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Scottish independence: Questions raised over oil fund Scottish independence: Questions raised over oil fund
(about 1 hour later)
Scottish ministers were warned by their own economic advisers that plans for an oil fund under independence may require tax rises or spending cuts.Scottish ministers were warned by their own economic advisers that plans for an oil fund under independence may require tax rises or spending cuts.
The advice, written for the government in March last year, has now been published under freedom of information laws by the Daily Mail newspaper. The advice, written for the government last year and published under freedom of information laws, has been seen by the BBC and the Daily Mail newspaper.
Pro-Union campaigners said it showed there was a "deception" of the public. Pro-Union campaigners claimed the pubic was being deceived.
But the Scottish government said the advice had been overtaken by events. But the Scottish government said the private advice had since been overtaken by events.
The published advice said an independent Scotland would have to raise taxes, cut services or borrow to create the fund. It warned that, if Scotland became independent, it would have to raise taxes, cut services or borrow to create the oil fund.
It also said Scotland could have paid off its debts 30 years ago if it been independent and with oil revenues. But it also said Scotland could have paid off its debts 30 years ago if it had been independent and had had oil revenues.
It calculated the tax surpluses of the 1980s could have been set aside to create a Norwegian-style of oil fund which would have been worth £117bn by 2011. The advice calculated the tax surpluses of the 1980s could have been set aside to create a Norwegian-style oil fund which would have been worth £117bn by 2011.
The emergence of the report led to stormy exchanges during first minister's questions at the Scottish Parliament, where Labour leader Johann Lamont accused Alex Salmond of trying to hide the full truth of the issue. The emergence of the paper led to stormy exchanges during first minister's questions at the Scottish Parliament, where Labour and the Conservatives accused the SNP government of trying to hide information detrimental to its case for independence, ahead of the referendum on 18 September next year.
But Mr Salmond said recommendations published last week by the Scottish government's fiscal commission working group set out a scenario where, under independence, money could be put into two separate oil funds without spending and taxation changes. Labour leader Johann Lamont asked the first minister: "When was he going to tell us his choice to raise taxes or cut public spending? The answer is, never. Honesty is not something this government deals in."
One fund would help stabilise finances as revenue fluctuates, while the other would be a long term investment fund, similar to the large one built up with oil funds in Norway. When Ms Lamont was asked to withdraw the remark by Holyrood's presiding officer, she continued: "I accept the advice of the presiding offer, but I have to say I do not know what word you use to describe a government that says one thing in private and something different in public.
Finance Secretary John Swinney highlighted the option of starting up the fund as soon as independence is achieved. "The fact of the matter is, Scotland is on pause and we will not be given the full facts with this government ahead of a referendum."
He cited advice from the Scottish government's fiscal commission that it could start paying into it from 2017-18. But Mr Salmond said the contents of the private advice had come before recommendations published last week by the Scottish government's fiscal commission working group set out a scenario where, under independence, money could be put into two separate oil funds without spending and taxation changes.
But the advice prepared by the office of the Scottish government's chief economic adviser which emerged from the freedom of information request said that might be a costly option. One fund would help stabilise finances as revenue fluctuates, while the other would be a long term investment fund, similar to the one operated by Norway.
It warned Scotland's public finances have been in surplus only one year between 1990 and 2011. That was 2000-01. The first minister said: "We've got a fiscal commission report which sets out clear criteria, how we can marshal Scotland's resources and make sure that asset is used for the benefit of this generation and for future generations.
In the paper, signed off by Simon Fuller, it stated: "This suggests that over this period North Sea receipts would have been required to fund public services in Scotland. "Nobody would seriously argue that the UK has handled oil well as a resource over the last 40 years. Nobody would seriously dispute that Norway - the country across the North Sea - has handled that resource much better."
"Therefore if the Scottish government had wished to establish an oil fund, it would have had to reduce public spending, increase taxation or increase public sector borrowing." "The fiscal commission have put forward a proposal which allows Scotland to get towards the fortunate position of Norway, as opposed to making the unremitting bungles of Westminster and successive United Kingdom chancellors."
The economists calculated that was likely to lose money. Their reckoning was based on a comparison of Britain's borrowing costs, averaging 4.4% between 2000 and 2011, with the returns achieved by Norway's oil fund, which were an average 4.1%. However, Conservative leader Ruth Davidson said she ran both the private advice and the fiscal commission report through "university cheating software".
The advisers also warned ministers that any future surpluses would face political pressure for a boost to spending rather than putting them into an oil fund, and that it would be politically difficult to take the longer term option. She went on: "And what did I find? Whole sections cut and pasted - entire paragraphs on Scotland's projected net fiscal debt, on the country's debt interest payments and on notional borrowing costs.
The advice stated: "This is not straight-forward. Current needs and demands on the public finances are typically more clearly defined than future needs". "All the good stuff made the grade. All the bad stuff hit the bin.
Alistair Darling, of the Better Together campaign, said ministers' public claims were not backed by their private advice. Ms Davidson added: "It seems when the government reached any section in here - and there were plenty - that said that an oil fund would mean higher taxes, more borrowing or lower public spending, they simply hit delete."
"Last week they said they could set up an oil fund at no cost," he said. "It is now clear that their own private advice says there would need to be tax rises, spending cuts or more borrowing - or all three. The SNP have quite deliberately set out to deceive the Scottish public. Earlier, on BBC Radio Scotland's Good Morning Scotland programme, Alistair Darling, who is former chancellor and head of pro-Union Better Together, said: "If you were to set up an oil fund you would have to borrow money to save it so that seems to be complete nonsense.
"This internal SNP paper also confirms that, in all but one of the last 20 years, all the oil money has been spent on public services in Scotland, yet SNP ministers tell us it's just a bonus and not the basis of our economy". "The problem we have here is yet again we are being told one thing in public when the SNP knows something else is the case in private."
A Scottish government spokesman, said: "These papers confirm exactly what we have said on this issue. As the Finance Secretary has said, the assumption that Scotland would have to run an absolute surplus before investing in an oil savings fund 'has been reflected in the Scottish Government's early thinking on the subject'. Finance Secretary John Swinney told the same programme that if debt in an independent Scotland was reducing it would be prudent to invest in an oil fund.
"A key question which the Fiscal Commission's report addresses is the point at which Scotland could start investing into a savings fund. He added: "People will have mortgages, which is debt, it is an obligation to pay back, at the same time many people will also be saving - if they have the money to put aside for their future - and that is exactly what we are trying to do as a country."
"The Commission is clear that there is a compelling case for starting to make early investments into an oil fund whilst in deficit so long as it is manageable and debt is on a downward path."