Tuesday, 3 June 2014

Oil & Gas (Part II): The Oil Fund

In Oil & Gas (Part I): For Richer, For Poorer I tackled the question of how Oil & Gas revenues have been shared historically  between Scotland and rUK (with Scotland an integral part of the Union).

I argued in that post that historically it would actually be completely reasonable to have shared our Oil & Gas revenues on an equal per capita basis with rUK (as that's what being in a Union means); in fact the amount of public spending per capita that Scotland receives is greater than rUK by an amount that is equivalent to the greater tax revenues Scotland generates if you allowed us to keep our geographic share of oil.  On that basis I conclude that historically Scotland has not been 'done out of' our fair share of Oil & Gas revenue and has in fact done pretty well out of the Union (at least in this narrowly defined economic sense). I'm certainly not alone in reaching that conclusion.

So let's move on to another subject that is often raised when the Oil & Gas topic is discussed.

The Oil Fund (or Should've, Would've, Could've)
One of the arguments put forward by the Scottish Government is that we should have had an oil fund, that if we had we'd now be as wealthy as Norway.  That's all well and good but - at the risk of stating the obvious -  to have created an Oil Fund we'd have needed to not spend the money.  We (the UK) did spend the money and - as we've shown in Part I - Scotland received it's fair share of that money (actually more than its fair share if you consider fair within the Union would mean to share equally on a per capita basis).

Norway founded their "Petroleum Fund" in 1990 and it's informative to consider some of the public spending choices they made as a result. Let's take just one example, their health care system
  • The healthcare system is not free at point of use. According to NHH:
    • Consultations at general practitioners (GP) involve the patient’s charge: the typical fee is [£14] during the office hours and [£23] for an evening appointment.
    • Costs related to visits to specialists, dental care and radiology tests are entirely supported by the patients
  • The following comparisons are taken from a recent Commonwealth Fund Report
    • Adults able to get same/next-day appointment when sick: UK 70%, Norway 45%
    • Waited 2 month's or more for specialist appointment: UK 19%, Norway 31%
    • Experienced access barrier because of cost: UK 5%, Norway 11%
    • Public view of health system "needs to be completely rebuilt": UK 3%, Norway 12%
There's more on this topic in this Blog from a Norwegian Perspective where the blogger complains about the high cost of living in Norway. So I checked - Norway vs UK cost of living comparison - and sure enough the cost of living in the UK is about 30% lower than Norway.

Now don't get me wrong - the OECD better life index shows Norway comfortably out-performing the UK on most measures.  My point is not that Norway made bad choices but rather they made tough and at times unpopular choices to get to where they are.  It's all very well - with the benefit of 20:20 hindsight - to say "we could have had an oil fund". The question is not who is saying that now but who was saying that then; can we really assume that an independent Scotland would have made different choices?

So to see if we might have done I checked through the SNP manifestos back as far as 1997 (there is a limit to the suffering I am willing to go through for this blog and that was it).
I found one mention of the possibility of a Scottish oil fund in the 2005 manifesto; nothing before and nothing after. Norway is mentioned once in the 1997 manifesto and only reappears in 2007 (when it is mentioned 5 times).  I wondered if the manifesto check might be a bit too narrow an approach; so I Googled for mentions and found only a handful of stories prior to 2009, nothing prior to 2005.  Then it occurred to me that - given how relatively recently digital media has come all pervasive - Google is not a great historical news research tool.  So then I checked Hansard.  Well, there weren't many mentions there either and the earliest was an early day motion in January 2002.  To put the level of noise made about an oil fund into context: my Hansard searches turned up 68 results relating to "Oil Fund" compared to 674 results relating to "Scottish Gaelic".

I think we can conclude that the Oil Fund about which the SNP are so keen to talk now wasn't very near the top of their priority list when it could have actually made a difference in the 1990s.

So it's hard to argue that an independent Scotland would have had the political vision and conviction to make the sacrifices required to build an oil fund; we can't credibly say "we'd have had an oil fund if only it hadn't been for pesky Westminster". We didn't make the sacrifices at the time, we spent our share of the money. Should've, would've, could've.

Of course all of this is of academic interest only. The past is the past; Time's arrow flies and we can only change what's in front of us.

So what relevance is the Oil Fund debate to the future? Vote for independence and we will have an oil fund, right? Well, not quite.  The relevant passage from the White Paper is extracted below

Let's just pick out the key words: "will be started once Scotland's overall budget deficit is reduced to below the level of long-run economic growth and when debt is on a downward trajectory". That hasn't been the case for any of the last 10 years and it's hard to seeing it being the case for an independent Scotland any time soon.  If there is an opportunity to build an oil fund in the future then that opportunity will exist for the UK as much as it would for an independent Scotland. It's not an independence issues, its a broader question of political will and vision, of whether "we" would be willing to sacrifice "jam today" if we face the choice again.  For reasons outlined elsewhere in this blog, the economic capacity to build an Oil Fund in the future is more likely to exist for Scotland as part of the United Kingdom than for an independent Scotland no longer enjoying the economic benefits of Union.

