The collapse of the oil price in recent months has led to a certain amount of glee in the unionist camp, with their spokespeople taking great delight in claiming that it ‘proves’ that Scotland couldn’t afford independence. In fact, it ‘proves’ no such thing; it’s a hopelessly over-simplistic reaction.
It’s true, of course, that the draft figures for the economy of an independent Scotland produced by the SNP were based on an assumption about the price of oil, and that that assumption has been proved incorrect. (Although it’s worth reminding ourselves that the assumptions about oil prices made by the SNP were very similar to those being used by the UK Treasury to forecast the UK’s revenues and expenditures.) It’s also true that the fall in oil prices means a fall in revenues from taxes on oil, and that that reduction would have fallen on the Scottish Treasury in an independent Scotland rather than on the UK Treasury as things stand.
Taking those two truths, it’s easy to make predictions of doom for the Scottish economy. Like all good political sleights of hand, starting with some simple truths is a better basis for a big lie than starting from obvious untruths. The point is though, that, true as those two points are, they’re not the whole truth. The reduction in revenue from petroleum tax isn’t the only result of a falling oil price; falling oil prices also have other economic effects.
One of the most obvious of those effects is that the cost of travel and transport reduce, and that affects the price of most goods and services. In some cases that will be passed on to purchasers in the form of price cuts; in others it will boost the profitability of non-oil businesses. And consumers paying less for fuel will have more money to spend on other things.
In terms of government income and expenditure, there will be some direct benefits from the reduced price of fuel, and some more indirect benefits from taxes on profits of non-oil businesses, all of which need to be offset against the reduction in revenues from the oil industry. For the economy as a whole, cheaper fuel can promote and encourage increased economic activity in other sectors, which will also boost government revenues.
It’s difficult to be certain whether the ‘good’ economic effects of a lower oil price will outweigh the ‘bad’ economic effects in Scotland, although there have been some reports suggesting that they will. And there can be no guarantee that the price of a product like oil will not increase again in the future if the world economy sees an increase in demand. The nature of the oil price is that it is essentially volatile, but my personal view is that, over the long term, energy prices are likely to go in only one direction – upwards – whatever variations we may see in the interim depending on the world economic cycle. The economic prospects of a country where a commodity with a volatile price plays a large part can never be judged solely on a short term basis - and that applies as much to an assumption about high oil prices as it does to an assumption about low oil prices.But the idea that what is likely to be a short to medium term reduction in oil prices somehow kills the idea of independence for Scotland is simply wishful thinking. It’s almost as silly as arguing that the resultant hit taken by the UK spells the end of any possibility for the UK to remain independent. The good news is that, if over-simplistic half-truths and wishful thinking are the best economic arguments the unionists can come up with, the project that’s doomed is the union, not Scottish independence.