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Denis Healey, Scottish independence and the black, black oil Denis Healey, Scottish independence and the black, black oil
(4 months later)
The vexed issue of the British state's handling of North Sea oil has jumped sharply up the political agenda for Scottish nationalists after Holyrood magazine published a provocative interview with Denis Healey, the nonagenarian former Labour chancellor.The vexed issue of the British state's handling of North Sea oil has jumped sharply up the political agenda for Scottish nationalists after Holyrood magazine published a provocative interview with Denis Healey, the nonagenarian former Labour chancellor.
In an interview peppered with innuendo and eye-brow raising assertions (including the claim that the UK's $3.9bn IMF bailout was a mistake driven by the Treasury's woeful failure to properly measure public borrowing), Healey made a striking statement about Westminster's reaction to the early years of North Sea oil exploration.In an interview peppered with innuendo and eye-brow raising assertions (including the claim that the UK's $3.9bn IMF bailout was a mistake driven by the Treasury's woeful failure to properly measure public borrowing), Healey made a striking statement about Westminster's reaction to the early years of North Sea oil exploration.
The interview added fresh fuel to several contemporary and historic controversies in Scotland's independence debate: the significance of North Sea oil to the economy and the closely related question about predicting future oil revenues, and finally – of greater political salience – the gnawing grievance and belief that Scotland's potential was deliberately suppressed.The interview added fresh fuel to several contemporary and historic controversies in Scotland's independence debate: the significance of North Sea oil to the economy and the closely related question about predicting future oil revenues, and finally – of greater political salience – the gnawing grievance and belief that Scotland's potential was deliberately suppressed.
Healey said the UK state's resistance to Scottish independence was heavily influenced by the scale of North Sea oil discoveries:Healey said the UK state's resistance to Scottish independence was heavily influenced by the scale of North Sea oil discoveries:
I think we did underplay the value of the oil to the country because of the threat of nationalism but that was mainly down to Thatcher.I think we did underplay the value of the oil to the country because of the threat of nationalism but that was mainly down to Thatcher.
We didn't actually see the rewards from oil in my period in office because we were investing in the infrastructure rather than getting the returns and really, Thatcher wouldn't have been able to carry out any of her policies without that additional 5 per cent on GDP from oil. Incredible good luck she had from that.We didn't actually see the rewards from oil in my period in office because we were investing in the infrastructure rather than getting the returns and really, Thatcher wouldn't have been able to carry out any of her policies without that additional 5 per cent on GDP from oil. Incredible good luck she had from that.
Adding:Adding:
I think there are a lot of problems connected with it that haven't been faced up to, either by Salmond or by the British and they are mainly to do with oil and the income it provides and yes, I think they [Westminster politicians] are concerned about Scotland taking the oil, I think they are worried stiff about it.I think there are a lot of problems connected with it that haven't been faced up to, either by Salmond or by the British and they are mainly to do with oil and the income it provides and yes, I think they [Westminster politicians] are concerned about Scotland taking the oil, I think they are worried stiff about it.
Despite Healey's retirement from frontline politics 21 years ago, those passages have been seized on by Alex Salmond, the first minister, Scottish National party leader and former oil economist with Royal Bank of Scotland.Despite Healey's retirement from frontline politics 21 years ago, those passages have been seized on by Alex Salmond, the first minister, Scottish National party leader and former oil economist with Royal Bank of Scotland.
He mentioned it to workers at the Alexander Dennis bus factory in Falkirk last week, as he launched his government's economic case for independence. Provoked by Tory leader Ruth Davidson over his economic policy at First Minister's questions two days later, he retorted: "I am tempted to answer Ruth Davidson with two words: Denis Healey."He mentioned it to workers at the Alexander Dennis bus factory in Falkirk last week, as he launched his government's economic case for independence. Provoked by Tory leader Ruth Davidson over his economic policy at First Minister's questions two days later, he retorted: "I am tempted to answer Ruth Davidson with two words: Denis Healey."
He said Davidson should:He said Davidson should:
...listen to the authentic words of Denis Healey - someone who does not have to disguise his words or underestimate oil revenue any more and who can tell us the truth - and take her marching orders from a man who knows....listen to the authentic words of Denis Healey - someone who does not have to disguise his words or underestimate oil revenue any more and who can tell us the truth - and take her marching orders from a man who knows.
The SNP press office – with clockwork efficiency - has issued around ten press notices extolling or referencing Healey's disclosures in 12 days. The Tories, in turn, retaliated by finding historic sources from the early 1970s to disprove the former Chancellor's claims.The SNP press office – with clockwork efficiency - has issued around ten press notices extolling or referencing Healey's disclosures in 12 days. The Tories, in turn, retaliated by finding historic sources from the early 1970s to disprove the former Chancellor's claims.
