Scottish independence: Research 'casts doubt' on oil fund plan

The Scottish government has proposed establishing an oil fund if the country becomes independent

Academics have cast doubt on whether an independent Scotland could build up an oil fund to manage fluctuating offshore tax revenue.

A paper from an economic research body suggests Scotland may struggle to build up a fund due to its share of UK debt.

The Scottish government said Scotland would have lower proportionate debt than the remaining UK.

But Labour claimed Scots could face "higher taxes and more expensive mortgages" in an independent Scotland.

The National Institute of Economic and Social Research (NIESR) examined the likely share of debt and estimated income facing Scotland if voters back independence in September's referendum.

The Scottish government's White Paper on independence proposed setting up a stabilisation fund to "smooth" receipts from oil revenues, which can vary from year to year.

'Notoriously volatile'

The NIESR paper suggested Scotland would inherit debt of about £143bn.

Without the resources to cover the obligation, an IOU would be created where the Scottish government makes annual payments to cover the share of debt.

About £23bn would be needed in the first year, plus money to cover the fiscal deficit, according to the NIESR.

"Tax revenues from offshore oil and gas are notoriously volatile," the paper said.

"Revenues from oil and gas fell by almost one-half between 2011-12 and 2012-13 to £5.3bn, equivalent to 3% of Scotland's GDP.

"The White Paper proposes building up an oil fund to be able to smooth out this volatility, but it is difficult to see how such an oil fund could be built up."

The paper also stated that the rest of the UK's debt burden would increase.

'Strong finances'

A Scottish government spokeswoman said: "What this report fails to mention are the considerable difficulties the UK would have in meeting the same debt criteria that this report sets for Scotland.

"Whichever way you look at the figures an independent Scotland would start life with lower debt ratios than the rest of the UK and with strong public finances.

"The Scottish government has set out our proposals, supported by the work of the Fiscal Commission, to establish a short-term stabilisation fund and a long-term savings fund.

"The model proposed by the Fiscal Commission would allow Scotland to consider investing modest sums into an oil fund in the years immediately following independence without any need to change public spending or taxation."

The Scottish government established the Fiscal Commission Working Group to report on Scotland's economic future.

'Substantial burden'

Scottish Labour finance spokesman Iain Gray said the NIESR report showed people would be worse off if Scotland became independent.

"A substantial debt burden, higher borrowing costs and volatile tax revenues would mean cuts to services, higher taxes and more expensive mortgages," he said.

"This bleak prospectus heaps further evidence on that of other non-political assessments by academic institutions and business analysts all of whom reach similar conclusions.

"The SNP's casual dismissal of almost daily demolition of their dishonest and discredited White Paper as scaremongering is just becoming ridiculous."