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SNP Would Bankrupt an Independent Scotland, But Benefit England

Politics / UK Politics Jul 04, 2009 - 02:48 PM GMT

By: Nadeem_Walayat


Best Financial Markets Analysis ArticleThe debate of Scottish Independence form the United Kingdom has again returned, with Increasing powers being transferred over to the Scottish Parliament run by the SNP government at Holyrood, there are again increasing cry's for FREEDOM, independence from Westminister rule. To counter this the policy of the Westminister governments has been to bribe the Scots with ever larger amounts of net subsidy, where the annual block grant has now reached £32 billion per year.

The prime driving force for Scottish independence is that of the perceived benefits from North Sea Oil revenues going wholly to Scotland rather than to Westminister. Whist it is true that 90% of North Sea oil revenues are due come from Scottish waters, however North Sea oil peaked in 2001, since which daily output has fallen by 50% in 8 years, the trend in declining output is expected to continue in the coming years as new oil fields are not able to make up for the declining output from existing fields, this is called PEAK OIL. The revenue to the government from North Sea oil has now fallen to £10 billion, of which £9 billions is attributable to Scottish oil fields set against the block grant Scotland receives of £32 billion from central government of which £8 billion is the value of the net subsidy.

There are also huge hidden costs to the oil industry that are not being factored in, and that is for the decommissioning of old oil rigs, where in an age of environmental awareness, dumping of the oil platforms in deep waters is no longer an option, therefore just as the costs of decommissioning nuclear power plants was never factored into their building similarly the costs of decommissioning oil platforms could result in a sharp drop off in revenues as the costs of which would ultimately be born by the Scottish Government either in less revenue or direct costs of decommissioning.

Scottish Economy Budgetary Deficit

The Scottish economy runs at a huge deficit that is only maintainable due to being heavily subsidised by England. The country's total income for 2007-08 was £45.2 billion against expenditure of £53.3 billion, therefore a net deficit of £8 billion (Source: BBC), therefore taking into account oil revenue of £9 billion this puts an Independent Scotland roughly where it already is today (£1 billion net surplus), but this is BEFORE the debt interest and bankrupt banks liabilities are taken into account as follows.

Debt and Bankrupt Bank Liabilities

What the Scottish Nationalists conveniently tend to forget is the debt burden that would be transferred over to Scotland as a proportion of the population, i.e. approx 10% of the £750 billion of public sector net debt or £75 billion, which would demand interest costs of approx £4 billion per year.

Also the financial crisis has resulted in predominately scottish banks in the forms of RBS and HBOS, resulting in liabilities of more than £1 trillion, that and transference of 10% of public debt would greatly improve the remaining United Kingdoms balance sheet, as the costs of bank capital injections and interest payments far exceeds the revenues of North Sea Oil and if the scottish subsidy is taken into account there is a large net cost to maintaining the Union.

Therefore the net benefit to England from an independent Scotland would be estimated to be far more than the revenues lost from North Sea Oil, an estimated net saving of £20 billion per year with the added bonus of transferring the Scottish banks debts back to Scotland.

For many years the SNP have argued that an Independent Scotland could be just as prosperous as Ireland or Iceland, which is true, an Independent Scotland would instantly become another Iceland as debt liabilities levels would be approximately10X GDP, so that much of the revenues from North Sea Oil would need to be utilised to service this debt, none of which is heard in the one way SNP Independence Propaganda traffic.

Meanwhile the SNP are actively attempting to gain powers to borrow and spend upto £30 billion thus increasing the countries debt burden further, which would put the country on the path to bankruptcy. This is in addition to tax raising powers whilst at the same time demanding that the £32 billion annual grant be maintained which is an attempt to make the cost of the maintenance of the union grossly unfair to specifically English tax payers, whilst Scotland reaps the benefits of an extra £2,000 per head of extra public spending than England.

Scottish Currency

Scotland would not be able to float its own currency thus would either have the choice of continuing to use the British Pound or eventually join the Euro, therefore monetary policy would remain as is throughout the British Isles with Westminister setting interest rates, this would put the Scottish regime under strain due to inability to fully manage the Scottish economy in the eyes of the electorate and bring into doubt the whole exercise.

In fact the rest of the UK may withdraw Scotland from the Sterling Umbrella due to the out of control borrowing proposed by the SNP Government.

Off course as North Sea oil runs out then so will the calls for independence diminish so perhaps it is good that the SNP grasps this window of opportunity to cut Scotland loose from the UK, else the rest of the UK may be forced to continue subsidising Scotland for another 300 years. For England the optimum time for Scottish Independence has perhaps also just about arrived with the net grant subsidy to Scotland just about starting to cover the net gain from North Sea oil revenues.

