'Too late' for Scotland to claim North Sea revenues


ONE of Alex Salmond's closest economic advisers has said that it is too late for Scotland to be given its geographical share of oil and gas revenues.
A group of experts, chaired by Professor Anton Muscatelli, vice-chancellor of Heriot-Watt University, yesterday published a paper recommending North Sea oil revenue should still go to the Treasury.

The paper, revealed in The Scotsman this week, was mainly put together by Professor Alex Kemp of Aberdeen University, one of the world's leading oil economists and a member of Mr Salmond's Council of Economic Advisers.
It was published along with another paper recommending limited borrowing powers for the Scottish Government, which was put together to advise the Calman Commission during its review of devolution.

As also revealed this week by The Scotsman, these recommendations have been accepted already, along with scrapping the Barnett Formula and replacing the Scottish block grant with assigned taxes raised in Scotland and a smaller grant.
On oil and gas, Prof Kemp said while it was technically possible to separate revenue raised in Scotland's part of the continental shelf, it would be "tricky".

He also said the way that oil and gas money is used – to support revenue instead of creating a Norwegian-style fund – meant that if Scotland got its share of oil money, then it would lose out in the block grant.
This would mean around one-third of the Scottish Ł30 billion budget would depend on a highly volatile source of funding. The price of oil has fluctuated between $40 and $140 per barrel in recent months.

Prof Kemp said that if an oil fund had been set up in the 1970s, when the oil boom began, or by subsequent UK governments, then separating the money raised would have been feasible.
Nevertheless, the report has been welcomed by the SNP. Finance secretary John Swinney said it proved that things were moving in Scotland's direction.

He said: "This is long overdue recognition … that Scotland is entitled to a fair share of its own oil revenues."
However, Scottish Secretary Jim Murphy said the paper made "a compelling case for the stability and security of Scotland remaining in the UK".

The independent advisory group also said that, even if the Scottish Government continued to be funded almost wholly by a grant from Westminster, there was a case for letting ministers borrow for capital spending.

But the paper insisted this should only be for one-off capital expenditure, unless Holyrood was given greater fiscal powers and control over taxation.
The borrowing powers would be similar to the ones held by councils, although the expert group ruled out the creation of a Scottish Government bond. It also suggested that the Treasury would need to agree any loans.

However, the paper added that if more radical changes were made as a result of the Calman Commission report, then there would be a case for further borrowing powers to help fund the revenue budget.
But Prof Muscatelli warned borrowing powers were not a solution to long-term problems.
"Borrowed cash is not free money," he said. "Additional borrowing now to fund even capital investment needs to be repaid."

The group – comprising academics and others from the UK, Europe and North America – was set up last year to advise the Calman Commission, which is considering the future of Scottish devolution.
The Scottish Government has already made the case for it to be given borrowing powers, with Mr Swinney arguing that the inability to borrow "puts Scotland at a disadvantage in comparison to other countries".
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