By Chris Rumbles
The SNP has challenged the findings of a think tank’s analysis of an independent Scotland’s future finances which the party say used oil and gas figures that contradict industry projections.
The CPPR, an academic research centre based at Glasgow University, released an analysis of Scotland’s future finances following the recent publication of the Scottish Government’s Expenditure and Revenue (GERs) figures and the Office for Budget Responsibility’s (OBR) Economic and Fiscal Outlook.
A dispute has now resulted following the paper’s release as the SNP claim the OBR figures used in the CPPR’s report do not take into account the impact of increased industry investment in the oil and gas sector.
The analysis paper asserted that the latest figures meant Scotland, when accounting for oil and gas projections, was likely to be at a fiscal disadvantage to the rest of the UK from 2013/14-2018/19.
Senior researcher at CPPR, Professor John McLaren, said there would undoubtedly be benefits from the investment but he was unable to fully confirm whether the OBR figures accounted for this.
He said: “We, the OBR, the Department of Energy and Climate Change and everyone else I know, accepts that improved efficiency/output will be the case and, as far as I am aware, OBR build it into their forecasts. What is not clear is how big an impact it will have, especially on taxable profits and when this will arise. Hence people make different assumptions.
“Oil & Gas UK [whose production forecast the Scottish Government used in their scenarios from a year ago] have twice revised down their production estimates over the last year, despite these high investment levels and Sir Ian Wood stated that he saw no inconsistency between his report and the OBR data.”
Edinburgh-based energy consultancy firm Wood MacKenzie issued a report earlier this year that said investment in UK oil and gas had reached its highest levels since the 1970s. The group anticipated that £21.3 billion would be spent on capital investment over 2013/14.
Aberdeen South & North Kincardine SNP MSP Maureen Watt, who used to work in the oil industry, said:
“The OBR’s assumption that the record levels of investment in the oil & gas sector will see no increased production are firmly at odds with the industry’s own expectations. That simply doesn’t make sense and indeed Oil & Gas UK’s central projection is that production will increase from 1.4 million barrels per day in 2013 to 1.7 million barrels per day by 2017.
“George Osborne’s latest tax raid on the oil & gas sector has clearly shown that it is only an independent Scotland managing our own resources that will enable the sector to reach its full potential. “
After both holding meetings in the North East last month, the Scottish and UK governments simultaneously proposed new oil and gas funding initiatives in Aberdeen and Peterhead.
The Scottish Government announced £10.6 million in funding for a new Oil and Gas Innovation Centre in Aberdeen while Shell’s gas-fired power station at Peterhead will receive UK Government funding of £50 million to install new carbon capture and storage equipment
In its analysis paper the CPPR said the Scottish Government’s oil and gas projections were ‘out of date’ and that new estimates were needed to coincide with the latest GERs and OBR forecasts.
The paper also makes clear that since OBR make no assumptions on potential changes to the Barnett formula or Scottish finances, ‘it is not possible to be certain over whether the fiscal position under independence would be better or worse than that within the existing United Kingdom’.
The OBR’s annual ‘Fiscal Sustainability Report’ for 2013 details that a number of global-scale factors including the economy, production and geopolitical events make oil prices ‘extremely difficult to forecast’.
North Sea oil receipts’ changeability is also noted in the OBR’s report as being a barrier to accurately predicting the decline of oil and gas revenue streams in the UK.
The Wood Report, a review commissioned by the UK Government to assess the state of offshore oil and gas, was published last month with author Sir Ian Wood calling for a new regulatory body and greater government and industry collaboration to maximise economic recovery.