By Martin Kelly
A Scottish academic has criticised the forecasting record of the economics profession and specifically highlighted the poor record of the Office of Budget Responsibility.
Professor David Bell of Stirling University said: “The forecasting record of the economics profession in general is not good. The same can be said specifically about the forecasting record of the OBR. We need to guard against seeing a forecasting body as a panacea for the uncertainties surrounding public finances.”
The academic was commenting on plans to create a body specifically to carry out similar forecasting for Scotland. The Scottish Government outlined plans earlier this year after the OBR was accused of downplaying Scotland’s economic potential.
According to the Scotsman newspaper, Professor Bell said such a body had to remain free of Scottish Government interference but cautioned that this would not guarantee accuracy.
The issue of Scotland’s economic potential has led to disagreements over the accuracy of the OBR’s figures with the spotlight falling on its tendency to downplay future oil and gas revenue. Critics, including experts and industry figures, have challenged the gloomy outlook presented by the OBR.
Professor Bell, who is to give evidence to MSPs on Holyrood’s finance committee this week, added: “There could be a particular focus on forecasting North Sea oil revenues, which has proved controversial in the past,”
The OBR has not performed well since being set up by Conservative Chancellor George Osborne in 2010, getting key economic performance forecasts wrong.
In March the OBR halved its own forecast for the UK economy in 2013 from 1.2% growth to 0.6%. In 2012 the OBR had predicted UK growth would hit 2% in 2013. This week the body is expected to revise its figures for this year yet again, from 0.6% it claimed in March to 1.4%.
Figures produced by the OBR have underpinned arguments by the No campaign against independence. Unionists have claimed that its predictions on north sea oil revenue are proof that an independent Scotland would be worse off than if it was to remain in the Union.
OBR predictions have also been central to reports produced by other bodies such as the CPPR and the IFS.
Oil revenue remains at the centre of the independence debate. The OBR has predicted oil tax revenue will drop from £6.7 billion last year to £4.1bn by 2017-18.
However industry figures have described OBR forecasts as pessimistic.
Speaking to Newsnet Scotland last December, respected oil economist Professor Alex Kemp challenged the OBR forecasts and said: “The OBR’s combination of low production estimates with low price estimates is pessimistic compared with other predictions including our own.”
In March Professor Kemp describing the OBR’s revised forecasts as “contrary to the evidence from the industry.”
Others to challenge OBR predictions included Chief Executive of Oil and Gas UK, Malcolm Webb who said that tax revenues from the sector can now be confidently expected to rise over the coming years.
Speaking to energy magazine ‘Enterprising Energy’ earlier this year, he said: “…the projects approved in 2011 and 2012 alone will over time produce more than two billion barrels of oil and gas, generate £100 billion value for the economy and an additional £25 billion in production taxes for the Exchequer.”
Challenging claims that the sector is running down, Mr Webb added: “The North Sea oil and gas sector, contrary to what some sources say, still has a long productive life ahead of it; we estimate 50 years or more.”
Further evidence of the huge revenue still to be extracted from Scotland’s waters came in May when economists at the Paris based Organisation for Economic Co-operation and Development (OECD) forecast that the price of a barrel of oil will rise to between $150 and $270 throughout the coming decade.
The OECD envisaged a baseline value for a barrel of oil of $190 which, they said will lead to an independent Scotland benefiting to the tune of between £2.25 trillion and £4 trillion.
The Scottish government’s own estimates, based on a conservative price for a barrel of oil of $100, suggests that there is at least £1.5 trillion worth of oil and gas still to be extracted. The Scottish Government has estimated a figure of up to £57bn in tax revenue between now and 2018.
[Newsnet Scotland has great pleasure in announcing our first ever public discussion on independence.
Join Mark McNaught, George Kerevan and Mark Coburn tonight [Monday 2nd Dec] at the European Parliament Office, The Tun, 4 Jackson’s Entry EH8 8PJ Edinburgh, from 6 pm to 8 pm.
The discussion – which will be filmed – follows on from the publication of the Scottish Government’s Independence White Paper.
The event venue seats forty five people and audience participation is actively encouraged. Tickets are free and can be booked by clicking the link below.]