean, juteman,ronnie, calgacus macandrews,
      anna@annewitha_e,lumilumi,call me dave, cjmasta,kininvie, bugger the panda,tony (newby),kev,joe kane,lindas back, morag,jamie arriere,big jock, mad jock mcmad,edward,wingman2020,alex taylor, andy-B proudscot, papadocx, ghengis d’midgies, xsticks, billybigbaws, indie­­_scot,iain,kenny campbell,kev,seasickdave,brian powell, madoc, kenny campbell, conan the librarian, fairefromtheheearth,vincent mcdee,neil mcadam, REV STU CAMPBELL, what have we got to be proud of?
      if a missed ye oot , well bugger yea
       
       
      the opposition
       
      John Mcintyre (obe wan kinobe) d hothershall, brave (snigger) heart, grahamski falkirk, jersnia somethingorother, bugger me Ive run out of ink/keys/interest
      If you tell me aff fur no putting every initial in capitals rev yea can BITE ME

      and thats jist wan day

    51. HandandShrimp says:

      Talking of right wing think tanks, I see the rather more stridently right wing Institute of Economic Affairs has called the Borders Railway insane. However, I tend to agree with Keith Brown in that organisations like the IEA know the price of everything and the value of nothing.  What isn’t clear is who asked them for their opinion.

    52. Davy says:

      “John King”,
                Davy, Davy, Davy, Davy, Davy, Davy, DAVY how hard is that to remember or even spell.
                I would be insulted if I didn’t give a shite.
      Davy. 

    53. Jamie Arriere says:

      I’m sure I read somewhere this week that the figures forecast for oil receipts by the OBR and used by the IFS, were significantly different to those used by the Dept of Energy & Climate Change. Do you think this is worth an investigation of its own, and how they think this does anything for joined-up government?

    54. Martyman says:

      Tartanfever
      Yeah – I understand the other numerous flaws in that report. However Catriona’s article specifically looked at the figures, and I think her theory about oil revenue doesn’t add up. She said we could help make up the 1.9% shortfall by investing in an oil-fund which will return another 0.5% each year. However, if we invest all our oil money in an oil fund, then it can’t go towards our balance sheet (it’s stuck in the bank) – so it won’t be a 1.9% shortfall we will start with but quite a bit more. (going solely on the figures presented – not the completely bogus way the IFS figures were arrived at)

      So …… there are many ways to pick fault with the IFS report – OBR source being one of them – but it looks like the investigation into the figures has a few holes.

    55. MochaChoca says:

      Yes the OBR future oil price and productivity is way below other forecasts, but the fact is both are unreliably volatile, so the Scottish Government stating that oil revenues be considered a bonus makes perfect sense.
       
      When the NO side say then that means either a cut in spending or a rise in taxes they are actually correct. The answer from the YES side should be, yes we will cut spending, starting with Trident, HS2, Boris Island and every other telephone figure project they expect us to pay for but receive no benefit from. We’ll no longer be paying for a distant parliament or distant civil service departments paying London weighted salaries and spending massive budgets in the South East of England. The savings and the benefits accrued from this is what needs to be calculated.

    56. scottish_skier says:

      However, I tend to agree with Keith Brown in that organisations like the IEA know the price of everything and the value of nothing.  What isn’t clear is who asked them for their opinion.
       
      Aye, aside from the usual arrogance in telling other countries what’s best for them, considerable cash pissed away on a report that will be ignored by the vast majority and change nothing. Ironic? Not at all; the right are by default not fiscally prudent.

    57. Alex Taylor says:

      @ HandandShrimp
       
      Or as that buffoon Albert Einstein pointed out:
       
      “Not everything that can be counted counts. And not everything that counts can be counted.”
       
      Alex

    58. Juteman says:

      BBC/Panorama/British State trying to provoke the IRA into action. So obvious.

    59. Murray McCallum says:

      “However, if we invest all our oil money in an oil fund, then it can’t go towards our balance sheet (it’s stuck in the bank) – so it won’t be a 1.9% shortfall we will start with but quite a bit more.”
       
      All our money? Whatever, I hope you do not work in the Scottish investment industry. Assets in the balance sheet, income in the P&L.

    60. Alex Taylor says:

      @ HandandShrimp
       
      Institute of Economic Affairs has called the Borders Railway insanity.
       
      That buffoon Einstein again:
       
      “Insanity: doing the same thing over and over again and expecting different results”
       
      Lets make sure we make a change for a different result.
       
      Alex
       
       

    61. kininvie says:

      O/T
      Have a look at this, folks:
       
      http://www.theguardian.com/commentisfree/2013/nov/21/independent-scotland-yes-campaign-snp-radical-alternative?CMP=twt_gu
       
      One by one they are picking up on what is actually happening…
       
      There’s a sea change; you can feel the turn of the tide. So exciting.

