Are Scotland’s expectations still oil-fired?

Scots are not engaged, as they were in the 1970s, in a debate about how best to utilise North Sea assets.

The discovery of oil and gas in the North Sea in the late 1960s and early ‘70s had a transformative effect on Scottish political debate. Where previously the SNP had been expected to demonstrate that Scotland’s economy could function independently of the United Kingdom, suddenly unionists faced pressure to explain why it couldn’t thrive under Scottish control.  

In his introduction to The Red Paper on Scotland, published in 1975, Gordon Brown - then student rector of Edinburgh University - acknowledged how radically developments in the North Sea had altered the Scottish political landscape: "Modern Scottish nationalism is less an assertion of Scotland’s permanence as a nation than a response to Scotland’s uneven development - in particular to the gap between people’s experiences as part of an increasingly demoralised Great Britain and their (oil-fired) expectations at a Scottish-level."

By the time he had become Chancellor of the Exchequer two decades later, Brown’s analysis of nationalism had reversed. In a pamphlet, New Scotland, New Britain, written ahead of the first Scottish parliamentary elections, he dismissed "the cause of separation" as little more than a "misguided retreat from … modern forces of change".

Nonetheless, oil remained central to the SNP’s argument that Scotland could be a richer, fairer and more dynamic society outside the UK. But to what extent are Scottish expectations still "oil-fired"? Certainly, strategists on both sides of the independence referendum continue to view the issue as pivotal.

The most recent clash centred on an OBR report, seized on by Better Together, that predicted oil revenues would fall sharply from 2017, leaving Scotland with a larger fiscal deficit than the UK as a whole. Nationalists responded by highlighting the industry’s optimism over future rates of production and citing the work of Alex Kemp, professor of petro-economics at Aberdeen University, which estimates oil could generate between £50bn and £100bn in tax over the next 10 years alone.

When the debate becomes counterfactual, the unionist case weakens. Opponents of independence insist that, as a separate state, any benefit Scotland might have secured from control of the oil would have been offset by large fluctuations in annual revenues. Yet, between 1976 and 2011, total North Sea royalty and tax receipts amounted to £285bn (at 2009/10 prices), of which Scotland’s share - according to a median line division of North Sea territory - was £257bn. The focus on annual revenue flows is deceptive for the obvious reason that low revenues one year can be (and have been) compensated by high revenues the next.

Against these numbers, Scotsman columnist and former Labour MP Brian Wilson claims an independent Scotland run by the SNP would simply have mismanaged the oil industry. Again, the evidence suggests otherwise. As Chris Harvie explains in his book Fools Gold: the story of North Sea oil, SNP oil policy in the ‘70s and ‘80s drew heavily on the Norwegian model, with commitments to hold the oil as the property of the Scottish state, limit output to between 70 and 100 million tons per year and establish a Scottish state oil company with a 50 per cent stake in as yet undeveloped fields.

Few deny that Norway’s stewardship of its oil resources has been vastly superior to that of Britain’s. Norway’s oil fund, established in 1990, is currently worth more than £450bn, while the country’s GDP, once 9 per cent lower than that of the UK’s, is now 71 per cent higher. By contrast, throughout the 1980s, successive Conservative administrations at Westminster wasted record oil tax returns on rising welfare and unemployment bills caused by Mrs Thatcher’s monetarist experiments. Moreover, Thatcher used her oil tax windfall to disguise the growing deficit in the UK’s trade in general goods and services - a deficit compounded by her deliberate erosion of Britain’s manufacturing base.

It is difficult to believe that an oil-rich, independent Scotland would have allowed its industrial sector to decline as rapidly and as relentlessly as it has under the direction of UK policy-makers. More likely, Scotland would have pursued a programme of long-term industrial restructuring, with the possible benefit of avoiding the growth in unfettered financial capitalism that has proved so damaging to the British and Scottish economiesof late.

However, legitimate historical grievances notwithstanding, there doesn’t seem to be a great deal of political capital to be made from agonising over London’s failure, so far at least, to grasp the developmental opportunities presented by North Sea oil. Scots are not engaged, as they were in the 1970s, in a public conversation about how best to utilise Scottish oil assets in Scotland’s interests, nor do they seem particularly animated by the SNP’s talk of another boom in oil investment over the coming years.

