03 Dec North Sea oil helps Scotland through UK crisis
As UK Chancellor George Osborne prepares the population for the drastic news that his deficit reduction targets will not be met, Scotland’s buoyant oil and gas sector is a welcome respite within the context of Britain’s economic decline.
In Wednesday’s autumn statement, Mr Osborne is expected to announce that given the UK’s shrinking private sector economy, the government will need to borrow money to meet public spending commitments. When the present government was elected it had promised to eradicate Britain’s deficit by 2015 – a promise which was subsequently revised to 2017.
UK government borrowing rocketed to £8.604bn in October, up from £5.937bn in October last year. The figure is far above economists’ average forecast of £6bn, raising further concerns over whether the UK is experiencing an economic crisis or a crisis of economics.
A Reuters’ poll of 19 analysts was also wide of the mark raising increasing fears over whether economists and analysts have a robust understanding of what has gone wrong with the economy in the lead up to the financial crisis in 2008 and since.
Mr Osborne is believed to be ready to announce a further revision of his debt eradication target to 2018, however with borrowing on the increase, commentators speculate that it is only a matter of time before the next revision.
The treasury issued briefings asserting that the revised debt figures will not impact negatively on markets as analysts have already factored in the revised debt to GDP forecast. With such indications that faith in the revised targets is diminishing, the concern is that the economy will shrink faster as investors grow increasingly cautious.
In terms of the UK’s receipts from corporation tax, companies whose operations are primarily in Scotland’s North Sea make up a significant portion of the total contribution, thus contributing heavily to helping cut the UK’s monthly deficits.
Set against the gloomy UK economic picture is a boom on Scotland’s North Sea oil and gas industry, which is stimulating demand across the nation’s engineering sector.
In a survey of its members, industry body Scottish Engineering reported an increase in orders in the latest quarter after a fall in the previous quarter. 60 percent of respondents who supply oil and gas firms report increased orders.
With many analysts predicting an economic contraction in Scotland this year, firms who are positioned to benefit from the surge in North Sea oil and gas activity represent some much needed stability in an otherwise depressed UK economy.
The Chancellor’s deficit reduction target appears to be in meltdown. Mr Osborne is expected today to announce a £10bn tax avoidance crackdown targeted at corporations and wealthy individuals – a strategy which will mitigate against any blame which might be directed at the government as an austerity-weary electorate faces up to more cuts.
Britain’s economy appears trapped as private sector credit contracts taking the economy with it. The latest report by the Ernst & Young Item Club which compares Scotland’s economy to Spain’s may or may not be that far off the mark, however those who see fiscal stimulus as the answer will note that Spain’s economic woes increased exponentially under the stimulus programme of the former PSOE government under Jose Zapatero.
Once economists and analysts realise that private and financial sector debt are the root cause of Britain’s economic crisis, it will become obvious that a debt cancellation or restructuring programme is crucial.
Years have passed since the 2008 financial crisis over which time it has been transformed into an economic crisis as the City has used its political muscle to pass its debts on to the population.
There is a false choice of stimulus versus austerity on offer from political parties. It is time that economists and politicians come to terms with the fact that the UK’s problem is one of solvency, not liquidity.
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