Do we really want to rip up the guaranteed benefits of the Barnett Formula and rely on North Sea oil instead, asks Brian Wilson
I see John Swinney has had his civil servants burning the midnight oil with a mission to rebut the £444 million Scottish Government underspend. The Scotsman was even favoured with a letter on the subject.
Only “economic illiterates” think there is a credibility chasm between last year’s massive underspend and staple Nationalist rhetoric about not having enough money for anything because of wicked Westminster. Now it is all a book-keeping exercise outwith Mr Swinney’s control, give or take “only” £145 million.
Really? In 2009, the same man sought laps of honour for a £31m underspend while boasting that “long gone are the days when hundreds of millions of pounds would be underspent each year, doing nothing to help communities around the country”. Now the hundreds of millions don’t matter.
Mr Swinney is right about one thing. A decade ago, the previous Holyrood administration also had underspends (which the Nationalists attacked with vigour). There’s no mystery about why that was the case. As one veteran of the period told me this week: “So much money was flowing in, we couldn’t spend it fast enough.”
In these circumstances, he said, it made “perfect sense” to hold over spending to the following financial year. “It was a completely different set of circumstances. Nobody in government was claiming then that Holyrood was being short-changed. Quite the opposite.”
The reason money has “flowed in” faster than it could be spent can be summed up in three words – the Barnett Formula, which brings beneficial consequentials to Scotland for every additional spending decision made in Whitehall. And that takes us back to the point Mr Swinney was more reticent in addressing.
As seemed to be confirmed last week, the SNP wants to end the Barnett Formula in return for “full fiscal autonomy”. Nicola Sturgeon did not seem anxious to add clarity to the landmark declaration which her predecessor has saddled her with. When asked to confirm, her formulation was: “I believe Scotland should be in charge of our own resources.”
When pressed on the point, she engaged in much bluster before saying that if her opponents’ “argument is that Scotland’s finances are not equipped to cope with a period of low oil prices, the simple fact is that this is the result of blah, blah, blah …” Frankly, that is no more than a debating point, and not a particularly good one.
The future funding of Scotland’s public services is the issue at stake and the position which the Nationalists have adopted of wanting to exchange the Barnett Formula for North Sea oil revenues is irresponsible and ridiculous. Small wonder that while Ms Sturgeon cannot disown it, she was conspicuously reluctant to confirm it in plain language.
As Sir Ian Wood pointed out on radio yesterday, cutting North Sea taxation is not really the answer to anything since hardly any tax is being paid at present or is likely to be for several years to come. Yet this is the revenue source which the Nationalists want us to depend upon to fund not only our schools and hospitals but also our pensions and benefits.
No government can control the price of oil but every government has an obligation to look for danger signs and plan accordingly, in order to limit the impact of downturns. This time, the exact opposite has happened in Scotland. Because the Nationalist case depended so heavily on promoting a lie, they did absolutely nothing to forestall the consequences of the reality.
Fergus Ewing, the Scottish energy minister, has discovered that this involves the “most serious job situation Scotland has faced in living memory”. Can this be the same Fergus Ewing with whom I took part in an energy debate in Aberdeen before the referendum when he insisted that planning Scotland’s economic future on the basis of oil at $113 was not only prudent but – as the White Paper said – “cautious”?
I looked back in the light of Mr Ewing’s apocalyptic change of tune to the immediate aftermath of that encounter. “As you might expect in Aberdeen,” I wrote, “it was a knowledgeable audience and an authoritative voice from the floor told him that the entire oil industry is working on a forward curve of $90 a barrel. ‘Your numbers are not taken seriously. Your numbers are simply wrong.’ Nobody demurred.”
At the time, I was astonished by Mr Ewing’s brazenness though there was no way he could con an energy-savvy audience in Aberdeen. The far greater irresponsibility was for Salmond, Sturgeon and the rest of them to try conning Scotland as a whole into buying an economic future which rested on a massive lie. Their numbers were “simply wrong” and they knew it.
When the Wood Report came out, it was rubbished for its pessimism. The Nationalists created an instant think-tank to rebut it. More lies. More time wasted. Fergus Ewing piously declared yesterday that “our thoughts are with all the people in the North-east who face job losses at this time”. He didn’t give them a second thought when peddling the “simply wrong” numbers on which depended the only political objective that matters to him and his colleagues.
Fortunately, only a gullible minority fell for it or else did not care. But now the Nationalists are at it again. Though the Scottish people have rejected the creation of a separate state, the interim objective is still to lumber us with a separate tax base from which everything bar defence and foreign policy would have to be funded. That is what they will be asking people to vote for in May.
There is an urgently needed road-map in the Wood Report for both UK and Scottish governments to follow in the months ahead, as a damage limitation exercise against the implications of an oil price which currently makes a $90 forward curve look optimistic, never mind the Fergus Ewing fictions. This is about jobs, prosperity and the survival of businesses.
As Mark Carney delicately summed it up this week, the wider effects on the Scottish economy – ie public spending – will be “substantially mitigated by the fiscal arrangements in the UK”. For anyone to now compound past felonies by demanding we surrender that mitigation on the altar of “fiscal autonomy” is socially reckless and, if I may say so, economically illiterate.
There you have it. More proof they want to dump Barnett, and fund Scotland from taxes raised here. But you cannot pay public spending bill of £65bn with an income of £53bn. Scotland would face massive cuts and/or massive tax increases.