North Sea oil, Brexit and Scottish independence

Glasgow, Scotland – As Scotland looks ahead to its fifth general election since the opening of the Scottish Parliament in 1999, questions surrounding the nation’s constitutional future have remained doggedly persistent.

While the election on May 5 will be held to determine which party assumes the role of the next devolved Scottish government, the spectre of Scotland’s September 18, 2014 independence referendum – in which Scots rejected independence from the British state by 55 to 45 percent – has loomed large over the domestic political scene.

Yet, despite the current political supremacy of the pro-independence Scottish National Party (SNP) – which took 56 out of 59 Scottish seats in last year’s UK parliamentary general election and is looking odds-on to secure a third successive Scottish Parliament victory next month – its continued push for an independent Scottish state was recently dealt a series of economic blows.

Budget forecasts

Early last month, the latest Government Expenditure and Revenue Scotland (GERS) bulletin revealed that the nation’s public spending was some £15bn ($21bn) more than its tax revenue in 2014/15 – with a deficit that amounted to near 10 percent of Scotland’s Gross Domestic Product (GDP).

The annual figures, which are commonly used to inform the discussion on Scotland’s potential fortunes as an independent nation-state, reflected the sharp fall in oil and gas tax revenues. It also gave the perfect fodder for pro-unionist parties looking to promote their notion of a United Kingdom insulating Scotland from economic uncertainty.

The GERS figures were followed by a report from the Institute for Fiscal Studies, which used GERS and numbers from the UK Treasury-sponsored Office for Budget Responsibility to run its own forecast on Scotland’s finances.

Published to coincide with March 24 – the day that Scotland was meant to have become a fully sovereign country if it had voted Yes to independence in the September 2014 poll – it suggested that a newly independent Scottish state would be facing a budget deficit for 2016/17 of 9.4 percent of GDP.

The equivalent number in the UK is estimated to be 2.9 percent. Again, the collapse of UK oil revenues from Scotland’s North Sea provided the basis for the IFS figures that also suggested a Scottish deficit of 6.2 percent of GDP in 2019/20 and a small budget surplus for the UK itself.

“All analysis has been consistent since before the independence referendum – which showed the [economic] position worsening because of the fall in the [global] oil price,” said John McLaren, a political economist at Fiscal Affairs Scotland, speaking to Al Jazeera.

“This would make an independent Scotland having to face some difficult decisions in terms of either balancing its budget or getting closer to a balanced budget,” McLaren said.

Scottish over-optimism?

The economic case put forward by the SNP via its White Paper – its prospectus for independence – during the 2014 referendum has also been the subject of ongoing attacks by its opponents. They accuse the party of presenting an over-optimistic case of Scotland’s potential oil revenues in order to advance their Scottish independence aspirations.

Businessman and blogger Kevin Hague was commissioned by the pro-unionist Scottish Conservative Party to conduct a separate report (PDF)  on Scotland’s economic fortunes. Published on March 24, and using GERS as its basis, the report presented similar warnings as the others. .

Hague told Al Jazeera that the present flurry of figures “certainly destroys the case for independence that was presented [during the referendum].

“One of the things that often seems to get confused in this debate is whether people like me look at the GERS numbers and say Scotland couldn’t be independent,” stated Hague. “We’re absolutely not saying that at all – all we’re saying is what would it require for us to be independent and what the economic sacrifices – if any – need to be.”

Despite the slew of negative reports, pro-independence observers have been quick to detail rebuttals. For Gordon MacIntyre-Kemp, founder and CEO of pro-independence body Business for Scotland, the “absolute failure” of the UK government to establish a sovereign oil fund to guard against the volatility of oil – on a similar basis to the Norwegian oil wealth fund, which is today worth $830bn – is the true revelation of Scotland’s GERS figures.

As for using GERS to extrapolate to the fortunes of an independent Scotland, he is equally as scathing.

“GERS is not the accounts of an independent country – it is the accounts of a region,” said MacIntyre-Kemp. “A lot of the costs of the UK are associated with Scotland’s accounts where Scotland has no say.”

MacIntyre-Kemp told Al Jazeera that an independent Scotland could expect to make several billion pounds worth of savings. These include defence savings – ” Scotland wouldn’t have nuclear weapons and it wouldn’t take part in wars in the Middle East and bombing sessions in the Middle East” – and savings concerning its current contribution to the upkeep of Westminster and the House of Commons.

“We already pay for our own [Scottish] Parliament – [which means] we’re paying for two parliaments… So we’re paying double for a lot of services,” continued the pro-Scottish independence business expert. He also raised the point that when “people say the fact that the oil revenues have dipped means that Scotland can’t be independent does that mean that when it comes back, it can?”

‘Arc of prosperity’

Alex Salmond, who led the SNP from 2004 until the end of the referendum, saw a future independent Scotland as being part of an “arc of prosperity” comprising its neighbours Ireland, Iceland and Norway.

After the financial crash of 2008, and when Ireland and Iceland fell into an economic downward spiral, his pro-union opponents mocked his “arc of prosperity” – renaming it an “arc of insolvency”.

Today, however, and with Ireland outperforming both China and India with a 7.8 percent growth rate in 2015, the SNP’s former communications director, Kevin Pringle, was quick to point out via a tweet on March 24: “Politicians who opposed #Yes [referendum vote] don’t seem to talk about Ireland any more. Indy means powers to grow economy & revenue.”

With Scotland effectively split down the middle on independence – polls since the referendum have either put support for the concept in the high 40 percent mark or even in the lead – the nation has almost become defined by the constitution.

While the May 5 election campaign has seen the major issues of taxation, health and education debated among party leaders, the independence factor has never been too far away.

Indeed, with the UK’s in/out EU referendum scheduled for June 23, SNP leader and Scotland’s first minister Nicola Sturgeon has mooted the prospect of a second Scottish independence referendum in the event that Scotland, by way of a UK-wide vote, is ejected from the EU against its will. A recent opinion poll suggested that Scots would be split 50/50 on independence if there were a British exit from the EU.

Thus, after the forthcoming Scottish Parliament election, which, according to opinion polls, the SNP is expected to win handsomely, the economic arguments surrounding Scottish independence are unlikely to fade.

“Of course Scotland could make it as a successful, wealthy independent country – but the economic and fiscal question is how it would be different outside the UK than inside the UK,” said independent economist McLaren.

“If oil was at $100 a barrel and we were back in 1999, it would be better off because we would have all those future oil revenues. But fast-forward to 2015 and there is almost nothing coming out of the North Sea.”

Follow Alasdair Soussi on Twitter: @AlasdairSoussi