Margo MacDonald: I predict that the forecast’s wrong

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I have nothing against the Institute for Fiscal Studies. As far as I can deduce, this think-tank tries hard to maintain its independent stance in relation to our political parties.

But when it produces a report on the performance and strength of the Scottish, British or any other economy 40 years from now, it is subject to the same objections, corrections and sheer scepticism as any propaganda pamphlet from the political parties. So from here on in, any comments about the study, published by IFS this week, on how Scotland will fare under Scottish sovereignty, should be seen in this light.

I’ve lost count of the number of prophetic, well-meaning, as well as totally destructive, reports on Scotland’s future that have contributed in no small measure to the lack of confidence felt by many, many Scots. This latest report by the Institute for Fiscal Studies, as it stands, is a fair enough analysis of the current Scottish economy. Its predictions are based on all the factors that go to make up our GDP. So what’s wrong with that? The numbers seem to add up. What’s wrong is the supposition that a sovereign Scottish government would do nothing differently from the strategies pursued by SNP and Lab/Lib Dem governments when they both operated under the limiting factors of devolution.

Right now, a fact acknowledged by the study, Scotland is well placed to reap the advantages of having oil and gas tax revenues from the North Sea and the area east of Shetland. What the study does not do is join up the dots from the present revenue to investment in the deep oil west of Shetland, which will not only extend the national income from the commodity itself but provides the opportunity for the development of deep water engineering.

The income from this source cannot even be guessed. The only certainty is that it will be an innovation that any country in the world would welcome. Well, to be strictly detached, perhaps one wouldn’t, on account of fearing that the well might dry up, both metaphorically and literally. There would be a good few Scots, including the leaders of the Better with Britain brigade, who would only allow their aspirations and imagination to see the risk. They won’t see the reward in making oil money, however much, to grease the wheels of economic growth and pay for the education of future generations of Scots.

In case its forecasts are overtaken by events, the IFS report carries a Health Warning from a government department – Page 1 of the Office of Budget Responsibility report warning about forecasts says: “It is important to emphasise that the long-term outlook for public spending and revenues is subject to huge uncertainties . . . the long-term figures presented here should be seen as broad-brush illustrative projections rather than precise forecasts.”

Exactly. For precise forecasts, we would need to know all of the new factors that would enter the equation over the next 20 to 30 years, the period covered by the study. To judge the importance, and the near impossibility, of having prior knowledge of some of the seismic changes that will affect our world in the next three decades, try to remember the predictions that were made for Scotland circa 1980.

There was a steel industry, a coal industry, vehicle construction, ship-building and engineering. The off-shore oil and gas recovery continued to send billions of pounds to the Treasury. The full effect of the fall of the Communist regime in Moscow was not understood, and the speed at which China emerged as a consumerist trading partner and competitor was a bit unexpected. The new markets of South America did not exist 30 years ago. Terrorism, of the sort we now live with and have to protect against in the workplace and public areas, was unknown.

All of the above could not have been planned for. Some have proved springboards to new areas of employment and prosperity, back filling the spaces left, for example, by the effective loss of the steel industry. And on the same day as the voices of doom were hinting that Scotland dare not try to improve on what Westminster has done, Virgin opened direct flights from Aberdeen and Edinburgh, making exporting that bit easier for ambitious north-east firms. And why not? Thirty years ago the Wood Group was nowhere near the world leader it is today. Thirty years ago, references to renewable energy were few and far between at economic or employment conferences.

The Chief Economic Advisor to the Scottish Office wrote (in 1975) for a small group of senior ministers: “The advent of North Sea oil has completely overturned the traditional economic argument used against Scottish nationalism.” This admission wasn’t published till 2005.

Unionists are still peddling the same junk about oil, and they’re still predicting poverty and pestilence with independence . . . and they’re still wrong.