Disaster for SNP as North Sea oil hits a £2bn low

‘Disastrous plan for fiscal autonomy’

NORTH Sea oil revenues are in terminal decline, according to a devastating new report that has left the SNP’s plans for financial independence in ruins.

Experts at the Office f or Budget Responsibility (OBR) yesterday downgraded their tax estimates to a minuscule £ 2billion for the entire two decades after 2020.

That compares to a forecast of £37billion only 12 months ago, and more than £130billion that was projected in its first report in 2011.

In many years, revenues are set to be ‘close to zero’ or even in negative figures because the cost of decommissioning old rigs could outweigh payments to the Treasury.

The consequences for public funds could be severe, as the industry contributed £11billion to the British economy in 2011-12 alone.

The report came on the same day the SNP announced it would seek to amend the Scotland Bill in the Commons to include ‘ full fiscal responsibility’ – which would put Holyrood in control of all revenues in Scotland, including oil taxes.

The Institute for Fiscal Studies has predicted that would leave a £7.6billion black hole in Scotland’s finances. But Nicola Sturgeon, speaking in the US, yesterday backed f i scal autonomy and claimed ‘oil and gas will continue to be a considerable source of revenue for Scotland and the UK for many, many years to come’.

Scottish Tory energy spokesman Murdo Fraser said: ‘Were Scotland an independent country depending on these revenues for the funding of public services we’d be facing a very grim future indeed.

‘These problems would still rear their head under full fiscal autonomy. Yet still we have no explanation on how the SNP would balance the books if a fiscally autonomous Scotland was so exposed to this decline in revenue.’

The OBR, which provides data for the Chancellor to help him set the Budget, said in its report: ‘Our medium-term forecasts have been over- optimistic in recent years, mostly because production has fallen short of expectations.

‘Over the longer term, we can be more confident that oil and gas receipts are on a declining trend as production from the UK continental shelf moves towards its ultimately recoverable capacity.’

It stood by a medium-term forecast it produced in March, which estimated receipts of only £0.7billion in 2019-20, compared with a figure of £3.5billion in 2018-19 that underpinned last year’s report.

The new report states its estimates ‘ have been revised lower since last year – and are close to or below zero in many years’. It goes on: ‘Revenues are expected average just 0.004 per cent of GDP between 2020-21 and 2040-41, a fraction of the already low level recorded in 2014-15. Petroleum revenue tax receipts remain negative from 2024-25 onwards, as repayments associated with decommissioning costs outweigh payments. Expected revenues over this period total £2.1billion, down £34.5billion from our estimate last year.’

Oil prices fell below $50 (£32) a barrel earlier this year, down from $115 (£74) last June. An SNP projection of $110 (£70) was made during the referendum campaign. The OBR now estimates an average price of $62 (£40) for 2015.

Scottish Labour deputy leader Kezia Dugdale said: ‘This is less about North Sea oil and more about SNP snake oil. For the sake of Scotland’s schools and hospitals the SNP should abandon its disastrous plan for full fiscal autonomy.’

Angus Robertson, the SNP leader at Westminster, said: ‘IFS figures… suggest Scotland would have a £7.6billion deficit in 2015-16. But over the five years to 2013-14, the UK’s cumulative deficit has been worth over £600billion. The UK has been in deficit in 43 of the last 50 years. On the basis of the Tory and Labour argument, the UK can’t afford to be fiscally autonomous.’

The IFS estimates that, if planned UK-wide spending cuts are applied in Scotland, borrowing will fall to 4.6 per cent of national income by 2019–20. ‘While the SNP are correct that the UK has run deficits in most of the last 50 years, there have been very few years (with) a deficit as large as 4.6 per cent of national income,’ the body said yesterday.