The Tories uncovered a Parliamentary question from Jim Sillars, then Labour MP for South Ayrshire, from October 1973. Asking what predicted North Sea output figures would be by 1980, he was told by then energy minister Tom Boardman:The Tories uncovered a Parliamentary question from Jim Sillars, then Labour MP for South Ayrshire, from October 1973. Asking what predicted North Sea output figures would be by 1980, he was told by then energy minister Tom Boardman:
The report on production and reserves of oil and gas on the United Kingdom Continental Shelf which I presented to Parliament in May forecast a most likely range of oil production in 1980 of 70 million-100 million tons. Recent discoveries should ensure that the lower end of this range is reached; with further discoveries in the next year or two it should be exceeded.The report on production and reserves of oil and gas on the United Kingdom Continental Shelf which I presented to Parliament in May forecast a most likely range of oil production in 1980 of 70 million-100 million tons. Recent discoveries should ensure that the lower end of this range is reached; with further discoveries in the next year or two it should be exceeded.
In the event, the Tories found, North Sea production hit 80m tonnes – actually at the lower end of the estimates, while the SNP quoted Boardman's figures in its 1974 election campaign.In the event, the Tories found, North Sea production hit 80m tonnes – actually at the lower end of the estimates, while the SNP quoted Boardman's figures in its 1974 election campaign.
After several very difficult weeks on their economic plans – unable to produce detailed counter-cases against Treasury attacks over its currency and banking policies, Healey's remarks are politically valuable to the independence movement and the SNP.After several very difficult weeks on their economic plans – unable to produce detailed counter-cases against Treasury attacks over its currency and banking policies, Healey's remarks are politically valuable to the independence movement and the SNP.
It refreshes a long-standing narrative that UK governments cannot be relied on to tell the truth about oil reserves and revenues, as the SNP tries to reframe the current debate about who is best trusted to oversee Scotland's wealth and economy.It refreshes a long-standing narrative that UK governments cannot be relied on to tell the truth about oil reserves and revenues, as the SNP tries to reframe the current debate about who is best trusted to oversee Scotland's wealth and economy.
For Sillars, Healey was spot on. Then a Labour MP hostile to independence – this is some years before he defected to the SNP and on to become SNP MP for Glasgow Govan in 1988, Sillars, now 75, says the consistent approach outside Westminster was to downplay oil's significance, regardless of any specifics buried in Hansard:For Sillars, Healey was spot on. Then a Labour MP hostile to independence – this is some years before he defected to the SNP and on to become SNP MP for Glasgow Govan in 1988, Sillars, now 75, says the consistent approach outside Westminster was to downplay oil's significance, regardless of any specifics buried in Hansard:
The politics of that period, right from the discovery of oil, was to suppress the importance of the oil in the Scottish public mind. That was basically how it was done.The politics of that period, right from the discovery of oil, was to suppress the importance of the oil in the Scottish public mind. That was basically how it was done.
Don't forget, outside of parliamentary questions and answers there were all sorts of statements made, with people saying 'you can't oil everything'. The intent was to suppress the importance of oil in the Scottish economy, no question of that at all.Don't forget, outside of parliamentary questions and answers there were all sorts of statements made, with people saying 'you can't oil everything'. The intent was to suppress the importance of oil in the Scottish economy, no question of that at all.
It was universal amongst the British political parties; absolutely universal. The oil factor upset all the equations. Don't forget the idea in the Scottish mind was that we were a [heavily] subsidised part of the UK.It was universal amongst the British political parties; absolutely universal. The oil factor upset all the equations. Don't forget the idea in the Scottish mind was that we were a [heavily] subsidised part of the UK.
He added:He added:
There's still an attempt to do so. They keep telling us it's 'volatile'. This is the new attack: 'you can't put any particular reliance upon that particular sector of your economy'. That's the message being put about: oil becoming a problem, and not the asset it is.There's still an attempt to do so. They keep telling us it's 'volatile'. This is the new attack: 'you can't put any particular reliance upon that particular sector of your economy'. That's the message being put about: oil becoming a problem, and not the asset it is.
But this analysis is questioned by Professor Alex Kemp, the preeminent oil industry economist at Aberdeen university and author of the UK government's Official History of North Sea Oil.But this analysis is questioned by Professor Alex Kemp, the preeminent oil industry economist at Aberdeen university and author of the UK government's Official History of North Sea Oil.