It’s possible this sense of disengagement is symptomatic of the broader lack of public enthusiasm for the referendum campaign routinely noted by commentators. But perhaps its roots lie in a deeper collective memory of how cruelly the hopes raised by Scotland’s first oil boom were dashed, first by the defeat of devolution in 1979 and then by the decade of economic and political stagnation that followed. It would be a frustrating irony for nationalists if the defensive habits Scottish voters developed during the Thatcher era proved the undoing of the independence project. 

A tanker taking on oil from a loading bay at the Statfjord A-platform in the North Sea. Photograph: Getty Images.

James Maxwell is a Scottish political journalist. He is based between Scotland and London.

Getty
Show Hide image

Let's turn RBS into a bank for the public interest

A tarnished symbol of global finance could be remade as a network of local banks. 

The Royal Bank of Scotland has now been losing money for nine consecutive years. Today’s announcement of a further £7bn yearly loss at the publicly-owned bank is just the latest evidence that RBS is essentially unsellable. The difference this time is that the Government seems finally to have accepted that fact.

Up until now, the government had been reluctant to intervene in the running of the business, instead insisting that it will be sold back to the private sector when the time is right. But these losses come just a week after the government announced that it is abandoning plans to sell Williams & Glynn – an RBS subsidiary which has over 300 branches and £22bn of customer deposits.

After a series of expensive delays and a lack of buyer interest, the government now plans to retain Williams & Glynn within the RBS group and instead attempt to boost competition in the business lending market by granting smaller "challenger banks" access to RBS’s branch infrastructure. It also plans to provide funding to encourage small businesses to switch their accounts away from RBS.

As a major public asset, RBS should be used to help achieve wider objectives. Improving how the banking sector serves small businesses should be the top priority, and it is good to see the government start to move in this direction. But to make the most of RBS, they should be going much further.

The public stake in RBS gives us a unique opportunity to create new banking institutions that will genuinely put the interests of the UK’s small businesses first. The New Economics Foundation has proposed turning RBS into a network of local banks with a public interest mandate to serve their local area, lend to small businesses and provide universal access to banking services. If the government is serious about rebalancing the economy and meeting the needs of those who feel left behind, this is the path they should take with RBS.

Small and medium sized enterprises are the lifeblood of the UK economy, and they depend on banking services to fund investment and provide a safe place to store money. For centuries a healthy relationship between businesses and banks has been a cornerstone of UK prosperity.

However, in recent decades this relationship has broken down. Small businesses have repeatedly fallen victim to exploitative practice by the big banks, including the the mis-selling of loans and instances of deliberate asset stripping. Affected business owners have not only lost their livelihoods due to the stress of their treatment at the hands of these banks, but have also experienced family break-ups and deteriorating physical and mental health. Others have been made homeless or bankrupt.

Meanwhile, many businesses struggle to get access to the finance they need to grow and expand. Small firms have always had trouble accessing finance, but in recent decades this problem has intensified as the UK banking sector has come to be dominated by a handful of large, universal, shareholder-owned banks.

Without a focus on specific geographical areas or social objectives, these banks choose to lend to the most profitable activities, and lending to local businesses tends to be less profitable than other activities such as mortgage lending and lending to other financial institutions.

The result is that since the mid-1980s the share of lending going to non-financial businesses has been falling rapidly. Today, lending to small and medium sized businesses accounts for just 4 per cent of bank lending.

Of the relatively small amount of business lending that does occur in the UK, most is heavily concentrated in London and surrounding areas. The UK’s homogenous and highly concentrated banking sector is therefore hampering economic development, starving communities of investment and making regional imbalances worse.

The government’s plans to encourage business customers to switch away from RBS to another bank will not do much to solve this problem. With the market dominated by a small number of large shareholder-owned banks who all behave in similar ways (and who have been hit by repeated scandals), businesses do not have any real choice.

If the government were to go further and turn RBS into a network of local banks, it would be a vital first step in regenerating disenfranchised communities, rebalancing the UK’s economy and staving off any economic downturn that may be on the horizon. Evidence shows that geographically limited stakeholder banks direct a much greater proportion of their capital towards lending in the real economy. By only investing in their local area, these banks help create and retain wealth regionally rather than making existing geographic imbalances worce.

Big, deep challenges require big, deep solutions. It’s time for the government to make banking work for small businesses once again.

Laurie Macfarlane is an economist at the New Economics Foundation