Oil & Gas (Part II): The Oil Fund

From the archive — published in 2014 on the original Chokkablog, kept as it was written.

In Oil & Gas (Part I): For Richer, For Poorer I tackled the question of how Oil & Gas revenues have been shared historically  between Scotland and rUK (with Scotland an integral part of the Union).

I argued in that post that historically it would actually be completely reasonable to have shared our Oil & Gas revenues on an equal per capita basis with rUK (as that's what being in a Union means); in fact the amount of public spending per capita that Scotland receives is greater than rUK by an amount that is equivalent to the greater tax revenues Scotland generates if you allowed us to keep our geographic share of oil.  On that basis I conclude that historically Scotland has not been 'done out of' our fair share of Oil & Gas revenue and has in fact done pretty well out of the Union (at least in this narrowly defined economic sense). I'm certainly not alone in reaching that conclusion.

So let's move on to another subject that is often raised when the Oil & Gas topic is discussed.

The Oil Fund (or Should've, Would've, Could've)
One of the arguments put forward by the Scottish Government is that we should have had an oil fund, that if we had we'd now be as wealthy as Norway.  That's all well and good but - at the risk of stating the obvious -  to have created an Oil Fund we'd have needed to not spend the money.  We (the UK) did spend the money and - as we've shown in Part I - Scotland received it's fair share of that money (actually more than its fair share if you consider fair within the Union would mean to share equally on a per capita basis).

Norway founded their "Petroleum Fund" in 1990 and it's informative to consider some of the public spending choices they made as a result. Let's take just one example, their health care system
There's more on this topic in this Blog from a Norwegian Perspective where the blogger complains about the high cost of living in Norway. So I checked - Norway vs UK cost of living comparison - and sure enough the cost of living in the UK is about 30% lower than Norway.

Now don't get me wrong - the OECD better life index shows Norway comfortably out-performing the UK on most measures.  My point is not that Norway made bad choices but rather they made tough and at times unpopular choices to get to where they are.  It's all very well - with the benefit of 20:20 hindsight - to say "we could have had an oil fund". The question is not who is saying that now but who was saying that then; can we really assume that an independent Scotland would have made different choices?

So to see if we might have done I checked through the SNP manifestos back as far as 1997 (there is a limit to the suffering I am willing to go through for this blog and that was it).
I found one mention of the possibility of a Scottish oil fund in the 2005 manifesto; nothing before and nothing after. Norway is mentioned once in the 1997 manifesto and only reappears in 2007 (when it is mentioned 5 times).  I wondered if the manifesto check might be a bit too narrow an approach; so I Googled for mentions and found only a handful of stories prior to 2009, nothing prior to 2005.  Then it occurred to me that - given how relatively recently digital media has come all pervasive - Google is not a great historical news research tool.  So then I checked Hansard.  Well, there weren't many mentions there either and the earliest was an early day motion in January 2002.  To put the level of noise made about an oil fund into context: my Hansard searches turned up 68 results relating to "Oil Fund" compared to 674 results relating to "Scottish Gaelic".

 I think we can conclude that the Oil Fund about which the SNP are so keen to talk now wasn't very near the top of their priority list when it could have actually made a difference in the 1990s.

So it's hard to argue that an independent Scotland would have had the political vision and conviction to make the sacrifices required to build an oil fund; we can't credibly say "we'd have had an oil fund if only it hadn't been for pesky Westminster". We didn't make the sacrifices at the time, we spent our share of the money. Should've, would've, could've.

Of course all of this is of academic interest only. The past is the past; Time's arrow flies and we can only change what's in front of us.

So what relevance is the Oil Fund debate to the future? Vote for independence and we will have an oil fund, right? Well, not quite.  The relevant passage from the White Paper is extracted below

Let's just pick out the key words: "will be started once Scotland's overall budget deficit is reduced to below the level of long-run economic growth and when debt is on a downward trajectory". That hasn't been the case for any of the last 10 years and it's hard to seeing it being the case for an independent Scotland any time soon.  If there is an opportunity to build an oil fund in the future then that opportunity will exist for the UK as much as it would for an independent Scotland. It's not an independence issues, its a broader question of political will and vision, of whether "we" would be willing to sacrifice "jam today" if we face the choice again.  For reasons outlined elsewhere in this blog, the economic capacity to build an Oil Fund in the future is more likely to exist for Scotland as part of the United Kingdom than for an independent Scotland no longer enjoying the economic benefits of Union.

I think we can conclude that the Oil Fund question is a bit of a red-herring in the independence debate.

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