We must admit, we’re having some trouble getting our heads round the lead story in today’s Herald. Under the headline “Row flares as Treasury blasts SNP oil dividend”, the paper quotes Danny Alexander outlining what the Chief Secretary to the Treasury appears to believe is a devastating case against independence – namely, that if you were to calculate oil revenues over the period since devolution, Scots would each be a grand total of £1 a year worse off independent than if Scotland remained in the UK.
We suspect that while Alexander’s figures may not be inaccurate as such – within their own carefully-selected frame of reference – this is nevertheless an example of the Many Small Lies principle (aka the Swarm Of Wasps), in that there are so many absurdly gaping holes in his argument that it’s difficult to know which one to focus on. So let’s see if we can quickly pick out just a handful and give them a brief once-over.
1. Clearly, for a great many if not all nationalists, the immediate response will be “Independence for a quid a year? Where do I sign?”
We honestly can’t imagine that Alexander thinks a cost of £1 a year will put anyone off independence, even if they’re in the undecided camp. Weighed up against all the possibilities an independent Scotland would present in terms of social justice and choosing policies at odds with the centre-right consensus of England, anyone who sees those things as desirable isn’t going to baulk at paying £1 a year for them.
2. Devolution has nothing to do with the price of oil.
The UK Government’s figure was released to contest Nicola Sturgeon’s statement that according to the last full-year GERS figures available (2010-11), Scots would in fact be £500 better off every year as an independent nation.
According to the Herald piece, however, “Chancellor George Osborne’s department insists it is more transparent to take the entire 12-year period of devolution from 1999 to 2011, rather than the figure for just a single year”.
But why? Devolution has absolutely nothing to do with the world oil market. We doubt that even 1% of oil traders have the slightest idea of what the constitutional structure of Scotland (or the UK, come to that) is. Oil is not extracted by governments, but by multinational corporations – all governments do is tax the profits. So 1999 is a completely arbitrary, meaningless place to start building your statistics from.
Even 1975, when major North Sea production began, is irrelevant for comparison purposes. The past is past. All that matters is what’s going to happen in the future – how much oil is left, and what will its price be?
3. Scarcity is expensive.
The above notwithstanding, there’s only one direction in which the oil price is in fact going to trend in the future. Economics isn’t much of a science, but if it has a single iron law it’s this: as the supply of a commodity falls, its price increases. Analysts argue inconclusively about whether “peak oil” is imminent or whether it’s already happened, but nobody thinks it’s a long way off.
Alexander’s argument rests on the premise that the price of oil may in the future see similar highs and lows to those since 1999. So let’s take a wee look at the graph for the period. (Click picture for larger version.)
When devolution arrived, Brent crude was selling for around $15 a barrel. The current price is almost exactly $100 higher than that, and aside from a single brief blip during the first big dip of the global economic crisis has been on a more or less uninterrupted upward trajectory for over a decade. If we were going to take a long-term gamble on anything on the face of the Earth, we’d put our house on oil prices.
(Incidentally, as you can see from the image above the average price for 2011-12 was significantly higher than that for 2010-11, so Sturgeon’s figure of a £500 benefit for every Scot will need to be substantially increased this year.)
The UK Government itself – which has a history of massively underestimating future oil prices – projects that under the worst possible scenario its experts can envisage, the price of oil by 2020 will be no lower than around $60 a barrel – still 50% higher than the brief low of 2009 – and possibly as high as $150.
By 2030, meanwhile, the official UK Government estimate is a lowest price of $80 and a high of $190, which would leave Scotland awash in riches. Yet to reach its “£1 worse off” figure it seemingly expects Scots to believe that it might instead fall down to $20 or even lower for years at a stretch, even as it tells the rest of the world the opposite.
We’re not sure what message the Treasury is attempting to send out about the skills of the UK Government’s economic forecasters, but it seems to be an unflattering one.
4. There are upsides to a low oil price.
Alexander’s doom-laden prediction is, as we’ve said, predicated on the price of oil plunging as low as $20 a barrel for years at a time. And while that’s hugely unlikely to happen, if it did it would certainly be bad news for the Scottish Government.
At the same time, however, it would be tremendous news for the public – the price of petrol would drop like a stone if oil spent any significant amount of time at that sort of level, transport costs would plummet (driving down the price of food in supermarkets, and indeed almost everything else), and so on. Government spending might have to be trimmed (slightly), but we’d all have a lot more cash in our pockets to compensate.
5. “£1 a year worse off” means a big win for independence.
Alert readers will perhaps remember as far back as December 2011, when the media all reported the results of the Scottish Social Attitudes Survey. The ongoing large-scale poll recorded differing levels of support for independence according to what people thought the effect on their personal finances would be.
When people were presented with the proposition that independence would make them neither better nor worse off (and we’re going to include a difference of £1 a year in that category), the result was a thumping 47% Yes, 32% No.
So that’s that. As a piece of scaremongering, “You might be £1 a year poorer independent” is such a remarkably feeble effort that it raises questions about what the reality might be, if that’s the WORST picture the No camp can manipulate statistics into painting. It’s also intriguing that Westminster is telling the rest of the world such a different story about the likely future price of oil to the one it’s telling Scotland.
We don’t want to labour the point. So we’ll leave you with a song.