    62. lumilumi says:

      even if an oil fund were started in 2021–22
       
      Now, this is what struck me. Why would indy Scotland wait until 2021 to start an oil fund?
       
      Maybe there isn’t that much money going around in the first years of indepence while indy Scotland cleans up the Westminster mess, but surely Scotland can afford to put a few pennies (= a few hundreds of thousands, maybe even a couple of mill) to get the thing started from 2016. Grow it from there. It’s a long term thing.
       
      The nightmare is, of course, that after a YES vote, and successful negotiations carried out by Salmond, Swinney, Sturgeon at al., in the first indy Scotland Parlamentary elections the remnants of Westminster, sorry Scottish Labour get into power by sticking enough red rosettes on donkeys and “big hitters” coming home from Westminster.
       
      They’ll piss all the wealth up the wall. No oil fund, no aspiration, no future. That’s Labour.

    63. Rev. Stuart Campbell says:

      I assumed the 0.5% was the “net profit” we’d get from putting the oil revenues into an oil fund with a 4% return, compared to just using them for normal spending. No?

    64. Churm Rincewind says:

      Hang on.  Yes, the IFS report assumes a no-change scenario.  Which is fair enough, given that no report can predict the future and can only model on the basis of the past.  That’s economics for you.

      However, this post supposes that IF Scotland were to become independent, and IF the SNP were in power, and IF it were to cut defence spending by £1.2 billion (which as I understand it is a “suggestion” not a policy), and IF an independent Scotland were to wthdraw from the costs of nuclear deterrence, then Scotland would be in a superior economic situation. That’s all true.  But it’s not what the IFS Report is saying.  Straw man.

      In passing, I’m vaguely irritated by the implication that HM Treasury’s assumption of a long term 4% return on a Scottish oil fund is inappropriate given that the Norwegian sovereign fund grew by 14% last year.  Well, yes, it had a good time last year, but on the other hand in the year to 2012 it reported a loss of $15 billion.  That’s the global stock market for you – it goes up, it goes down.  But it does strike me as misleading to cite one year’s returns in a worldwide bull market as a refutation of likely long term results.

    65. Jamie Arriere says:

      @Martyman
       
      Catriona makes it clear that these are figures included in the IFS report, and that they think an Oil Fund can be started in 2021/22 – not straight away!! I presume the delay until then is that it will take that long to bed down the new state, eliminate the deficit and start reducing the debt, get rid of Trident etc – that will all take a bit longer than we’ll want it to.

    66. ewen says:

      Just emailed the link to that bizarre rangers clip to my best mate. He is a unionist. Hopefully he’ll think about who he is allied to.

    67. roberto says:

      The IFS study uses data from theOBR who in turn gets its data from all govt.depts.According too the OBR oil will be 98dollars a barrel in 2020.Of course there may not be any oil left if A.Darlings forecast of 2billion barrels is correct.Maybe the Clair field in the atlantic which has in excess of 8 billion barrels of oil does not count.I leave you to draw your own conclusions. 

    68. Murray McCallum says:

      Basically the IFS seem to saying don’t ever set up a pension scheme. Spend everything now.

    69. Ken500 says:

      Norway Oil Fund worth £500Billion

      Orkney/Shetland has an Oil Fund. £500million

    70. Ewan MacKenzie says:

      MochaChoca
      As far as I’m aware the Ian Wood report suggested an additional £200bn of production rather than revenues
       
      No, I’m pretty sure it was an extra £200bn of revenues, at least in the reports I heard.

    71. Ghengis D'Midgies says:

      Newsnet article on OBR: http://newsnetscotland.com/index.php/scottish-economy/7027-who-exactly-are-the-obr-and-are-their-forecasts-on-oil-believable
       
      Dick Winchester on the OBR: http://dickwinchester.blogspot.co.uk/2013/03/forecasters-need-to-be-independent-and.html
       
      It is well known that the OBR is a total farce, I did not realise that the IFS used their projections but I’m not surprised.
       
      Ergo the IFS is thus discredited.

    72. john king says:

      davie says 
      John King”,          Davy, Davy, Davy, Davy, Davy, Davy, DAVY how hard is that to remember or even spell.          I would be insulted if I didn’t give a shite.Davy. 
      did I spell your name rong or sumfink? 🙂

    73. Murray McCallum says:

      The IFS are belittling their projected scale of Scotland’s useless oil fund – a 4% return (or annual income) would only represent a tiny 0.5% of Scottish government spending. Why bother eh?
       
