Government revenues from oil and gas are 95% higher in Norway than the UK.
Scotland has the majority of the UK’s oil fields, this means that government economic policy in this area disproportionately affects Scotland’s economy. For instance, the policy of reducing tax on oil companies has had a significant impact on Scotland’s national accounts, leading them to show a larger fiscal deficit than the rest of the UK. Since 2015, £1822m has been lost from PRT alone. However this loss of tax income has not been replaced by other sources. This support to large oil companies (whether necessary, advisable or otherwise) was managed through tax rebates which have effectively wiped out Scotland’s North Sea revenues. Around 60% of the cost of the PRT cut is deducted from Scotland’s accounts in GERS. In the case of oil and gas revenues, this means that Scotland effectively paid and is still paying for the UK’s policy of decommissioning. In other words, Scotland has no say in the decommissioning and the tax rebates out of which it receives little benefit. Most importantly, these UK government policies can turn GERS revenues negative. To make this clearer, when the UK Government lowers a revenue which is almost completely attributed to Scotland as a region of the UK, there is a major reduction in tax revenues assigned to GERS. On the other hand, if the UK Government had maintained tax levels but then offered grants from the treasury retrospectively for decommissioning and exploration, then only a population percentage (8.4%) of the costs of that grant support would have been deducted.
UK government policy has removed one of Scotland’s key revenue streams. The impact this has on GERS figures is that they show Scotland as part of the UK running a bigger deficit that the rest of the UK.
This report argues that it must now be a matter of urgency to consider if the tax rebates and reductions can be phased out given that it will reduce Scotland’s revenues whilst the oil companies make larger profits than before the oil price crash. Nonetheless, on the positive side, GERS also shows that despite this and the lower oil price, Scotland’s economy still have grown year on year, thus proving that Scotland’s economy is remarkably resilient and resistant to oil price fluctuations.