...and Scotland and the UK would be treated "equally" by the UN / EU... not!

Following on from the last one:

Just as a UK sans Scotland would happily carry on calling itself, and being recognised as, the UK, it would also happily carry on with the UK's existing international rights, responsibilities and club memberships. Because like country names, those things are determined by the recognition of the rest of the world, not the minutiae of a state's internal constitutional documents.

There are many precedents for this. In 1920 the UK was a member of the League of Nations; in 1921 the Irish Free State seceded from the UK. The UK continued as a League Member and Ireland had to apply to join.

Same thing when the USSR broke up. Russia inherited the Soviet Union's status, the rest of the republics had to fill out the application forms. (Except Ukraine and Belarus, which bizarrely already had UN membership due to certain odd features of the way the UN was set up in 1945).

It is true that when Czechoslovakia and Yugoslavia broke up they were treated as having been dissolved and there was no automatic inheritance of membership by any component - a voluntary arrangement for the Czechoslovaks, imposed by the UN for the Yugoslavs. But the notion that this would apply to the UK (with a hypothetical loss of 8-9% of its population and GDP) is ludicrous.

So in the event of Scottish "independence", the UK would carry on with its membership of the UN and EU and Scotland would be an applicant. This would not matter at all in the case of the UN - "they let anyone in, darling".

I would not suggest that there would be any major obstacles to EU entry either. But neither would there be any special deals; it would be "by the book". Which would mean no deals over fish; loss of the Scottish share of the UK budget rebate; loss of the remaining UK opt-outs; a commitment to join the Euro as soon as possible. Scotland would be treated as any other new entrant.

Why? As well as being the letter of the law, just about every existing EU Member State has potential separatists to worry about and none of them would want to encourage them by making it easy for secessionists to join. Spain is probably the most obvious example of this, and it also has to be recognised that Spain would also not be keen on any special deal over fish!

Moreover, EU entry - or even membership of the wider EEA, which includes Norway and Iceland - would require the unanimous consent of every existing Member State. Including the UK. So a hypothetical "independent" Scotland would presumably have to make sure there were no major breakdowns in its UK exit negotiations (perhaps over its share of the UK National Debt, or Faslane) or else find itself isolated on the wrong side of tariff barriers from all its major markets.

A sobering thought, I would hope.


PS

Hat-tip to DG, who pointed me in the direction of this CER paper (which basically covers most of the same stuff I have).

The UK would "cease to exist" if Scotland left

Well that's two posts in a row on issues which are modern and relevant. Time, surely, for another plunge into the ancient history of the constitution – although it turns out that this one does have some interesting modern and relevant implications.

It is often asserted by various Nats that the UK would “cease to exist” if Scotland seceded. Often this seems to be an example of what I have taken to calling the “Nationalist Cringe”: it's not enough to want the best for Scotland, one also has to want to do down the rest of the UK – particularly England, of course – too.

The claim is utterly vacuous nonsense. The 1707 Acts of Union only created the “Kingdom of Great Britain”. The “United Kingdom of Great Britain and Ireland” did not come into existence until the 1800 Acts of Union. The Irish Free State left in 1921. Did the UK “cease to exist” then? No, it added one word to its name - “Northern” before “Ireland” - and carried on.

So even according to the strict logic of its own constitutional law, the UK would remain in existence as long as any part of “Great Britain” is in “union” with any part of “Ireland”.

But that's actually irrelevant.

What states can call themselves isn't determined by their internal constitutions, but by what the rest of the world is prepared to recognise. Consider the Great Socialist People's Libyan Arab Jamahiriya, or the Democratic People's Republic of Korea. The only state I know of which has had trouble over its name is Macedonia, as the Greeks have vetoed the rest of the EU into recognising it only as “FYROM” on the grounds that its chosen name could imply a potential claim to the Greek province of Macedonia.

So a future hypothetical truncated UK could continue to call itself the UK as long as it wanted to. Even a toute seule “United Kingdom of England” - it would be a kingdom, and united, after all! The only possible obstacle to this would be, say, if an “independent” Scotland were somehow able to persuade a large number of important states that the UK should not be recognised under that title.

Dream on, Nats.

So why is any of this remotely relevant today? Well, just as for names of states, the same rule applies for their international rights and obligations, and membership of international organisations like the EU and UN. It's determined by the recognition of the rest of the world.

To be continued in the next post.

It's Scotland's oil! (But how much?)

Well actually, technically and legally it isn't Scotland's oil right now, it's the UK's and the tax revenues from the North Sea (and Irish Sea) oil and gas are attributed to an entity called the “Extra Regio”.

