Sunday, January 18, 2015

The world's worst insurance policy?

The price of a barrel of oil fluctuates.

An independent Scotland would not be a nirvana. A land of milk and honey. It would face the same economic challenges as all other countries from time to time.

There. I've said it.

For most of the last 35 years, North Sea oil was priced at below $40 a barrel. That's subject to inflation of course but it's been as low as $10. And here's the point: in every single one of those years, Scotland's tax revenue per head has been greater than the UK's. And the reason is clear: even without oil - if they were giving the bloody stuff away for nothing - our GDP per head is about 99% of the UK's. We have a rich and diverse economy without the oil. We're not Russia.  Oil and gas contributes over half of Russia's tax revenue. It contributes about 15% - 20% of ours. The price of oil fluctuates. But what do we think, honestly, medium to long term, is going to happen to the price of a finite resource for which the world thirsts and on which all modern economies are based?

In any event, and whatever the price, as part of the UK we get back the equivalent of about 10% of the oil revenue. The rest of the UK keeps the remaining 90%. Very roughly and not as direct as that, of course. But the arithmetic's pretty obvious: we'd be better off if we had control over 100% of even a much smaller total revenue.

Ah but what about the "broad shoulders" we were told about? The reward for handing over 90% of the oil revenue, year after year after year. The rest of the UK would, we were told, in a set of circumstances like this, pump money into the Scottish economy in the same way as the Scottish economy has to the rest of the UK for the last four decades. Since its discovery, Scottish oil and gas has contributed £300bn to the UK exchequer. A total of £0.00 of that was set aside by the British government as an insurance against times when the price dropped. It spent it all.

If you'd paid £300bn as premiums to an insurance company, you'd expect an ungrudging, bumper pay-out come the day, wouldn't you? Especially if that insurance company kept telling you to keep up the policy as you'd be stuffed without its "broad shoulders". And if you didn't get that pay-out (or, if you did and it was a tiny fraction of the premiums you'd paid) you might think "Hang on. What's the point of this again?" You might decide it made more sense to stop the policy and just save a bit of the premiums yourself.

Control over the revenue and the ability to plan, sensibly, to protect yourself by putting something aside for the perfectly foreseeable eventuality that the price falls. Rather than paying the money to others in the hope they'll do that for you (others who have, in fact, told you that they won't do any such thing) and that they'll keep to their promise to give you hand-outs when you say you need them.

The best of both worlds.

So. Could the unionist parties please once and for all just get over the referendum, accept the result, stop gloating over the fall in the price of oil and using it to try to persuade Yes voters they should have voted No, and concentrate on working with others to ameliorate the effects of the coming jobs catastrophe in the north-east?

That'd be good.