There's a remarkable piece in today's Sunday Times in which Kevin Pringle (the SNP's erstwhile spin-doctor-in-chief) admonishes us silly Scots who keep casting our eyes back, those of us who ponder the fact that we dodged a bullet by voting No in last year's Independence Referendum. He asserts simply:
pointing to glaring inconsistencies between what was said before the referendum would be the case, and what has actually happened afterwards [is] pointless and irrelevantYou've got to admire the chutzpah of a man who can write that statement. It's obvious to even the most casual observer why a cheerleader for the SNP would rather we didn't look back at the case they presented; the SNP will be seeking our vote in May 2016, so of course they'd like us to think it "pointless and irrelevant" that they tried to persuade us to vote Yes on the basis of a false prospectus.
But he doesn't leave it there. He may no longer be employed by the SNP but old habits die hard and a spin-doctor's gotta spin. So - having asserted we shouldn't - he proceeds to cast his eyes back to try and score some rather weak points around risks to HMRC jobs and orders for type-26 frigates. There's an obvious "have your cake and eat it" hypocrisy to this rhetorical ploy and both of these are far more nuanced issues than he suggests - but I don't want to get bogged down in those arguments here. I want to focus instead on the following astonishing statement:
On the back of the plummeting price of oil, Unionist parties revel in the fact that North Sea revenues are only going to be £0.1 billion next year, compared to the £6.8-7.9 billion forecast in the independence white paper.
Of course, it should be pointed out that while the Scottish government’s central assumption was for the oil price to be $110 a barrel at the time of independence, Westminster’s department of energy and climate change predicted prices of $114-127 a barrel over the same period. And the Treasury publishes a monthly summary of figures produced by independent organisations - in May 2014 none of the 22 forecasters expected oil prices to fall to current levels, and 18 expected prices to remain above $100 a barrel in 2015.Let's put aside the childish suggestion that Unionist parties "revel" in the drop in North Sea revenues and focus on what he's doing here. The first paragraph refers to North Sea revenues, the second talks only of the oil price. He's relying on the fact that the casual reader will accept this elision, will allow North Sea revenue forecasts and oil price forecasts to be conflated into being effectively the same thing. Well they're not, as we'll come on to see.
We need to get one basic point clear first though: the UK Government relies on OBR forecasts and has done since it was established in 2010. The OBR - the Office for Budget Responsibility - the clue is in the name. If you want to budget responsibly you can't simply ignore it. Needless to say the Scottish Government's Independence White Paper did just that - it ignored the OBR's forecasts for North Sea revenues (whilst relying on them for the base case onshore assumptions)1.
Now if you read the second paragraph of that Pringle quote quickly you might have gained the impression that the White Paper was using the same assumptions as the UK Government. What he's actually asserting is that the White Paper oil price assumption of $110 a barrel was at the low end of the DECC assumptions that existed at the time. This is correct - I pointed out as much myself a year ago in "Oil & Gas: When Will We Ever Learn" - but it's not the same price assumption as the OBR were using. In March 2013 (fully 8 months before the White Paper was published) the OBR was assuming $97 for 2016-17 (revised to $97.4 in the OBR's Dec 2013 forecast)
But there'a bigger issue here. By focusing the reader's attention on the oil price assumptions he's distracting us from the actual oil tax revenue assumption. What's often overlooked here is that it's profit from North Sea production that is taxed by HMRC2 - so to get from oil price to North Sea tax revenue you also have to make assumptions about oil production volumes, production costs (hence profitability) and of course effective tax rates. So there are a lot of other assumptions we'd have to understand before we could judge whether the White Paper was in line with "Westminster" assumptions.
Fortunately we don't need to bother ourselves with the detail, we can cut to the chase by comparing the Scottish Government's White Paper revenue forecasts with contemporaneous OBR revenue forecasts. The chart below does just that: it compares the White Paper scenarios published in November 2013 with the OBR forecasts published in March and December 2013 and March 2014 (6 months before the referendum).
There is no ambiguity here: the White Paper was never using "Westminster" assumptions for oil and gas revenues. The White Paper explained its forecasting approach thus:
"we will plan Scotland's public finances and borrowing requirement on the basis of a cautious forecast for oil and gas revenue" - page 305You don't need the benefit of hindsight to know that those are the words of a false prospectus; the lower of two scenarios they presented was £2bn- 5bn higher than contemporaneous OBR forecasts.
That's not cautious, it's downright reckless3.
Pringle goes on to point out that nobody forecast a price crash as severe as that we've seen. As with all good spin this truthful observation invites an untruthful inference: if everybody was wrong you can't blame the SNP for being wrong. This is of course nonsense: the SNP used assumptions that were far more wrong than the OBR, at the same time as falsely asserting they were using cautious forecasts.
The fact that they presented two scenarios compounds this deceit. Anybody who understands planning knows scenarios are used to test a plan against a range of likely outcomes. Even a layman reading the White Paper would surely assume that the scenarios represent a reasonable range of probable outcomes. The authors were obviously aware of the OBR forecasts, so the only way using these scenarios could have been justified would have been if they'd labelled them "optimistic" and "hopelessly optimistic".
The bottom line here is that the shortfall between reality and the White Paper forecasts is £6.7bn to £7.8bn a year. To put that figure in context: £3bn a year is Scotland's share of the UK's total defence budget; our total Education and Training budget is £7.6bn; £7bn is £1,300 for every man, woman and child in Scotland. Against this figure most other arguments pale into insignificance. Let there be no doubt; if we'd voted Yes the people of Scotland would be facing far worse austerity than we are today. By choosing to continue to pool & share our resources with the rest of the UK, we dodged a bullet.
Mr Pringle and his fellow SNP cheerleaders discourage us from looking back on their false prospectus for one simple reason: if enough people look back and realise how close they came to leading us to economic disaster, they will be the ones getting the bullet come May 2016.
For completeness I've updated the graph to show how the OBR forecasts have progressed since the Referendum; nobody will be surprised to learn that they have continued their record of always turning out to have been optimistic. They were wrong, they were optimistic - but they weren't half as optimistic as the Scottish Government.
For added giggles I thought I'd include what Wings Over Scotland's Wee Blue Book had to say4 about the prospects for oil revenues. As I concluded in Wings and His Wee Blue Book of Errors; he was very very wrong indeed.
1. The White Paper mentions the OBR 5 times:
- page 602: explaining that OBR assumptions for UK onshore receipts have been used as the basis for projecting Scotland's
- page 603 (twice): explaining that OBR projections used for reserved social protection spending and onshore GDP
- page 604 and 605: explaining that the OBR projection for the total UK deficit is used for comparison purposes (which is of course inconsistent - if you choose to use a higher offshore projection for Scotland you should compare with a total UK figure using that higher projection ... but we'll let that pass).
2. All of HMRC's North Sea revenues are based on taxes aplied to profits. Despite its name, Petroleum Revenue Tax (PRT) is a tax on profits arising from individual wells. There used to be a gross revenue royalty but that was abolished in 2002
3. The White Paper goes on to say "Production in Scottish waters could generate approximately £48 billion in tax revenue between 2012/13 and 2017/18 based on industry estimates of production and an average cash price of approximately 113 dollars per barrel" - page 510
4. On page 29 of the Wee Blue Book, having insisted that the UK government has been talking down oil (we now know the reverse was in fact true) he chooses to quote an academic who suggested "an independent Scotland's revenues in 2017-19 would be almost £32bn"