In conclusion, the rest of the UK has nothing to fear from an independent Scotland, in fact the benefits out way the costs as business and UK citizens would still be able to continue virtually as is under the European Union banner. So perhaps it will be the English who will be gaining their freedom.

By Nadeem Walayat

Copyright © 2005-09 (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 20 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis specialises on the housing market and interest rates. Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication. We present in-depth analysis from over 250 experienced analysts on a range of views of the probable direction of the financial markets. Thus enabling our readers to arrive at an informed opinion on future market direction.

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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05 Jul 09, 03:04
SNP Would Bankrupt an Independent Scotland, But Benefit England

I always love it when prejudice masquerades as fact, but here's a few points for starters on how you're badly misinformed on a few fronts.

(1) North Sea oil output peaked in 1999 not 2001. But perhaps you might like to know that revenue today from the North Sea fields is some 300 to 400% higher than it was during that peak. As a consequence the main determinant of revenue must be price- given the inverse relationship I've just described above, wouldn't you agree?

(2) Scotland's surplus of £1bn which you seem to recognise - but which you don't actually allude to - does indeed include a share of all forms of debt interest and liability. This is extremely clear in Scotland's fiscal accounts as laid out in the Government Expenditure and Reveney (Scotland) analysis. For completeness you might like to mention the scale of the UK's deficit, compared to Scotland's surplus. I'm not sure how that translates into a subsidy from England, after all England was in deficit, Scotland was in surplus.

(3) When exactly were the debts of the "Scottish [sic] banks" transferred directly on to the UK's balance sheet - thus bankrupting the UK economy? Why would Scotland be any different to this?

(4) I'm no spokesman for the SNP, but I think you'll find their calls for control over taxes and spending means just that - fiscal autonomy. No Westminster interference in Scottish public finances. Or in your own prejudicial tones - no English interference in Scottish public finances.

(5) I notice you've failed to mention shared UK assets, such as defence, government capital, investments, reserves etc - which Scotland would be due a share of on independence? Why?

05 Jul 09, 04:31
The SNP Knows More Than You Do.

A subsidy of £32billion, £8billion net? Only a very biassed "analysis" indeed would arrive at that figure. Let me give Nadeem a little clue, when a country is a subsidy junkie you ditch it as fast as possible but maybe England knows a little too much about Scottish genius to be so stupid as to do that.

Of course in such a world, this world, who will have a need for money or people who make a living writing about it? The SNP knows more than you do Nadeem. Maybe "It's Time" as the SNP say, for you to retrain as something useful rather than an excuse-maker for ongoing asset theft around the world.

Tony Eriksen
05 Jul 09, 05:24

The article above states that UK oil peaked in 2001. As many more countries have passed peak oil this implies that world crude oil production probably peaked in 2005, on an annual average basis.

Peak Oil will be getting more attention soon as oil prices continue rising.

The IEA 2009 MTOMR was just released and shows further downgrade in non OPEC and OPEC forecasts.

This presentation shows some critical slides from the IEA 2009 MTOMR.

For more info on peak oil, please read the following article

These two charts of crude oil and all oil forecasts have been updated for the IEA MTOMR 2009 including the downgrade of future Iraq production.

World Crude Oil, Lease Condensate and Canada Oil Sands Production to Dec 2012

World Liquid Energy Supply, Demand and Oil Price to Dec 2012

05 Jul 09, 14:14

 1. I did state that due to crude oil revenues that currently there is a £1 billion net surplus to the UK after the £8 billion net subsidty on a grant of £32 billion, this gap will dissapear within the next 1 to 2 years and be replaced by a deficit.

2. Yes your right Crude oil peaked in 1999 not 2001, but has since fallen by 50%, and no the revenues are about 50% higher not 400%, but that shows that the gap between surplus and spending has narrowed since.

3.The icelandic banks bankrupted Iceland, the Scottich Banks would have bankrupted Scotland. Ireland has been supported by being in the EURO.

4. Control over taxes should mean a reduction in the Westminister grant.

5. The ownership of the public infrastructure in Scotland (excluding Nukes) would belong to the independant Scotland, the alternatives is that it all be privatised and the proceeds set against the debt of £75 billion.

05 Jul 09, 16:20
Man the life boats

Very ill informed article. The UK is a sinking ship - sooner Scotland gets off the better.

05 Jul 09, 20:05
Gordon Brown Scottish Prime Minister

We have seen what the best of Scottish politicians has to offer the country.

Gordon Brown has bankrupted the UK, as a scottish PM would bankrupt scotland.

Take your Prime Minister back from the rest of the UK.

Angry English/Scot
26 Apr 10, 22:10
Craig's comment

I think you will find that it was the whole Labour Party that has pretty much sunk the UK, and Tony Blair is More responsible for this than Gordan Brown.