I think we can conclude that the Oil Fund question is a bit of a red-herring in the independence debate.

7 comments:

fatshez said...

The thought of a government "saving money for a raining day" terrifies me. Governments make contentious and sometimes just wrong spending decisions when there are normal fiscal pressures on them- the thought of a government minster justifying diverting funds to a mismanaged, poorly invested savings pot doesn't bear thinking about.

Labhrainn said...

Unfortunately while your information is correct you interpretation is faulty.
In Norway you do indeed pay for your prescriptions, doctor consultations, etc, etc. However, this is NOT a result of establishing the oil fund. The Norwegian system was established long before oil was even discovered and is based on the principle that everyone should pay their way according to their means. Those who for one reason or another are unable to pay their "egenandel" do not do so.

The supposedly Norwegian perspective is in all probability not.
The article appears to be as good an example of desinformation as I have seen to date.
It seems evident that the author of the article has English, not Norwegian, as his/her first language. There are also other tell tales that the author is a British unionist and not a Norwegian. I have yet to meet a Norwegian who would refer to Oslo as a small city. Nor would a Norwegian claim that there are "thousands" of homeless in Oslo (the last report from 2012 found 1376). Nor have I meet a Norwegian who in any way is as envious of the UK in the way the author is.
It seems strange that in country where the majority are unaware of the referendum in Scotland, there should be someone who takes the time and effort write such an article.
I have no doubt that to someone ignorant of life in Norway and Norwegians in general, the article might appear genuine.
Of course I could be wrong and the article was indeed written by a Norwegian.

You choose to play down the OECD index. Despite all of Norway's faults (there are many believe me), the people living there are strangely happy about living there....Homesick as I am at times, I would have to be an absolute moron to want to move back home to the UK.

You are quite correct in that Norway has made some tough choices. Choices that were not universally popular. The UK too has made some tough and unpopular choices. The difference lays in that Norway seems to have made the RIGHT choices.

Kevin Hague said...

Labhrainn I agree with everything you say -- I too find that blog a little suspicious but am not in as good a position as you to judge. I do think Norway made the right choices (probably, based on my limited understanding) ... my point is that those simplistically pointing o the Oil Fund and saying "we should have done that" need to recognise the cost of doing so and - frankly - need to have been saying that then not now to have any credibility as an pro-independence argument. The UK could and probably should have had an oil fund ... its NOT an independence issue is all

Hugh Wallace said...

First off, I would like to thank you, Kevin, for writing an thoughtful and reasoned blog, something I have struggled to find from many on the NO side of the debate. That said, I am a YES voter so there is much I disagree with here ;).

I have to add my voice to Labhrainn's and say I think that 'Norwegian blog' you link to is not written by a Norwegian. I can't say for sure but I have spent a bit of time in that country (just back from a lovely weekend in Oslo as if happens!) and worked with Norwegians and it doesn't ring true. Having read several of the post on that site (in the hope of finding a decent NO blog to engage with) I found several glaring misinterpretations of the Gini coefficient and figures so eventually concluded that whoever the blog's author was, they weren't very smart or were being deliberately misinforming. I too looked at the Numbeo site and saw how expensive Norway is compared to Scotland (and can attest to that after my weekend) but the thing is, the Norwegians can afford it.

I hope you will be willing to read this article for some reasoned consideration of the relationship between Norwegian income and tax http://wingsoverscotland.com/deal-or-no-deal/ but the short version is that while they do indeed pay high tax, they take home more money than we do and have way more disposable income. I would take that option if I could and am, in fact, considering moving to Norway or Switzerland in the event of NO winning the referendum.

Kevin Hague said...

Thanks Hugh -- as I've said I also, on reflection, have doubts about the Norwegian blogger and am careful to say I'm not saying Norway has it "wrong". My substantive point is the SNPs line on an oil fund simply doesn't stack up

Anonymous said...

Someone in a Guardian comments thread found a mention in Hansard from 1987

http://hansard.millbanksystems.com/written_answers/1987/dec/02/scottish-oil-fund

I love your captcha!

Papko said...

The Point you make about the oil fund is valid , as Norway , has had to make serious decisions about its public expenditure , which we would consider "severe " in the UK .

They have decided to treat their oil revenue as a "windfall " , and life within their means , without dipping into it .


We could for instance adopt their payment plan for Medical services , and instead of putting the fees back into the NHS , build up a similar pot , an "NHS Fund " , which would hold us in good stead for the future .

Trouble being the SNP would have a job getting "pay as you go NHS " to work in Dundee , let alone the rest of Scotland , they can't after-all , get a 1% rise in income tax out of us .

Or simply don't want to risk their popularity and votes , on such radical policies .

And that says a lot for us all really , if 50% of the popular vote , leaves you immobile , unable to force through a measure , what good is being in power ? and how would you do anything else .

Its as if majority Govt is the new "ineffective " .