SNP independence blow with new warning against relying on gas and oil to fund public services

Institute for Fiscal Studies stressed the dangers of banking on revenues from oil and gas to fund key services like the NHS, education and local councils
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The Scottish National Party was dealt a blow by leading economists who warned sharp movements in oil and gas prices would risk “volatile and uncertain” public finances under independence.

The Institute for Fiscal Studies highlighted the dangers of relying on revenues from oil and gas to fund public services like the NHS, education and local councils.

Its new analysis is a further setback to the SNP under new leader Humza Yousaf, with his party rocked by the police investigation into its finances.

UK oil and gas revenues to the Treasury averaged just £0.6 billion per year between 2015–16 and 2020–21, the IFS said.

They jumped to £10 billion in 2022–23 but for the following year are forecast to total £5 billion.

Compared with the late 2010s, these figures represent increases equivalent to 0.4 per cent and 0.2 per cent of national income, respectively, for the UK as a whole, with the Government now granting more North Sea licences.

But for Scotland, they represent hikes of over four per cent and two per cent of national income.

The IFS stressed that the rises had narrowed the gap between Scotland’s notional fiscal deficit and that of the UK as a whole.

But it stressed that the improvement is much less marked than expected in Autumn 2022, when oil and gas revenues were forecast to be £15 billion in 2022–23 and over £20 billion the following year.

As a result, the IFS explained, Scotland’s notional deficit this financial year is projected to be around £2,450 per person higher than that for the UK as a whole.

David Phillips, associate director at the respected economic think tank, said: “Tax revenues from North Sea oil and gas production are volatile and uncertain, and often driven by events thousands of miles away – such as Russia’s invasion of Ukraine.

“The direct effects on UK-wide tax revenues are fairly muted – indeed, as a significant net energy importer, increases in revenues from oil and gas producers when prices rise are likely more than offset by reductions in other tax revenues as other sectors of the economy suffer.

“The situation for Scotland is different given most UK oil and gas production takes place in Scottish waters.

“Scotland’s underlying, notional public finance position, while less affected by swings in oil and gas revenues than in the period between the 1980s and 2000s, is much more dependent on these revenues than the UK as a whole is.

“Under current constitutional arrangements, this does not matter a great deal, but that would change under full fiscal autonomy or independence.”

The SNP failed to persuade a majority of Scottish voters in 2014 to back independence in a referendum, after the Westminster government promised more devolution, and a significant proportion of the population north of the border remained unconvinced about the economic case for splintering away from the rest of the UK.

If independence happened, Scotland would become responsible for its own public borrowing and debt.