Wee Eck's oil.........

 

 

Wee Eck is said to be delighted that HM Treasury has agreed to guarantee Scotland’s share of the national debt in the increasingly unlikely event of Scotland becoming fully independent.

 

He seems not to have got the full message. The purpose is to stave off international investors’ jitters about the viability of Scotland’s finances after independence and the risk of default; hardly a vote of confidence. Neither does it mean that the UK will pay anything;  there will have to be another agreement on how the debt burden is apportioned between the two countries.

 

The markets are right to be a little frisky about an independent Scotland. There are crucial financial imponderables that will have to be addressed pretty soon.

 

The Barnett Formula gives Scotland £1600 more of taxpayers’ money than England per head. What will be the effect of the loss of the English subsidy?

 

The gap between tax revenues and expenditure is twice as wide as in England. How is this to be bridged?

 

Salmond is promising  a basket of goodies that includes full-time child-care for working mothers, tax breaks for small businesses, a reduction in corporation tax, and cuts to air-passenger duty. But the size of the fiscal deficit would entail either £2 billion in spending cuts, a 6p income tax increase, or raising the VAT rate to 25%.

 

Forecasts suggest that the deficit could rise to an unsustainable £9.4 billion.

 

Salmond wants to keep the £ sterling. The Chancellor rubbishes this idea.

 

The key is  the future of oil.

 

It is a diminishing asset, and he has totally failed to give a convincing case as to  what happens to the economy when it runs out. He mutters something about replacing it with business and industry that will flock across the border, enticed by lower corporation taxes, ignoring the obvious that the UK would simply match the cuts. And he surely can’t believe that Edinburgh can compete against the City, the world’s largest international financial market.

 

But more than that; oil is becoming  very price-sensitive. Forecasts suggest that oil and gas supplies will become prolific over the next 10 years. Fracking in the US is already having a dramatic effect. It is inevitable that the price per barrel will fall markedly. North Sea oil is notoriously expensive to find and extract. If the price falls below about $80 a barrel the rigs will simply stop pumping. And there has been little investment in exploration for some years.

 

Wee Eck has two big, fat elephants in the corner of his campaign, and they will flatten his shallow campaign

 

Two-thirds of the oli is in Shetland and Orkney waters. The islanders have no great love for Scotland. They are not Celtic; they are Norse. They have their own dialects and don’t speak Gaelic. They don’t wear the kilt. They have their own flags  and distinct identities. And they would prefer remote Westminster to over-close Edinburgh.

 

They have other options than being run by the Scots.

 

They can seek an opt-out (which they nearly achieved at the time of devolution).

 

They can secede.

 

They can seek an ‘Isle of Man’ arrangement, giving them full autonomy apart from defence and foreign affairs.

 

They can negotiate special terms over control of the sea bed (The Manx sea bed is Manx-owned; it is not part of the Crown Estate).

 

They have a strong position. They negotiated a share of oil revenues back in the 70s which has given them enormous sovereign wealth funds. They have autonomous Councils. They have legally-protected Parliamentary boundaries. They will be hard bargainers. If they don’t get a good deal, Salmond can kiss his budget plans goodbye.

 

He might be left with just enough oil to fry his Mars Bar.