Conservative created body claims North Sea revenues worth less than thought

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By Martin Kelly
 
A body created by Conservative Chancellor George Osborne in May 2010 has controversially claimed that revenues from the North Sea in 2040 will only be half previously expected levels.
 
The Office for Budget Responsibility (OBR) has this afternoon claimed that almost thirty years from now, revenues from the North Sea oil and gas sector will account for around half of what it originally predicted last year.

According to the body, by 2040 – should Scotland still be part of the Union, the amount that the sector contributes to the UK GDP will drop to around 0.05%, around half the receipts it projected in last year’s report.

According to the OBR, lower than expected oil and gas prices are the reason for its revised figures.

It said: “Our projections for oil and gas prices are also lower than last year…oil prices rise from $95 a barrel in 2016 to $173 a barrel in 2040.

“This compares with a projection in last year’s report of a rise from $107 a barrel in 2015, rising to $206 a barrel in 2040.”

The OBR was created by George Osborne after the 2010 general election and is supposed to provide economic forecasts in preparation for the UK budget and to advise the Conservative government on whether its policies will meet expected targets.

The sudden slashing of revenue forecasts for the North Sea sector will be viewed with suspicion and already Unionist politicians have seized on the claims that the oil price might not have risen by as much as expected by 2040.

Scottish Secretary of State Michael Moore claimed that the sudden downgrading of forecasts proved that Scotland should remain as part of the Union where it could be protected from the economic impact of such a “volatile commodity”.

Mr Moore said: “That risk is far better handled as part of the wider UK, where oil revenues represent a much smaller part of the economy than they would in a separate Scotland.

“Today’s news is another addition to the evidence which shows the huge long-term consequences of leaving the UK.

“We are all optimistic about the future of the North Sea but the Scottish government should not be blase about the reality of its post-independence economics which rely on these revenues.”

Mr Moore’s Unionist ally, Labour MP Margaret Curran also implied that the future would be too risky for an independent Scotland.

“The oil and gas sector is very important, but production goes up and down, prices go up and down, and so it is foolish to base our whole economy on this alone,” she said.

“It is much more sensible for Scotland to be part of a balanced economic mix rather than being so heavily reliant on just one sector.

“The report makes the case for the partnership of Scotland working with our neighbours, not in competition with them.”

However, Ms Curran’s acceptance of the figures from the Conservative inspired body is at odds with previous claims from Labour MPs that it could not be trusted with predictions after changes were made to estimates within months of them being published.

Last December, just months after being formed, the body was forced to revise UK growth figures from an initial projection of 2.5% growth for 2012, down to just 0.7%.

Appearing before a Commons Treasury Select Committee, the OBR chief Robert Chote was accused of using “guesswork” after a series of revisions for years up to 2016 led to the ‘disappearance’ of £65 billion from the UK economy.

Margaret Curran’s party colleague, Pat McFadden, a former Labour cabinet minister, questioned what the point of the OBR was.

“These are drastic changes, these are not minimal changes.  If you got it so wrong a matter of months why should anyone believe what you have got to say this time or the next time?”

Mr Chote was forced to concede that the chances of any forecasts, including OBR predictions, being “bang on the nail” were “practically nil”.

Appearing alongside Mr Chote in front of the same committee, fellow OBR member and economist Sir Stephen Nickell predicted that snow over Christmas would reduce the chances of the UK slipping back into recession.

Sir Stephen said: “If you have a huge bout of heavy snow before Christmas that will almost probably rule out a double-dip recession because GDP will fall in the fourth quarter (of 2011) and bounce back in the first quarter (of 2012).”

In fact, heavy snowfall over the period was blamed for lack of growth experienced throughout the UK and into New Year.  The UK officially entered a double dip recession in April 2012 after figures showed two consecutive quarters with negative growth.