By Sean Martin
A secret document written 37 years ago has revealed that James Callaghan’s Labour Government ignored expert advice to set up an oil fund.
The paper was written by Professor Gavin McCrone – author of a 1974 report into North Sea oil revenues which concluded an independent Scotland would have had one of the strongest currencies in Europe and “embarrassingly” large tax surpluses.
Obtained under freedom of information legislation, the latest document, entitled “Draft Green Paper on the benefits of North Sea oil”, was written by Professor McCrone in 1977.
In the report, Professor McCrone said: “…the discovery of oil and gas in addition to the coal we already have makes the UK the most richly endowed economy of the EEC in energy resources and therefore gives us an economic advantage which others would be most envious to have.”
He warned: “North Sea oil benefits will not strengthen the economy automatically… but if we allow this precious asset to be used without leaving something in its place for the future we shall rightly be condemned in the eyes of succeeding generations.”
The report made several recommendations as to how oil revenues could most effectively be used – including the proposal of an oil fund specifically for long-term investment and not short-term needs.
Other suggestions, which Professor McCrone said tied in with the purpose of a special fund, included using the money to tackle the UK’s external debt, increase capital investment aimed at revitalising British industry and additional investment in Scotland and the North of England – the areas most affected by the discovery of oil and gas. He also advocated devoting resources to finding new forms of energy production and conservation.
Details of Professor McCrone’s oil fund advice come after recent studies by the Fiscal Commission Working Group concluded that, had Scotland’s oil revenues been used to establish a special fund in 1980, the country could have eradicated its share of UK public sector debt after only three years and may have accumulated assets between £82bn and £116bn by 2011-12.
In responding to the emergence of the second McCrone report, First Minister Alex Salmond referenced Norway – the most successful example of a special oil fund.
After beginning payments in 1996, the Norwegian Petroleum Fund now has an estimated half a trillion pounds in it – around £100,000 for every person in the country.
Mr Salmond also said the latest revelations demonstrated the “mismanagement” of Scotland’s oil revenues by successive Westminster administrations.
He said: “These are yet more damning revelations which lay bare the extent to which Westminster has mismanaged Scotland’s oil wealth. Labour were told more than 35 years ago that they should set up an oil fund or risk being ‘condemned’ by future generations, but they failed to do so.
“The costs of that mismanagement are now clear. Norway discovered oil at the same time as Scotland and now has the biggest oil savings fund in the world at more than £500bn – while Scotland’s fund stands at zero, thanks to Westminster.
“But we now have the biggest opportunity we will ever have to put that right because there is as much oil, by value, still to come from the North Sea as already has been extracted.
“And we have made clear that in an independent Scotland we will establish just such a fund – something which only a Yes vote in September will ensure.”
During an interview with Holyrood Magazine last year, former Chancellor Denis Healey admitted that the Labour Government in the seventies hid the true worth of Scotland’s oil – outlined in Professor McCrone’s 1974 paper – in order to dispel rising nationalist sentiment.
“I think we did underplay the value of the oil to the country because of the threat of nationalism,” he said. “It’s true that we should have invested the money in things we needed in Britain and I had thought about an oil fund, like in Norway, but it wasn’t my responsibility by then.”
Read the full report HERE.