Kemp is incredulous that Healey appears to positions himself as a fan of a North Sea oil fund; as Chancellor of the Exchequer when an oil fund was being actively debated by the then Labour cabinet in 1977, Healey's Treasury killed the idea stone dead.Kemp is incredulous that Healey appears to positions himself as a fan of a North Sea oil fund; as Chancellor of the Exchequer when an oil fund was being actively debated by the then Labour cabinet in 1977, Healey's Treasury killed the idea stone dead.
Healey told Holyrood magazine:Healey told Holyrood magazine:
It's true that we should have invested the money in things we needed in Britain and I had thought about an oil fund, like in Norway, but it wasn't my responsibility by then.It's true that we should have invested the money in things we needed in Britain and I had thought about an oil fund, like in Norway, but it wasn't my responsibility by then.
Kemp says:Kemp says:
That's not absolutely true, you know. [Healey] led the campaign to stop it.That's not absolutely true, you know. [Healey] led the campaign to stop it.
There was a split in the cabinet. There were various ministers who wanted an oil fund [including Scottish secretary Bruce Millan and Tony Benn] and those who didn't; the most against it was the Treasury under Denis Healey. They wanted the money for themselves.There was a split in the cabinet. There were various ministers who wanted an oil fund [including Scottish secretary Bruce Millan and Tony Benn] and those who didn't; the most against it was the Treasury under Denis Healey. They wanted the money for themselves.
But Kemp does believe the UK government was upfront about North Sea oil's economic potential. While the Treasury selfishly ensured it kept every pound generated and later UK government predictions were wrong, Kemp says:But Kemp does believe the UK government was upfront about North Sea oil's economic potential. While the Treasury selfishly ensured it kept every pound generated and later UK government predictions were wrong, Kemp says:
In 1974, the Dept of Energy made projections before the first barrel was produced from the North Sea saying in 1980 the UK would be self-sufficient in oil; that turned out to be correct.In 1974, the Dept of Energy made projections before the first barrel was produced from the North Sea saying in 1980 the UK would be self-sufficient in oil; that turned out to be correct.
Aside from the reliability of Healey's memory, questions about predicting future oil revenue remain absolutely central to Salmond's economic case for independence.Aside from the reliability of Healey's memory, questions about predicting future oil revenue remain absolutely central to Salmond's economic case for independence.
Oil undoubtedly strengthens Scotland's balance of payments; in recent years, the Scottish government's data shows that overall balance [based on comparatively lower debt levels per head] to be healthier than the UK's. Based heavily on the healthier oil receipts since 2007, the SNP can show Scotland can prosper financially.Oil undoubtedly strengthens Scotland's balance of payments; in recent years, the Scottish government's data shows that overall balance [based on comparatively lower debt levels per head] to be healthier than the UK's. Based heavily on the healthier oil receipts since 2007, the SNP can show Scotland can prosper financially.
But the question of volatility that Sillars tilts at is critical too: while strengthening Scotland's economy in the short to medium term, the unpredictability of oil receipts is central to any independent government's annual spending limits. That is particularly the case if, as in Scotland's case, those revenues could be 15% of overall tax income.But the question of volatility that Sillars tilts at is critical too: while strengthening Scotland's economy in the short to medium term, the unpredictability of oil receipts is central to any independent government's annual spending limits. That is particularly the case if, as in Scotland's case, those revenues could be 15% of overall tax income.
That affects planning on tax rates, benefits and services. And Salmond's ministers have diligently avoided squaring that circle.That affects planning on tax rates, benefits and services. And Salmond's ministers have diligently avoided squaring that circle.
The furore around Healey's interview excludes recalling the intense demands on government budgets in the '70s, when successive governments were struggling with failing heavy industries, oil price shocks, industrial disputes and economic mismanagement in Scotland as well as the rest of the UK.The furore around Healey's interview excludes recalling the intense demands on government budgets in the '70s, when successive governments were struggling with failing heavy industries, oil price shocks, industrial disputes and economic mismanagement in Scotland as well as the rest of the UK.
At a recent David Hume Institute seminar at Holyrood, Robert Chote, the head of the Office of Budget Responsibility, the UK government's independent economic policy watchdog, produced charts underlining why predicting revenues is a challenge.At a recent David Hume Institute seminar at Holyrood, Robert Chote, the head of the Office of Budget Responsibility, the UK government's independent economic policy watchdog, produced charts underlining why predicting revenues is a challenge.
