Not that big a hole
In the Scotsman today:
‘Scotland faces £1.7 billion black hole in public finances. Scotland is facing a £1.7 billion black hole in its public finances as another five years of economic misery looms, according to the country’s fiscal watchdog.’
When we read on, we see the £1.7 billion is spread over 5 years and the shortfall for 2018/2019 is only for £209 million.
But the UK hole is a real big one
As is common, we don’t get any context such as details of any comparable UK-wide shortfall from the Scotsman. However, the Guardian has it for us:
‘UK faces new £20bn budget black hole –as it happened’
The above hole is then predicted to rise to £36 billion by 2020.
With a 12th of the population, you’d expect our shortfall to be £3 billion rather than just £1.7 billion so the headline might be:
‘UK budget deficit twice as bad as the Scottish figure.’
What about the oil and gas?
In 28-page, 2 000-word, document, the words oil and gas appear only 3 times, in these two comments:
‘Future downside risks include the UK’s changing relationship with the EU, a weakening outlook for global trade, Scotland’s industrial and demographic structure and weak onshore demand linked to activity in the oil and gas industry (Page 5)
One-off factors such as adjustments in the oil and gas supply chain to lower oil prices and declines in the construction industry leading to weaker than expected wage growth in 2017 and 2018’ (Page 14)
‘Weak onshore demand’? ‘Lower prices’? Did they write this in 2016?
The Scottish Fiscal Commission’s research is not so slick (!)
Somehow missed by SFC, oil jobs and taxation, oil exploration and high prices return:
Oil jobs and their taxes are back
‘Aberdeen’s workforce has officially “bounced back” to near-record levels after plummeting during the oil and gas crash….the 123,900 workers in the city last year was the second highest on record, just a few hundred below its peak in 2015.’
Exploration is back at pre-slump levels
‘OGA [Oil and Gas Authority] hopes the round will unlock 320 million barrels of oil in undeveloped oil and gas discoveries which were previously “stranded”. Around 3.6 billion barrels worth of exploration prospectivity will be progressed.’
$100 per barrel is possible in 2019
‘The bank’s analysts [Bank of America] wrote Thursday that collapsing oil production in Venezuela and potential export disruptions in Iran could push the price of Brent crude as high as $100 per barrel in 2019.
Getting the GDP predictions wrong
In the Scotsman today:
‘The economy is likely to lag behind the rest of the UK, with growth not expected to top 1 per cent until 2023’
yet in Energy Voice on 3rd May:
‘Scottish GDP grew last year in line with a slight (sic) upturn in North Sea revenues. The latest quarterly national accounts show that when a geographical share of offshore oil and gas is included, GDP grew by 1% in the last three months of 2017 and 3.4% over the year as a whole. Over the year, Scotland’s geographical share of North Sea oil revenues returned to a surplus, with tax revenues rising to just over £1 billion, up from minus £130 million the previous year. Onshore GDP is estimated at £152.1 billion, or £28,046 per person, in current prices.’
Given the evidence of a major upturn in oil and gas revenues in Q4, continuing and growing in 2018 and beyond, the SFC’s GDP prediction makes no sense. Interestingly, the Office for National Statistics are not able to release Scottish GDP figures for Q1 2018. I’ve asked for them, but they won’t be available, I gather, until end 2018.
Underestimating the oil and gas revenue
Here’s the Office for Budget Responsibility forecast reported in Energy Voice:
‘A new report predicts UK oil and gas revenues will be £400million higher every year from now until 2023 – in the latest sign that the North Sea is on the mend. In its fiscal and economic outlook, the Office for Budget Responsibility (OBR) said its revenue forecast had been revised upwards due to higher oil prices, increased production and lower costs. The Oil and Gas Authority recently lifted its long-term forecast for North Sea production by 2.8billion barrels of oil equivalent to 11.7billion barrels.’
They then predict tax revenues of £1 billion for each of the next five years.
Here’s what the revenue could/should be:
11.7 billion barrels at even $70 per barrel, equals total revenue of $819 billion. Production costs estimated by the BP chief, last year, to be no more than $15 per barrel equal $175 billion. So that’s $644 billion or £474 billion, in profit, before wages and shared dividends yet the OBR thinks we only get £5 billion in tax revenue for the first five years. So that would be £34 billion by 2050. Isn’t that a bit low? UK corporation tax at 20% would give nearly £100 billion. What’s going on here?
Taking the above figures, could Scottish GDP actually have grown by several times the UK figure in Q1?
SFC, Scottish F……. Cringe?