      I think the point Catriona is simply making is that 0.5% is actually very significant when the same analysis has a projected fiscal gap (or income shortfall) of 1.4%.
       
      Seeking to save funds for the future is always worthwhile. No sums are too small – whatever little you can afford. If only Westminster had this attitude.

    74. john king says:

      davy says
      ““John King”,
                Davy, Davy, Davy, Davy, Davy, Davy, DAVY how hard is that to remember or even spell.          I would be insulted if I didn’t give a shite.Davy. ”
      Cheers for that pal noo ahf goat tae pit th washin machin oan tae waash the pants yea made me pish

    75. Martyman says:

      MurrayMcCallum
      I didn’t say “all our money”. I said “all our OIL money”

      And this is where I think Catriona has some of her figures wrong. She’s included the oil money as part of our main income AND used it as an investment source to generate another 0.5% of GDP (4% on the fund).

      If it is going to be used as an investment source, then it can’t ALSO be part of the main income.

    76. Murray McCallum says:

      Martyman
      Sorry – Yes I see where you are coming from.
      HMT modelling of an oil fund for an independent Scotland suggests that even if an oil fund were started in 2021–22, all oil revenues were contributed to the fund each year and the fund received a real return of 4% per year, in the very long run the fund would still only provide an annual return to the government of around 0.5% of national income.””
       
      Given the modelling was done by HM Treasury, the only way to make any sense of this IFS statement is that the 4% real return (i.e. excess above inflation) would represent a mere 0.5% of Scottish national income after allowing for the repayment of bond interest.
       
      The Scottish government would be issuing bonds to replace the oil revenues previously relied on. This would be on the basis that they can earn a long term return that exceeds the level they can borrow at.
       
      On this basis there is no double counting of the revenues / income.

    77. Dave McEwan Hill says:

      I have just watched FMQ on the BBC Scotland politics site.

      I have to say that Johann Lamont was absolutlely abysmal. There was no coherent political point in anything she said and her three questions were full of childishly unfunny jibes and personailsed mild abuse.

      I haven’t see her this bad before. I know it doesn’t actually matter as the press will merely recount that he attacked Alex Salmond on the IFS report. 

      It would be useful if most people actually watched FMQ.

      I’m finding it difficult to dislike Ruth Davidson. She takes the dressing down she gets every week in apparent good humour. 

      I bet Rhoda Grant wished she hadn’t asked her question. I think Rhoda’s ok.

    78. Jingly Jangly says:

      You all seem to forget we are paying over 4bn a year in interest for the UK debt at present post independence we will either have no debt (If they don’t want to play ball with the currency union and we walk away) or a much reduced debt when our share of assets have been taken into account. I have not looked but I pretty optimistic that the above was not included in the report!!!!

    79. Albert Herring says:

      Maybe the OBR’s low oil price forecast takes account of their knowledge that the North Sea reserves are but a wee piddle compared to what lies out west.
       
      Or maybe they’re just dishonest Tory bastards.

    80. The Cat says:

      Apologies for any confusion. I should have made myself clearer.
      By setting up a modest oil fund (modest mind, nothing on the scale of Norway) between 2016 and 2021 the assumption is that this would provide the 0.5% GDP as net profit. The IFS have said the fund won’t be started until 2021 but the assumption is we could start this process earlier.

      Certainly, the IFS has used DECC price forecasts to come to the 1.9% figure but they haven’t taken into account the plethora of recent oil and gas production developments (eg Kraken field, Cairn Ridge Project and a host of supposedly “dry” fields that have been re-instated) so the assumption is it’s do-able by 2021.

      We’ve also had the OECD come out the other day predicting that oil will reach $190 a barrel by 2020 which is at least $50 more than the DECC forecast. Again suggesting a modest oil fund is potentially do-able.
      Regarding the ups and downs of returns on the Norway fund, it certainly does that but the Norwegian government works to an expected long term-return of 4% which it has just about managed to achieve over the last number of years.

      So this isn’t about certainties, it’s about possibilities and choices. We all know many other areas where we could make savings and posters on here have spelled them all out.

      Everything I’ve read about the Wood report states that it is £200 bn added value to the economy not £200 bn extra production.

      What I’ve tried to do is look at the IFS document and use information contained therein, coupled to what I think is a reasonable assumption, to show that we’re not the economic basket case described but instead a country that is potentially no worse off than the UK and no different from any of the other Western nations that face challenges ahead.

    81. Gray says:

      @lumilumi
      That Scottish Labour could ever be elected as a government in an independent Scotland would also worry me greatly as to how the nation’s finances could suffer.
       