Formerly of the Institute for Fiscal Studies, Chote said oil revenues were constantly influenced by production levels, oil prices, fluctuations to the US dollar to sterling exchange rate, capital and expenditure costs, and tax changes.Formerly of the Institute for Fiscal Studies, Chote said oil revenues were constantly influenced by production levels, oil prices, fluctuations to the US dollar to sterling exchange rate, capital and expenditure costs, and tax changes.
Sensitive to the repeated criticisms that the OBR's own forecasting (on numerous issues) had misfired - a charge leveled publicly by Scottish ministers in early spring, Chote acknowledged its predictions had frequently been off when he was interviewed earlier that day by Holyrood's finance committee:Sensitive to the repeated criticisms that the OBR's own forecasting (on numerous issues) had misfired - a charge leveled publicly by Scottish ministers in early spring, Chote acknowledged its predictions had frequently been off when he was interviewed earlier that day by Holyrood's finance committee:
If you think predicting economic growth is difficult, predicting North Sea oil receipts on a year to year basis is extremely difficult. They're highly volatile and I would expect them to be highly volatile.If you think predicting economic growth is difficult, predicting North Sea oil receipts on a year to year basis is extremely difficult. They're highly volatile and I would expect them to be highly volatile.
But his charts showed he was not alone. One, titled Successive North Sea receipts forecasts and outturns, is what he called a "porcupine chart". A "standard porcupine" chart will see the various predictions – the grey lines – all tightly grouped liked a porcupine's quills around the actual "outturn", the red line.But his charts showed he was not alone. One, titled Successive North Sea receipts forecasts and outturns, is what he called a "porcupine chart". A "standard porcupine" chart will see the various predictions – the grey lines – all tightly grouped liked a porcupine's quills around the actual "outturn", the red line.
This one does not do that:This one does not do that:
In fact, predictions by the influential industry body Oil & Gas UK were off the mark too. They were "overly optimistic". A chart showed how its production forecasts varied year by year, and missed the actual outturn, year by year:In fact, predictions by the influential industry body Oil & Gas UK were off the mark too. They were "overly optimistic". A chart showed how its production forecasts varied year by year, and missed the actual outturn, year by year:
Chote was candid about the OBR's misfires too, producing this chart, which compared its forecasts since June 2010 with the actual results:Chote was candid about the OBR's misfires too, producing this chart, which compared its forecasts since June 2010 with the actual results:
And finally came this, the chart which illustrates the variations in different predictions of future revenues which are current now, from the Department for Energy and Climate Change, Oil & Gas UK, the OBR and others:And finally came this, the chart which illustrates the variations in different predictions of future revenues which are current now, from the Department for Energy and Climate Change, Oil & Gas UK, the OBR and others:
Chote described this as a "huge fan chart of uncertainty". He told the DHI event:Chote described this as a "huge fan chart of uncertainty". He told the DHI event:
Policy has to be set in the knowledge that these very volatile and hard to predict receipts stream that clearly has greater challenges if you're in a situation where oil receipts are a large proportion of your overall receipts.Policy has to be set in the knowledge that these very volatile and hard to predict receipts stream that clearly has greater challenges if you're in a situation where oil receipts are a large proportion of your overall receipts.
Kemp believes the OBR gets it wrong for a reason: its methodology is "quite unsound", he said.Kemp believes the OBR gets it wrong for a reason: its methodology is "quite unsound", he said.
It's methodology uses futures prices. These are prices which hedgers and speculators have agreed for any one point in time. That's not a forecast of the future.It's methodology uses futures prices. These are prices which hedgers and speculators have agreed for any one point in time. That's not a forecast of the future.
However, Kemp agrees that forecasting future oil incomes is a devil's task. "It's very difficult to predict them," he said.However, Kemp agrees that forecasting future oil incomes is a devil's task. "It's very difficult to predict them," he said.
We think production is actually going to go up and so does Oil & Gas UK. But there's a problem for sure, for the next two, three years. That is because investment in the North Sea is going to be extremely high so the capital allowances against income greatly reduce the tax base.We think production is actually going to go up and so does Oil & Gas UK. But there's a problem for sure, for the next two, three years. That is because investment in the North Sea is going to be extremely high so the capital allowances against income greatly reduce the tax base.
You can be fairly sure – unless something dramatic happens to oil prices in an upward direction – they will be a bit lower in the next two or three years. In general, to forecast tax revenues is very difficult, as Chote has found out.You can be fairly sure – unless something dramatic happens to oil prices in an upward direction – they will be a bit lower in the next two or three years. In general, to forecast tax revenues is very difficult, as Chote has found out.
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