John Jappy: Scotland's Oil

It was in 1968 that oil was first discovered in the North Sea.  You can imagine the speculation at the time – "Britannia will rule the waves once more" or "Scotland will become the wealthiest country in Europe".  At this point, sadly, politics took over and the rest, as they say, is history.   At this time the Government at Westminster was a Labour one, led by Harold Wilson, and his loyal lieutenant Tony Benn would be the Minister in charge of oil.  As a Civil Servant in London in the 1970s, and working on national budgets, my firm belief was that the oil in the North Sea should stay where it was until the country developed its own technology to take it out – and so every drop of it would belong to the nation.  However, the Labour Party had different ideas.  Through poor management, the nation was deeply in debt, and Labour was desperate to get their hands on the money, believing that they would clear the debts and remain in power in perpetuum.    So leases were recklessly given out to the Oil Companies to extract the oil, and the Government would charge so much tax per barrel.  

When I look back it makes me shudder to think about what was done to the Nation's finances for political expediency - and that by a Labour Government.    As the extent of the oil in the North Sea was measured, this would put billions of pounds into the hands of the Exchequer!   One big problem remained.  How would they satisfy the Scots from whose waters the bulk of the oil would come?   The SNP, they feared, when the extent of the oil became known to them, could pursue independence, and most of the oil would belong to them. So a secret plan was hatched to hide from the Scots the true extent of the oil in the North Sea. These documents remained secret until, under the 30 year rule, were released for public scrutiny viz – the McCrone Report, produced in 1974.   I have here a few extracts from the letter which accompanied the Report.

"Even after its discovery the full significance of North Sea oil was not immediately apparent and it still remains in large measure disguised from the Scottish public by the DTI failure to make provision for a proper Government return when the fourth round of licences was issued.   So far all the Ministers have said is that they expect North Sea oil to be yielding 70-100m tons of oil per annum by 1980 and that on that basis the Government revenue from rent and royalties from the whole of the Continental Shelf including the gas fields in the southern sector may be in the order of £100m per annum at that time.”

“The SNP countered these figures by claiming that North Sea oil should by 1980 be yielding a Government revenue of approximately £800m. and have charged the Government with giving Scottish oil away to the international companies ridiculously cheap. Up to now much of the Scottish public may have regarded the SNP figures as pretty wild and they have been publicly condemned as such by Ministers. But authoritative support for the charge that the Government has failed to do a satisfactory bargain with the companies is provided in the criticisms of the Public Accounts Committee which so far remain unanswered. The example of Norwegian policy on Government revenue from oil likewise shows up the failure of British.”

“Thus, all that is wrong now with the SNP estimate is that it is far too low; there is a prospect of Government oil revenues in 1980 which could greatly exceed the present Government revenue in Scotland from all sources and could even be comparable in size to the whole of the Scottish national income in 1970."

Labour succeeded in clearing its debts but its extravagant policies continued and the public got tired of its continued feuds and striking Trade Unions. As a result a Conservative Government was elected, and in 1975 its leader Edward Heath was replaced by Mrs Margaret Thatcher.  Under her right wing policies and with the substantial oil revenues at her disposal she made London and the south east corner of England the wealthiest area in Europe, whilst in the north and Scotland, unemployment grew and grew to a figure close to 4 million.   In Scotland, the early job bonanza in building the oil rigs evaporated and innovative schemes like "Job Creation" were created to try and control the jobless figures.   On leaving the Civil Service, in the 1980s, I took on the task of setting up the Job Creation Programme for Ross & Cromarty, which became the largest in Scotland, and saw at first hand just how desperate the situation had become.

So a bonanza of £300 billion has gone missing.  How could it have been lost?   Engaging in foreign wars to succour favour with America has cost us many billions of pounds.  The UK has also continued to believe that it is still a world power, although its colonial days have long since passed.  With America, it has continued to act as the World's Policeman. The Thatcher regime gave big tax concessions to the already rich.  Her legacy is that the gulf between rich and poor in this country has continued to grow far beyond what should be allowed in a modern democracy. As a nation we continue to spend four times as much on armaments than any modern western democracy.  Our wasted billions meant that we fell headlong into the Credit Crunch, unlike Norway which sailed through it having wisely set up an Oil Fund, which today is worth £450 billion.  The waste of our oil revenues is the worst self-made financial disaster in human history.   After what Westminster has done to our finances, I fail to understand how anyone can believe that we are "better together".

There is enough oil in the North Sea to last for the next 40 years and new fields, still to be developed west of Shetland, will extend our oil revenues far into the future. The world's demand for oil continues to grow. The Oil Companies are now searching for oil in Greenland which, if found, due to the inhospitable climate can only be extracted for 6 months of the year.  This proves, beyond doubt, that oil prices will hold up in the future.  One of the scare stories put out by the Treasury is that big fluctuations in the price of oil will make it impossible for Scotland to balance its books.   This could not be more untrue, as follows –

1)  Scotland is solvent without receiving one penny of Oil Revenues (see my blog  http://scotlandowntwofeet.blogspot.co.uk and the Government's Expenditure and Revenue Report for the year 2011-2012 (published in April 2013). [1]  Oil in an Independent Scotland will simply be looked upon as a massive bonus and handled carefully. 

2)  As Scotland has approximately only one tenth of the population of the UK, Oil Revenues in an Independent Scotland will be 10 times as valuable.

3)  Scotland will set up a small Oil Fund into which a percentage of each year's revenues will be deposited, to be used to make up any deficiency in any year in which revenues fall below the norm.

4)  With Independence, Scotland will be the 8^th richest nation in the world (per OECD International League Table) which makes every scare story meaningless. [1]

[1] Please see my subsequent blog "GERS Report 2012-13" for an update on the GERS figures.

See also:  More blogs by John Jappy