However, thanks to the SNP (a combination of words you will not often see here) the June 2008 edition of the Government Expenditure and Revenues in Scotland report (GERS) examined how the Scottish public accounts would look if a geographic share of North Sea tax revenue was attributed to Scotland. This was based on some research commissioned from the respected Aberdeen University oil expert, Professor Alex Kemp, and his associate Linda Stephen.

The Kemp & Stephen paper does all the work for me so this blog entry will be mercifully short!

Now, the particular Nat myth we are debunking is the often bandied-around figure that, on a geographic basis, Scotland would get 95% of North Sea revenue. As an example, here is where someone spoils an otherwise serious bit of work back-checking the GERS numbers by arbitrarily “correcting” the Scottish share of North Sea revenue to 95% - an error worth almost £2bn on the surplus / deficit calculation.

As usual, the myth is based on a grain of truth. A look at page 11 of the Kemp & Stephen paper shows that the historic Scottish geographic share of physical oil production is indeed close to 95%, and that it rises to 97% in the future.

But the North Sea doesn't just produce oil, it also produces gas. And that gas produces tax revenue, too. A look at page 12 of the Kemp & Stephen paper shows that the Scottish share of gas production is much lower, 58% rising to 67%. This is due to the fact that a lot of the gas is produced from the Southern North Sea and the Irish Sea.

Put all this together and you end up with the picture on page 29 of the Kemp & Stephen paper, showing that the Scottish share of total North Sea oil and gas tax revenues has averaged 80-something-% for the last few years and will stay around 90% for the future.

Why is the difference between the factual number of 90% and the mythical one of 95% important? Well, it makes a billion or two of difference to the fiscal balance calculation, which is after all the small difference between two large numbers.

So the next time some Nat claims Scotland has some kind of huge surplus of North Sea tax revenue which is being hidden away, beware. It just ain't so.

The McCrone myth refuted

There is a gent called Gavin McCrone – now a fully paid-up member of the great and good: full title Professor Gavin McCrone CB FRSE, chairman of the enquiry into reforming teachers' pay and various other things. He was, formerly, an economic adviser to the old Scottish Office, and in that function he wrote a little paper back in 1974 called “The Economics of Nationalism Re-examined”.

In 2006 this was the subject of an (apparently) SNP-originated Freedom of Information request, and was released into Nationalist legend and mythology.

According to the myth, the “McCrone Report” “proved” that “London” (or often, “Labour”) had “lied for over 30 years”, “concealing the extent of North Sea oil”, “hiding the wealth it could yield”, etc etc etc. Here is a particularly lurid example.

When I first came across all this I was genuinely interested. What shocking revelations could I expect to see? The result was rather disappointing.

Firstly the McCrone paper (18 pages plus a covering letter) contains, as far as I can see, no actual facts – just some forecasts from 1974 looking forward to 1980, and some opinions about the implications of those forecasts.

It will be appreciated that it is conceptually difficult for anyone to “lie” about forecasts and opinions – they might turn out to be right or wrong, but nevertheless genuinely believed when made.

Secondly, we can exonerate the Red Rose Brigade from “lying” in either of the 1974 General Elections. As McCrone's own 23 April 1975 covering note states:

“The Paper was written over a year ago in the weeks immediately before the February 1974 Election.”

I.e. the paper was written in the final days of Ted Heath's 1970-74 Conservative government. There is a Civil Service convention that an incoming Government is not ordinarily or immediately shown papers commissioned by its predecessors, so April 1975 is quite likely the first time anyone in Whitehall was aware of McCrone's paper. The overall tenor of his covering note seems to confirm this.

Next, let's look at the actual alleged “lies” and “deceptions”. Did anyone conceal the true extent of North Sea oil from the public? This suspicion seems to centre on the following passages:

“So far all that Minister have said is that they expect North Sea oil to be yielding 70-100m. tons of oil per annum by 1980...

...All the above figures are, of course, based on the estimated output of 100m. tons of oil in 1980. This was the DTI’s revised estimate in the early summer of 1973. Already it is beginning to look as if these estimates may be too conservative.”

Hmm. Let's have a look at Hansard:

“HC Deb 23 October 1973 vol 861 cc488-9W 488W

§ Mr. Sillars

asked the Secretary of State for Trade and Industry what are his latest estimates of the output from North Sea oil by 1980.

§ Mr. Tom Boardman

The report on production and reserves of oil and gas on the United Kingdom Continental Shelf which I presented to Parliament in May forecast a most likely range of oil production in 1980 of 70 million-100 million tons. Recent discoveries should ensure that the lower end of this range is reached; with further discoveries in the next year or two it should be exceeded.”

And in fact, oil production in 1980 turned out to be 80.5 million tonnes.

So we can dismiss this one easily – in fact the expected extent of North Sea oil was put on the record in Parliament in 1973, and the forecast was if anything a little optimistic, since the 1980 outturn was towards the lower end of the predicted range.

