Nicola Sturgeon warned dream of funding independent Scotland using North Sea oil and gas won’t work

Nicola Sturgeon‘s plan to use £20billion of North Sea oil and gas revenues to fund the first decade of independence in Scotland have been dealt a serious blow after an expert said the sector was unlikely to generate that much money.  

Economist Tony Mackay, who helped set up Norway’s £1trillion sovereign wealth fund in the 1970s, said he had ‘doubts’ over the SNP leader’s plan for a similar set-up.

Last week Ms Sturgeon unveiled plans for a Building a New Scotland Fund to bankroll capital spending in the first 10 years after leaving the UK.

It involves the ‘sustainable use of oil and gas revenues … to enable Scotland to get off to as strong a start as possible and to lay the foundations for a green, fair and net zero economy’.

However, Mr Mackay told The Sunday Times: ‘The Norwegian oil fund has been very successful, more successful than I ever imagined. However, I have many doubts over this proposal for a New Scotland Fund because I believe future oil and gas revenues will be very small in the first decade of independence. 

‘North Sea oil and gas production has declined massively in recent years as many fields have ceased production. Only a few remain in comparison with the 1970-2000 period.’ 

In a paper released a fortnight ago, the fund was unveiled by the SNP. It suggested that Holyrood government modelling had shown that a similar scale investment  ‘would have both a short-term demand effect and a longer-term supply effect by increasing long-term productive capacity and providing a sustained boost to the economy’

‘This modelling showed that after five years, an investment package of £1.56 billion a year could lead to the Scottish economy becoming between 0.5 per cent and 1 per cent larger at the end of the programme than it would otherwise be. Over 15 years, this is equivalent to increasing the size of the economy by between £10 billion and £25 billion, at 2017 prices.’

A Scottish Government spokeswoman told the paper: ‘(Our) position is clear that unlimited extraction of fossil fuels is not consistent with our climate obligations.’

However, she added: ‘As outlined in the government’s proposals for the economy of an independent Scotland, the Building a New Scotland Fund would be funded from oil and gas revenues as well as other windfall income and, where necessary, from borrowing.’

Tax revenues from North Sea oil and gas have increased to almost £8 billion in the first nine months of 2022, according to research.

Figures from the Aberdeen and Grampian Chamber of Commerce show the government’s tax take has increased nearly seven-fold from the same period last year.

A windfall tax for the energy sector was introduced in May, which brought in a 25 per cent surcharge on extraordinary profits from energy companies.

Chancellor Jeremy Hunt is understood to be considering raising this further in order to improve the UK’s fiscal position.

The chamber of commerce analysed tax receipt data from between January and September this year, finding that offshore companies paid £7.9 billion in tax.

This would be a 692 per cent increase on the same period in 2021.

It came as research showed business confidence in Scotland fell 10 points to 5 per cent during October as companies faced ‘ongoing economic challenges’.

The latest Business Barometer from Bank of Scotland Commercial Banking found that business confidence in the manufacturing sector fell for the fifth month in a row, to 13 per cent, the lowest confidence level since February 2021.

Confidence in the retail sector declined by six percentage points to 9 per cent, while in the services sector it fell to 16 per cent, both the lowest levels since early last year.

However, the construction sector saw a 10 percentage point rise to 20 per cent, although this level still remains weaker than in the first half of the year.

Scottish businesses identified their top target areas for growth in the next six months as evolving their offering (33 per cent), investing in their teams (29 per cent) and entering new markets (27 per cent).

Chris Lawrie, area director for Scotland at Bank of Scotland, said: ‘Ongoing economic challenges, not least the cost of doing business, is hitting firms and we’re seeing this reflected in a less optimistic outlook.

‘As we approach the busiest trading period of the year for many, businesses across the country need to prioritise maintaining a steady cashflow to remain resilient and be well-equipped for any opportunities to grow.

‘After all, Christmas can be a frenetic and expensive time for businesses and their customers, so firms need to have a plan in place to manage this, as well as having some money aside to cover unexpected costs.

‘We’ll remain by the side of Scottish businesses to help them continue to navigate the challenging market conditions and push for growth.’

The survey was conducted with 1,200 companies – including 100 businesses in Scotland – between October 3 and 17.

Overall UK business confidence fell one point during October to 15 per cent.