Independent Scotland's finances at risk from oil slump, say economists

A BP oil platform off Aberdeen. North Sea oil revenues are forecast to fall to £5bn this year. Photograph: Andy Buchanan/AFP/Getty Images

Alex Salmond has been warned by economists that an independent Scotland's finances are likely to be significantly worse than the UK's after a slump in North Sea oil production.

Economists at the University of Glasgow said the latest oil tax forecasts from the Office for Budget Responsibility (OBR) in London suggested that Scotland's public spending deficit would probably be about £1,000 worse per person each year than the UK's until 2018.

In a new report, the university's Centre for Public Policy for Regions (CPPR) said the Scottish government needed to publish its own updated forecasts to set out the implications of that decline for future spending – a request the Scottish government did not respond to on Sunday.

An ICM opinion poll for the Scotland on Sunday newspaper confirmed that support for independence has increased in recent months, just as the Scottish Labour party ended its three-day spring conference in Perth.

John MacLaren, one of the CPPR report's authors, said Scotland's financial advantage after several years of buoyant oil revenues was beginning to disappear after two successive years of far lower oil tax receipts.

With this year's oil revenues expected to be less than £5bn – compared with £11bn two years ago – and due to continue to decline, Scotland's far larger spending and tax deficit from the onshore economy was becoming a more significant issue, MacLaren said.

Over the next five years, the onshore deficit would exceed the UK's by about £1,500 per capita each year until 2018‑19 because of higher per capita public spending. Based on those calculations, spending would need to be cut, or taxes and borrowing would need to rise.

"The Scottish government's fiscal commission said we should be aiming for an onshore fiscal balance, so we can use the oil for an oil fund," MacLaren said.

"Unfortunately income from the North Sea is needed just to pay for what's currently being spent. But as the OBR figures show, going forward that won't always be the case."

The Scottish government said oil production was expected to increase from 1.4m barrels a day to 1.7m in 2017. "We expect that record North Sea investment will lead to an increase in revenues in coming years," a spokeswoman said.

Mirroring increases in the yes vote from a majority of recent polls, the latest ICM survey found that the gap between yes and no, excluding don't knows, had closed by four points to 45% in favour of leaving the UK to 55% against.

It also found there was significant scepticism that a no vote would lead to more significant power for Holyrood, with only 39% of voters certain that would happen, while 10% of no voters would switch to yes if they believed Holyrood would not get further powers.

That suggests voters are unimpressed by Scottish Labour's new proposals, published just as the polling was being carried out, to increase the Holyrood parliament's control over income tax and give Scotland control over housing benefit.

Buoyed by the rise in support, Nicola Sturgeon, the deputy first minister, is due to tell an audience in Cardiff on Monday that a yes vote would allow Scotland to rectify a democratic deficit by drafting a written constitution that would "energise and inspire people across the country".

In a speech to mark two years until the Scottish National party's proposed independence day in 2016, Sturgeon will add: "Independence is not a historical argument, it is the opposite: a live and vital opportunity to chart our own course, to give us the power to determine our own future and build the kind of country we can all be proud of."

The no camp was meanwhile boosted by new interventions against independence from the US-owned investment company BlackRock and from Archie Norman, the former Tory minister who is now chairman of the investment bank Lazard UK and chairman of ITV.

Dismissing the SNP's case for independence as "a few windmills and hydropower", Norman said businesses in both Scotland and England had "a huge vested interest in the UK staying together", in an article for the Sunday Telegraph.

"Wherever business people stand personally on the issue, a separate Scotland would almost certainly result in more complexity, more regulation and greater uncertainty," he said. "So, business leaders need to express a view and so long before panic sets in."

BlackRock, which employs about 530 people in Edinburgh, said a currency union between the UK and an independent Scotland would be "infeasible", while interest rates would rise, financial institutions would head south to England and savers would move deposits to UK banks.

The Treasury's insistence that a currency union would be damaging to the UK's interests were dismissed as dishonest and full of "errors of logic" by Professor Leslie Young, an economist at Cheung Kong business school in Beijing.

In an analysis for the Scottish businessman Sir Tom Hunter, Young said a currency union could easily be made to work, in part because Scotland's large banks and finance houses were likely to move to London after independence, greatly lessening the risks that Scotland could be bankrupted by a future financial crisis.