The Scottish Government is continuing to stack the deck against firms and households as Nicola Sturgeon places an ideological rush ahead of the pain people and businesses are feeling as energy prices skyrocket. Instead, we need to maintain production from oil and gas. This would ease Scotland’s economic deficits, protect jobs and ensure a just transition to renewables can be achieved without impoverishing families and firms as inflation bites.
It is a mystery why the SNP refuse to block new oil and gas exploration and production expansion. Especially since their standard justification of needing to ‘transition’ away from polluting energy sources rings hollow. Not least since our governing parties never explain how clean or ‘just’ a transition is it if instead of relying on North Sea extracted oil and gas, we’re seeking to import it from Saudi Arabia.
But these sorts of obvious questions remain unanswered by the incumbent SNP-led government in Edinburgh. Scotland continues to suffer from the absence of an actually just transition. One which takes into account the need to tackle spiralling energy prices, economic necessities and still fulfil the long need to shift to a more sustainable energy future.
Scotland’s net fiscal balance (difference between total revenue and total public sector expenditure including capital investment) was a deficit of 22.4% of GDP. That is £36.3bn for 2020-21, and is including North Sea revenues. For the UK the net fiscal balance was a deficit of 14.2% of GDP1.
Net Fiscal Balance: Scotland and UK 2016-17 to 2020-21
Additionally, our notional deficit including North Sea revenue was 8.8% 0f GDP in 2019-20. These are levels which are simply unsustainable if we ever did go independent. Meanwhile the UK’s deficit for that year was a much more manageable 2.6%.
With all of these economic facts in mind it is a true mystery why our First Minister has set her face against new north sea oil and gas exploration and development. Especially given oil prices rising to $100 a barrel (£83)2. Expanding the Scottish oil and gas industry at this time would ease if not transform our current economic woes as seen above. Assuming no asymmetric shocks that would lower oil prices, we could expect this oil price boom to continue through to the end of the 2020s.
Yet, despite the pressing economic need to transform our notional deficit and our appalling net fiscal balance, still the SNP and Scottish ‘Green’ Parties refuse to play our economic ace-card.
In recent decades North Sea revenues are dwindling, and the SNP government seem bizarrely fine with speeding this process up. The Scottish Government opposition to new oil and gas development and production risks jobs, and by doing so undermines our ability to make a just transition to renewables. Fact is, Scotland needs to maximise the economic gains from North Sea oil and gas, and then leverage this to aid the renewables energy sector growth. But this is not what Nicola Sturgeon’s government is doing.
Even SNP politicians - such as Fergus Ewing - are starting to raise critical voices of the dear leader. Mr Ewing, formerly a Minister serving in Ms Sturgeon’s government has criticised his party leader for risking jobs and a just transition. Mr Ewing (correctly) points out that ignoring the needs of North Sea oil and gas puts a critical skills base at risk. Skills required if we are to develop a thriving renewables energy sector which can provide energy security and long term economic benefit. After all, these sorts of skilled jobs are not the sort of roles you can simply pluck the chaps off the dole queue to fill.
As Ewing explains, there is a “very strong case indeed for continuing domestic production”3. It’s a pity Ms Sturgeon disagrees, having effectively knee-capped the new Cambo offshore facility4.
While our First Minister blocked Cambo and business boardrooms rethink investing in the North Sea industries Scottish firms are reporting pain. Fraser of Allander reports that
“More than 1 in 3 firms expect to reduce their operations due to higher energy prices, with the majority reporting that the reduction would be to a small or moderate extent.
This was an increase on the previous quarter when 1 in 5 firms expected to reduce their operations.”5
We can also factor in the fact that wholesale and retail (48%) and transport and storage (47%) sectors had the highest share of firms expecting to reduce operations due to rising energy prices. Fraser of Allander’s survey of Scottish firms revealed that
“The most common concern among responding businesses was the costs of energy (91%), the price of inputs (86%), and the availability of inputs (81%) and new staff (81%).”6
So as the SNP led government opposes development of new oil fields Scotland’s economic picture continues to grow more bleak. Unsustainable notional deficit, a nightmarish net fiscal balance and falling oil & gas revenues right at a time when there is an oil barrel price boom which could stabilise our economy.
One in three firms are expecting to reduce operations in the economy and nearly half of the wholesale/retail and transport/storage sectors also anticipate a need to reduce operations too. Producer inflation is rising as global supply chain disruption causes chaos, the least we could do for our firms and households is to maximise North Sea oil and gas production and development to ease the energy price inflation.
Depressingly however we have a First Minister insisting on squandering Scotland’s economic ace, as real peoples needs are lost in the shuffle. One might even be forgiven for assuming our governing parties are not playing with a full deck.
Rees, Tom, (2022), ‘How Nicola Sturgeon is squandering the Scottish economy's trump card’, Telegraph, https://www.telegraph.co.uk/business/2022/07/05/how-nicola-sturgeon-squandering-scottish-economys-trump-card/
Rees, Tom, (2022), ‘How Nicola Sturgeon is squandering the Scottish economy's trump card’, Telegraph, https://www.telegraph.co.uk/business/2022/07/05/how-nicola-sturgeon-squandering-scottish-economys-trump-card/
Johnson, Simon (2021), ‘Nicola Sturgeon opposes development of all new oil fields’, Telegraph, https://www.telegraph.co.uk/politics/2021/11/16/nicola-sturgeon-slaps-plans-develop-controversial-north-sea/?WT.mc_id=tmgoff_psc_ppc_dsa&gclid=EAIaIQobChMIpfXBg8_n-AIVFIBQBh21kQ8REAAYASAAEgIE8vD_BwE
Fraser of Allander, (2022), Scottish Business Monitor Q1, https://fraserofallander.org/wp-content/uploads/2022/05/22121-Fraser-of-Allander-Q1-2022-Business-Monitor-V1a.pdf
Fraser of Allander, (2022), Scottish Business Monitor Q1, https://fraserofallander.org/wp-content/uploads/2022/05/22121-Fraser-of-Allander-Q1-2022-Business-Monitor-V1a.pdf
It is indeed a very complex situation which under Alex Salmond the SNP have exploited every weakness of the devolved administration, a very accomplished politician (although I am not a fan). You are of course correct about the state of journalism in Scotland, we only need to examine where most of STV’s funding comes from. Thank you for your steadfast and intelligent commentary on the subject.
It is indeed a very complex situation which under Alex Salmond the SNP have exploited every weakness of the devolved administration, a very accomplished politician (although I am not a fan). You are of course correct about the state of journalism in Scotland, we only need to examine where most of STV’s funding comes from. Thank you for your steadfast and intelligent commentary on the subject.
How blinkered and short sighted of the FM, how depressingly predictable.