      I would like to see something in the constitution that would allow the public to force a new election if they were sufficiently unhappy as to the governship of the nation.
       
      What this mechanism would be I have no idea, some sort of acceptance of petition signatories could force the government to immediately call a yes/no referendum on calling an election.
       
      I would also like to think that in a progressive and independent Scotland we could embrace modern technology and use electronic voting measures which would significantly reduce the costs of such votes.  It would also get away from the postal vote issue which in its current format I trust Labour not to be abusing the system as far as I could throw them.  I would really have liked that postal votes were counted and announced separately to give more confidence in the process. Given that they are all received ahead of time I’m sure they could be counted in the last couple of hours of live polling without any perceived influence on the outcome of the result.

    82. Gray says:

      @ Dave McEwan Hill
      The Scottish Parliament has it’s own media centre that covers debates in the main chamber and covers the committee rooms too. All archived and available ..
       
      http://www.scottish.parliament.uk/newsandmediacentre/30875.aspx
       
      I wouldn’t give the BBC site the bandwidth.

    83. Dave McEwan Hill says:

      Gray
      I  cannot see Scottish Labour in its present form surviving a YES vote and the future government of Scotland after independence will probably see the SNP returned to power if for no other reason than the rest cannot muster enough numbers.
      I think there than will be a realignment  and we may in due course see a parliament with many small parties ruling in coalition agreements. Labour for Indy is an interesting issue. Can they continue as Labour members while opposing the Labour Party’s unionist position. Might they join with the SSP or some other left wing grouping. Or will Labour allow them to remain in the Labour Party. Will a majority of the Labour party move to the independence position.
      Interesting times

    84. Gray says:

      Dave
      Didn’t Scottish Labour dig themselves into a hole last week by announcing they were going to pre-select their 2016 candidates in advance of the referendum?
       
      That scenario if it prevails would potentially mean that there would be official and unofficial Labour candidates putting themselves forward for election.  All of the unionist parties will need to take a long hard look at themselves especially their conduct if they are ever to become electable again in any numbers in an independent Scotland.
       
      I would envisage that the parties involved in the Yes campaign would pretty much continue in their current format with the SNP wanting to remain as a steady pair of hands in the first term of an independent parliament before they too would surely fracture having achieved their ultimate goal.
       
      It’s almost a shame that there won’t be a peerage to bestow on Alex Salmond if all goes to plan.

    85. G. P. Walrus says:

      Economics was invented to make astrology look good.

    86. Ken500 says:

      More BBC nonsense

      Comparing what’s raised instead of what’s spent. Scotland raises more in tax pro rata.

      Compare spending on what’s spent. Westminster spends £720Billion. £120Billion more in the rest of the UK. Pro rata £12Billion.

      Scotland raises £60Billion Gets back £48Billion. (including £17Billion for pensions/benefits) Scotland pays it’s way. Why is Scotland lumbered with Weetminster debt. No taxation without representation.

      Total revenues raised in the UK £610Billion (including the Royal Mail theft). Total UK giv spending £720Billion.

      BBC financial journalists are ignorant.

    87. Ken500 says:

      The only threat to Pensions is UK gov policy, printing money and low interest rates. Scottish taxpayers pay gov pensions in Scotland.

    88. MochaChoca says:

      @Catriona
       
      Here is an extract of the press release from when the interim report was published:
       
      “Sir Ian believes that implementing the recommendations of the review will deliver at least 3-4 billion barrels of oil equivalent (boe) more than would otherwise be recovered, worth £200 billion.”
       
      At todays price and exchange rate the wholesale value for 3bn barrels = £203.7bn, and 4bn barrels = £271.6bn, so it’s really a bit ambiguous. At the higher end of the estimate the £200bn could indeed be the revenues, but at the lower end it would be the wholesale value.
       
      The way I’d look at it is that oil revenues in general are a bonus for Scotland, so either way, if this additional £200bn (or potentially significantly more depending the outturn of future prices) comes about, it is effectivley the cherry on top of the icing on the cake.
       

    89. The Cat says:

      @MochaChoca
      Thanks for that. Sometimes it’s difficult to get a definitive answer but I totally agree that oil revenues will be a bonus.
      In the context of this piece, the Fiscal Commision Working Group recently recommended that an oil fund ‘be established on independence’ .We know from the press coverage at the time that the SG would support this. My fault for not making this clear.

    90. Jingly Jangly says:

      By the way, The cost of Trident is paid from the treasury not Mod I don’t know and cant find out if the running costs are paid by the Mod but certainly the development and procurement costs don’t come out of the defence budget.
      See this about the Trident replacement costs which caused a spat between Gideon and Hammond
      http://www.bbc.co.uk/news/uk-10812825



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