Look at Norway’s independence example

The closest example – both geographically and by industry – of a country gaining independence from its neighbour is Norway, which split from Sweden in 1905, but while there are similarities, there are also significant differences.

Both Scotland and Norway have a successful oil industry, as well as fishing industries that help boost each their respective economic positions, but how closely can the two models really be aligned?

Both have a similar number of residents – 5.3m in Scotland compared to about 5m in Norway and each has a major interest in North Sea oil, but since Norway’s oil wealth management has been significantly different to the UK, it is hard to see how an independent Scotland would reap the same rewards when it comes to social investing.

Oil was first discovered in the North Sea in the late 1960s and prior to this the UK imported its oil at great cost. North Sea oil was pumped ashore in 1975 through the first pipeline, and kick-started what would be one of Scotland’s biggest industries.

Would an independent Scotland look after Scotland’s oil and gas resources better than the current UK government?

Norway’s oil discovery happened at much the same time, but there was a significant difference in the way the Norwegians dealt with the wealth that came with the striking of black gold. The state has retained control of the Norwegian oil industry, and set up a sovereign wealth fund to use its oil income to best effect.

The fund, set up in 1990, was valued at NOK1,234bn (£119bn) on 1 January 2014 and is expected to be worth around $1 trillion by 2020. The capital itself, however, is never touched to cover state spending.

The idea that Scotland could adopt the Scandinavian model of social spending has been promoted by the Yes campaign. Yet detractors claim that the oil industry is contracting, so this would not be possible without significantly raising taxes.

In its June Growth Bulletin this year, the Centre for Policy Studies said that the UK’s total energy production fell by 6.5 per cent in 2013 compared to 2012, “mainly due to the falls in the production of oil, coal and natural gas”. During the same period, our net energy import rose to 47 per cent - the highest level since 1975 – with energy exports at their lowest level since 1980.

There are significant differences in the estimation of how many barrels of oil remain under the North Sea. The Wood Review, undertaken by Sir Ian Wood, a Scottish billionaire who has made his fortune in the North Sea oil fields, states that so far around 42bn barrels of oil have been extracted, and a further 12 to 24bn barrels could be produced. But production fell by 38 per cent between 2010 and 2013, with HM Treasury losing around £6bn in tax receipts during this period.

There is also a particular problem for smaller companies that are looking to come into the market, where they have “no production income to offset exploration costs”, said Sir Ian.

He added: “In Norway, companies without production automatically receive the tax relief in cash from exploration and this measure has been particularly helpful for smaller companies.”

However, yes campaigners argue that there is plenty of oil left to support an independent Scotland’s economic endeavours. Alan Russell, professor of Petroleum Accounting at Robert Gordon University in Aberdeen, said there was “no question” that if Scotland was independent in 1975 it would be “extremely wealthy now and there would be no national debt”.

He added: “Would an independent Scotland look after Scotland’s oil and gas resources better than the current UK government? I believe it would, and would ensure that the people of Scotland benefited much more than just now. What is more – by providing a much more stable fiscal regime – Scotland can increase confidence and thus investment in the industry.

“The oil forecasts from the Office of Budgetary Responsibility are ludicrously pessimistic, and a huge understatement of the future potential of North Sea production. The forecast from Professor Alex Kemp, that up to 24bn barrels appears plausible, is one I agree with, and one backed by Oil and Gas UK.

“This outcome is all the more probable given the truly brilliant and innovative approach of the North Sea oil industry towards finding and exploiting reserves. Our oil industry is second to none in leading the way not only in developing new technology but also in inculcating a culture of mutual support amongst North Sea operators.

“Though the quantities of oil and gas left are lower than what has so far been removed, the prices are higher, so the value of the second half of Scotland’s oil opportunity may be even greater than the first 40 years. We need to grasp that opportunity for Scotland through a yes vote.”

In 2012, ironically, the UK imported around 50 per cent of its oil from Norway according to the Government’s own figures. In addition, we imported 58 per cent of our natural gas from Norway. In fact, since 2011/2012, the total revenue generated from the UK’s oil and gas industries have fallen from £10.87bn to £6.1bn in 2012/13 and to £4.67bn in 2013/14 according to the Office for National Statistics. So relying on oil to boost the country’s independent coffers could be a red herring.

However, there is much more to the Scottish economy than just oil, it also has a fishing industry – like Norway – a strong tourism industry, not to mention its financial services and whisky industry.

Scotland’s fishing fleet landed 365,000 tonnes of sea fish and shellfish with a value of £466m, according to the latest Scottish Sea Fisheries figures. The whisky industry – a flagship for Scotland – is worth a massive £4.3bn in exports each year, while tourism adds a healthy £10bn to the pot.

The financial services industry adds a further £7bn, yet with the likes of Standard Life, Lloyds Banking Group, Royal Bank of Scotland and Aegon UK all preparing to set up companies south of the border should Scotland vote yes, this has probably added a few jitters to those who are undecided.

Scotland’s nationalists are keen to point out one of the benefits of being independent is the ability to adopt a more ‘Scandinavian’ model of social spending, but opponents claim that an independent Scotland would be forced to raise taxes to achieve this.

Scottish Secretary Alistair Carmichael claims that Scotland would be forced to raise taxes to reach the levels being paid by each person in Norway, Sweden or Denmark.

He added that the case for leaving the UK “remains a bizarre amalgam of assertion and omission” and that by leaving the UK, Scots would lose a ‘UK dividend’ worth around £1,400 a year.

Mr Carmichael added: “The higher levels of public spending found in Scandinavia require higher taxes to pay for them. Much higher. Especially in Scotland, where public spending is already higher than the UK average.

“According to the Scottish government’s own Government Expenditure and Revenue Scotland figures, Scots pay 36.7 per cent of their earnings in tax. But in Norway citizens pay 42.2 per cent, in Sweden they pay 44.2 per cent, and in Denmark they pay 48.1 per cent.”

Over recent months, Denmark has been cited over and over as an example to follow. But this would involve each Scot paying £3,100 more tax a year.

“We would go from paying under £10,000 a year each to paying over £13,000 instead. On top of this, we know from OECD figures that real disposable income in Denmark is also lower than it is in Scotland. With higher taxes on income and VAT at 25 per cent, that’s hardly a surprise.”

The Institute for Fiscal Studies – which according to its website exists to provide economic analysis independent of government, political party or any other vested interest – has estimated that Scotland would face around £6bn in tax rises and spending cuts by leaving the UK, and there is also the concern about an ageing population, and dwindling oil and gas revenues to meet costs.

Mr Carmichael said: “Scandinavian-style public services would come at an enormous cost – and that must be acknowledged.”

Alison Steed is a freelance journalist

Scotland’s GDP

Scotland’s economic data is not separated from the UK’s in the Office for Economic Co-operation and Development’s statistical tables, so the closest we can get is the Scottish government’s own data on the country’s GDP per capita, which is based on the OECD figures. As of March this year, using figures from 2012, the Scottish government’s GDP per capita estimate including ‘an illustrative geographic share of North Sea activity’ was US$39,642 (£24,423), far less than Norway’s GDP per capita of $66,135 (£40,745).

The gross disposable household income in Scotland in 2012 was £16,267 a head, slightly below the UK average of £16,791 a head.