CLAIM: “Scotland’s deficit to grow as oil and gas prices tumble” – Institute of Fiscal Studies, April 3, 2023
DOORSTEP ANSWER: Actually oil and gas prices jumped 6% on the day the IFS report was published.
What is the Institute of Fiscal Studies?
The IFS is a nominally independent economic forecasting body, though it is funded by taxpayers’ money through the UK Economic and Social Research Council and subject to scrutiny by the Treasury Select Committee.
The current IFS president is Lord Gus O’Donnell, head of the Treasury under Gordon Brown then cabinet secretary. The board of trustees is largely on the liberal wing of academia but includes the TUC’s Frances O’Grady and senior representatives of the Bank of England.
What is the IFS predicting?
The IFS normally examines the fiscal impact of each Budget. On April 3, it published an update of its projections for Scotland’s financial position, using new data from the Office for Budget Responsibility (OBR) that appeared with the most recent UK Budget on March 15.
The OBR revised growth prospects upwards due to a recent fall in oil prices and especially gas prices from their 2022 peaks. According to the IFS report: “This fall is expected to be sustained over the next few years”.
As a result, says the IFS, an independent Scotland would receive less oil and gas revenues than previously forecast.
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The previous IFS projection was for Scotland’s notional post-independence deficit to decline from the equivalent of £4340 per person in 2021-22 to £1600 in 2023-24 as a result of a surge in oil and gas revenues after Russia invaded Ukraine.
But oil and gas prices fell towards the end of 2022 as the US increased its output of fracked gas and used up its strategic petroleum reserves.
The IFS now says Scotland’s underlying budget deficit is greater than previously estimated, revising the notional Scottish deficit in 2023-24 from £9 billion to closer to £18bn.
IFS forecast invalidated
However, on the very day the IFS report was published (arguing fossil fuel prices would be lower “over the next few years”) Saudi Arabia and the OPEC oil producers announced an unexpected cut in production of one million barrels per day.
This reduction caused an immediate hike in oil and gas prices. The price of Brent Crude rose 6% to $85 a barrel. This of course completely invalidates the IFS report.
Saudi energy ministry officials said the move was “a precautionary measure aimed at supporting the stability of the oil market”. Analysts interpreted this as meaning OPEC wanted to keep the price of oil permanently above $80 a barrel.
This indicates the perils of UK bodies and the Unionist media jumping on every tick in oil and gas prices to “prove” that an independent Scotland could not survive financially.
Does Scotland have a deficit?
Our fact checks have repeatedly pointed out that the Scottish Government is mandated by law to balance its books.
The Scottish Government actually runs a modest budget surplus in most years. The suggestion of a notional deficit arises from allocating to an independent Scotland a proportion of the UK deficit run up by Conservative administrations at Westminster – normally on a population basis.
As we have noted repeatedly, this method assumes a post-indy Scottish government would tax and spend in the same way as a Tory government. This seems very implausible.
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Plus the liabilities inherited by an independent Scotland can only be known after negotiations. For instance, a succeeding state has no obligations under international law for the debts previously incurred by the successor state, which would be the rest of the UK.
Finally, the various IFS reports on Scotland do not take into account the fact that much of existing UK debt is an accounting fiction, being money “created” by the UK Treasury and Bank of England to fund government operations. In other words, this is a debt the state owes to itself, not outside parties.
Fact check rating
On this occasion, zero points for prognostication by the IFS. If they had waited a day, they would have to have rewritten their report.
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