29 Apr 10, 11:30
tax powers

Most reasonable economists know that an independent Scotland would get along fine in the long term - after all, look at the big picture - it has around 1/3 of the natural resources of the UK with only 10% of the population.

And with full fiscal powers, Edinburgh could lower corporation tax, attracting more business from the rest of the UK which is disproportionately centered on London.

Regarding the banks, I see the UK government has now made a profit there.

conor watt
19 May 10, 13:19


Scotland would go bankrupt when it has booming1/3 of the uks natural resources

oil and gas,fishing and agriculture,tourism,whisky,mineral(silicon) and 1/4 of europes wind potential and 1/10 of europes tidal potential. OOOOOOOOOOOOOOOHHHHHHHHHHHHHHHHHH EUROPE WILL NEVER WANT US WILL THEY!!!!!!!!

Come you could not pull wool offer the eyes of a mouse never mind a educated person.

19 May 10, 14:10

Crunch the numbers, RBS and HBOS would have bankrupted scotland many, many times over.

Infact the Icelanders would have been better off.

26 May 11, 14:23

"RBS and HBOS would have bankrupted scotland"

Remind me - which part of Scotland is Halifax in?

This article is perhaps the most hilariously inaccurate and ill-informed piece of drivel I've read since the Scottish elections, and that's quite a feat considering I've read all of Alan Cochrane's in the Telegraph.

For the reasons other posters have listed above and more besides, it's plain that you don't have the first clue what you're talking about. Still, I suppose we should be grateful that it kept you off the trading floor destroying the economy for the five minutes it must have taken you to knock out.

27 May 11, 00:52
Halifax Bank of Scotland Facts

The Facts are that the Bank of Scotland took over Halifax in 2001, officially the company name was Bank of Scotland until it went bankrupt.

RBS - Royal Bank of Scotland.

The problem is not with scotland itself, but rather that it is drowning in a sea of socialism that near gaurantees an independant scotland would go bankrupt.

Paul B
27 May 11, 11:34
The disaster that is RBS

RBS alone would have bankrupted Scotland. It massively over-extended itself. Ambition got the better of it and the English taxpayer was forced by Brown to pick up the bill.

Joseph Gibson
06 Oct 11, 20:24

I've not bothered to check Nadeem's facts. However, I already know that Scotland would suffer, if it ever does become independent.

Nadeem also points out that Scotland would sink under the weight of socialism, that I totally believe without a doubt. Then again, I'm sure many of you, ignorant fools, who are pro-Scotland, are easily manipulated and abused by a bunch of loons in false uniform, and they are the SNP.

Anyway... i'm pro-British, and I come from a long line of Scots who have served this United Island for centuries, that Island is the United Kingdom. Unfortunately it's been used and abused by a bunch of crooks who were elected by a bunch of loons who couldn't give a damn about politics.

Terry B
17 Jan 12, 09:57

These arguments will go nowhere. Let the Scots decided. What about those, Scots who live in England, do they vote? What about the English in Scotland, do they vote? Do I have a say, being a little bit Scottish? History is some way involved, in England we sing God Save the Queen. In Scotland we sing about sending Edward home, to think again.

How long does memory have to prejudice the present day.

If there is going to be a vote, just get on with it

21 Feb 12, 21:00
North sea oil and gas industry

Nadeem, I'm afraid that you've been conned by the usual suspects (the BBC, CH4 news and all of the mainstream news outlets in the UK)into believing that the revenues from the North sea oil and gas industry are only 10-11billion per year. The true figures are more shocking.

I enclose an excerpt from a commons debate initiated by the Conservative MP Nicolas Soames in 2011. This is what rump-UK loses if Scotland votes ‘yes.’



HC 1018-i and -ii.]

"The taxes forecast to be raised from the industry in 2011-12 include some £6 billion in income tax, national insurance contributions and corporation tax paid by the supply chain companies, with an additional £11 billion from taxes on production itself. That amounts to 25% of all the corporation tax received by the Exchequer. The production of indigenous oil and gas improved the balance of payments by £35 billion in 2011, thus halving the trade deficit, and the supply chain added another £5 billion to £6 billion with exports of oilfield goods and services. Incidentally, that is an aspect of the industry that is doing extremely well here and overseas, and it is flying the flag for Britain effectively".

Also in the same debate he mentions that this industry employs over 400,000 people in the UK with more than half outside Scotland.

Finally, with regards to the 'scottish' banks. These private entities have contributed hundreds of billions in corporation tax plus PAYE from their thousands of employees in the UK to the Westminister exchequer over the last 30 years. Given that the UK took the tax revenues then it also seems fair that they deal with the depts-you can't have it both wways I'm afraid.

All things considered, Scotland has the potential to be an extremely wealthy little country (>50% of Europe's oil remianing oil reserves, 25% of Europe's potential green energy plus UK export no:3-Scotch Whiskey).

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