Wednesday, 18 April 2012

Fergus Ewing's big, big oil fund dream

That was a bit of a nightmare session for Scottish Energy Minister Fergus Ewing in the Commons yesterday. But it won't be as excoriating as his next meeting with Alex Salmond.

It is one thing to have your boast that an independent Scotland could quickly build up a multi-billion pound oil fund attacked as a fantasy by the opposition - quite another to have it undermined by your own Energy Minister.

Ewing's admission that the Norway-style oil fund for the future of an independent nation could not be done without cutting public services came under duress, it has to be said. He was the subject of hostile, and well briefed, questioning from the MPs on the Commons Energy Select Committee.

Under hard scrutiny from MPs Ewing had to say that the much-trumpeted Salmond oil fund could only be started when “it was financially appropriate to do”.

He wasn't helped by the evidence beforehand of Professor Jo Armstrong, of Glasgow University, who told MPs that an £1 billion a year oil fund was possible but “would lead to cuts elsewhere.”

Armstrong, a respected public policy expert, told the committee: “The current numbers suggest that if you put £1 billion of North Sea oil finds into a separate oil fund then you will have to cut £1 billion of spending somewhere else.”

Labour MP Albert Owen asked Ewing how the SNP could invest £1 billion each year in a fund when public service budgets were being cut.

He said: “Would you be setting £1 billion aside at a time when budgets are being cut right across the board? Would you be setting aside a one billion per annum in an independent Scotland?”

Ewing pointed out in his reply that Norway had set up its oil fund in 1990 but not started investing in it until 1996. That wasn't the answer Owen wanted, so he pressed again on whether an oil fund would start in "year one" of independence.

Ewing gave a lawerly reply: "The desire is to proceed as quickly as possible depending on the financial circumstances at the time."

Now, I think Finance Secretary John Swinney has made the same kind of noises previously but the Ewing confession that the oil fund could not be up and running immediately after independence does take the edge of Alex Salmond's bluster on the subject.

In his speech at the London School of Economics earlier this year the First Minister claimed that over 20 years an oil fund would generate £30 billion that would become the economic motor for an independent Scotland.

No mention though of when that fund would begin, or that these kind of returns depend on an interest rate of over four per cent, a whole lot more than the 2.9 per cent interest the real-life Norwegian oil fund currently generates.

Glasgow MP John Robertson, a member of the Energy committee, said he was flabbergasted by the Ewing's performance.

Speaking after the meeting Robertson said: “This is yet more proof that the SNP and Alex Salmond live in a fantasy world, and dream up ideas for an independent Scotland without thinking them through first.”

“This is a £1 billion unfunded spending commitment that now respected economists are saying it would lead to a £1 billion cut to public spending.”

He called on Salmond to come to the committee to demonstrate where the savings in public spending could be made.

Ewing also said that in an independent Scotland the SNP would refuse to pay the £30 billion clean up bill for North Sea oil rigs.

He told MPs that Westminster had a “moral obligation” to foot the massive North Sea clean-up costs that have been predicted for 2040.

Ewing said: “In principle, given that the UK has received substantial revenue from these rigs, it seems correct that the UK has a moral and certainly a legal obligation to be responsible for decommissioning.”

Cue the chins of Robertson and the usually mild mannered Lib Dem Sir Robert Smith, Mr Oil to you and me, clanging to the floor.

Pressed further, and probably realisng the hostage to headlines he'd created, Ewing said it was possible there could be some form of proposal to share some of the costs. An echo there of Salmond's own assertion he would not take on that Scotland's share of the bill for the massive bail out of RBS and the Bank of Scotland - we didn't create the mess and we're not paying for the clean up.

All in all, not a great day to be Scottish Energy Minister. And when Fergus wakes up today it won't all have been a bad dream, unlike the oil fund which he so effectivly punctured.

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