Next, the question of North Sea tax revenue. McCrone gives a long and involved discussion of this on pages 5-6 of his paper, starting from the position that under the existing (1974) taxation regime, 100 million tonne production in 1980 would mean that:

“the Government revenue from rent and royalties from the whole of the Continental Shelf including the gas fields in the southern sector may be of the order of £100m. per annum at that time.”

McCrone notes that the existing North Sea tax regime had been recognised as inadequate and grossly over-generous to the production companies – although we have to remember that it had been set up in the pre-1973 oil shock days of $2/bbl oil! The tax system had been the subject of SNP and Labour criticism and was being reviewed by the Conservative government of the day. McCrone goes through various possible reforms and changes, ending up with:

“Government revenue following adoption of these measures would have been between £800m. and £1,200m. a year in 1980 depending on the system used and the prices prevailing in 1980; today, following the huge increase in international oil prices of recent months the corresponding figures are in the range of £1,500m. to over £3,000m.”

Once again, this was hardly a “secret”. Labour were elected to power in 1974 with a manifesto commitment to increase North Sea taxation, and in 1975 introduced the new Petroleum Revenue Tax (PRT).

“NORTH SEA OIL (PETROLEUM REVENUE TAX)

HC Deb 25 February 1975 vol 887 cc290-9

The Paymaster-General (Mr. Edmund Dell):

The hon. Member asked for an estimate of revenues on the basis of certain figures of oil production in—I take it—the 1980s. He will understand that in the early years the revenue from North Sea oil will be relatively small but growing fast. In the early 1980s, at a figure of 100 million tons, it should be £2,000 million or £3,000 million. Of course, the higher the production the greater the consequent revenues. However, all figures in this respect must be treated with some caution because they depend, first, on the price of oil and, secondly, on the cost of exploration and development. I therefore suggest to the hon. Gentleman that we wait to see what we get before relying on it too much. “

So, there doesn't seem to have been much of a “secret” here either.

The problem with relating these projections to reality is that neither McCrone nor Mr Dell made it explicit what money values they were using – which is a rather important point, given the rates of inflation and fluctuations in exchange rates and oil prices prevalent in the 1970s.

However, using Treasury data I have derived some figures for North Sea tax revenue in the early 1980s, expressed in 1973 £s. In 1980-83, North Sea tax revenues were £1.2-1.3bn. So it seems that both the McCrone and ministerial revenue forecasts were actually too optimistic by quite a long way. However, the most important thing is that the forecasts were public. Again, there was no “lie” or “concealment” about the extent of North Sea tax revenues.

The bulk of the rest of the McCrone paper consists of qualitative opinions about the economic impact of an independent Scotland keeping the bulk of these revenues for itself – budget surpluses, a strong currency and so on. These are not terribly earth-shattering; the proposition that divvying up X billion of oil revenue amongst 5 million people rather than 55 million would result in the 5 million having a larger share invites the response “No sh*t, Einstein.”

But again, how was this a “secret”? The SNP manifestos for the 1974 elections made exactly that case. Remember “It's Scotland's oil”? Nevertheless, although the SNP reached a pre-2007 high water mark in the October 1974 election (30.4% of the vote and 11 seats), they failed to achieve any sort of majority. The Scottish electorate of the 1974 elections had all the facts before it and still rejected independence. Presumably, scepticism about the narrow economic grounds of the SNP case played a part – at this point in time all these future oil tax revenues were hypothetical. This scepticism acted together with concerns about the wider social, political, and security issues. One might remember there was this minor gig called the “Cold War” still ongoing in 1974.

So what actually was kept secret? One thing. The fact that a (then fairly junior) civil servant had written an internal briefing paper in which he expressed an opinion that some of the narrow economic aspects of the SNP's (public) case for independence had some merit. Big deal; civil servants write briefing papers all the time, most of which never see the light of day. (Presumably right now there are briefing papers in St Andrew's House warning the incoming SNP administration that their plans for LIT and SFT were overwhelmingly likely to be ruled as ultra vires under the Scotland Act.)

And of course we have no idea if this opinion would have turned out to be correct. Would the level of investment in the North Sea have been higher or lower under an “independent” Scottish regime intent on higher taxes and restricting production? You choose.

So, to recap:

• the physical extent of North Sea oil was never a secret – it was announced in Parliament;

• the potential volume of North Sea tax revenue was never a secret - it was also announced in Parliament;

• the potential, hypothetical economic impact of such revenue was also never a secret – it was the centrepiece of the SNP manifestos of 1974;

• despite that, the SNP failed to achieve a majority for independence as the electorate evaluated their economic claims and rejected them;

Case dismissed. Next!