Big numbers serve only to muddy the key judgments for voters
 The decision over North Sea oil and gas and their viability in an independent Scotland has to focus on future tax revenues In a referendum that pivots on whether people feel better or worse off in an independent Scotland, North Sea oil is key. So it was no surprise to see big numbers being bandied about by both sides on Monday. David Cameron hailed plans to reap an additional £200bn from the North Sea while Alex Salmond said that under a go-it-alone Scotland the reserves are worth £300,000 per person. But neither of these numbers is particularly helpful for a voter trying to decide if Scotland should take the leap of independence as a small, energy-rich nation. Salmond's hundreds of thousands and Cameron's billions for the economy are not tax revenues, nor what would flow into the public purse. Tax revenues are much harder to predict and are levied on profits, which in mature oil and gas fields are going to be squeezed by growing exploration and extraction costs. Rather than being baffled by the big numbers, voters would be better off considering three things. What is the outlook for tax revenues from North Sea oil and gas? All in all, would an independent Scotland be better off controlling the revenues? And what can be learnt from other energy-dependent economies? The boom years for tax revenues seem to be over. After hitting a peak at the turn of the century, production has declined sharply and suffered its steepest five-year fall on record between 2008 and 2013, according to the UK government's independent forecasters, the Office for Budget Resonsibility (OBR). The oil and gas left to harvest is also significantly smaller than what has been taken so far. Some 42bn barrels of oil equivalent – known as "boe" and used as a common measure for oil, gas and other hydrocarbons – have already been extracted and a further 12-24bn boe could be produced. Against that backdrop, tax revenues from oil and gas in 2012-13 were down £4.7bn, or more than 40%, on the year. Energy minister Ed Davey was quick to put that shortfall in context, noting it equates to more than one-third of Scotland's health budget. The OBR sees the trend continuing. It forecasts revenues will drop from £6.5bn in 2012-13 to £5bn this financial year, bottoming at £3.5bn in 2015-16. Still, 90% of £6.5bn is not to be sniffed at (90% of the UK's oil and gas fields are in Scottish waters). It would equate to £1,100 per person in Scotland and, taken alone, would mean the country is better off, according to calculations by economist James Knightley at the bank ING. But he also highlights that the current allocation of UK government spending is favourable to Scotland, with £10,152 of government spending per head of population in Scotland versus just £8,529 in England. This makes a difference of £1,623 per head of population. So if Scotland gives that up, despite the extra tax revenues from oil and gas, it is worse off. Of course, it is wholly in Salmond's interests to implement the kind of reforms suggested by oil industry veteran Sir Ian Wood, whose government-commissioned report has yielded the £200bn figure. Salmond and his allies know the oil and gas riches are the country's golden goose. An investment frenzy in the North Sea could bump up tax revenues and would boost jobs. But that takes us to the final question, of how petro-economies fare. There are obvious risks for an independent Scotland in putting so many investment eggs in the oil and gas basket: the wider manufacturing sector would suffer and its skills base would become less diverse. Such dependence would make Scotland vulnerable to fluctuations in the oil price. Edinburgh sees one big advantage to controlling oil and gas revenues, however. It looks to Norway, and says an independent Scotland would create a sovereign wealth fund that could match the success of its Scandinavian peer, whose $840bn (£505bn) fund is the world's largest. But that opportunity may have passed. Oil and gas revenues are getting harder to eke out in Scotland, an ageing population brings rising costs and a yes vote will most likely be followed by a long era of uncertainty that keeps vital foreign investors away. theguardian.com © 2014 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds |
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