Worthwhile reading
Further to my post yesterday (have a read of some of the comments for a good discussion of the points I was trying to make) and as it forms a good part of my research at the moment, I thought I'd post a few links to Scottish Government documents which comprise their National Conversation.
I'm currently listening to the podcasts of National Conversation events around the country from the past year, and what is interesting to note is the balance of questions. At some of the events, questions regarding the constitution are in the minority, maybe as little as 10-15% of the questions. At others, questions are more finely balanced, 50-50 between independence/ constitutional change and other policy concerns. Nevertheless, the Cabinet members present at the events are happy to engage in the discussions - about whatever issue - and the public seem quite happy to be asking the questions. I guess people really do like to be consulted about things.
Anyway, National Conversation events aside, I've been looking at several Scottish Government documents as well. They are (in pdf format):
Obviously each of the documents provides the Scottish Government's position on their preferred constitutional option - independence - but they also discuss other options, such as enhanced devolution, fiscal autonomy and minor tweaking to the current arrangements.
Whether independence is your own preference or not, I'd suggest the documents are well worth a read, if only, in the case of some, as opposition research. I have to say, I'm not totally sold on some of the stuff myself, but one question I have been considering with regards the Oil Fund paper is that if so much can be made out of such a relatively small investment, why hasn't the UK Government set up such a fund? I reckon - assuming the working is all correct of course - that this is a cracking idea, particularly in light of the current economic position we find ourselves in.
Anyway, have a read - and let the Scottish Government know what you think. For their consultation is one which is keen to hear all views - whatever people think. Not like some we could mention...
12 comments:
"one question I have been considering with regards the Oil Fund paper is that if so much can be made out of such a relatively small investment, why hasn't the UK Government set up such a fund?"
Two questions for you.
1) Setting up such a fund requires cash to be set aside instead of being spent. Neither the UK, nor Scotland, has a surplus to provide this sum. So setting aside the sum would require spending elsewhere to be cut. What?
2) If such a set-aside is carried out, who should make the decision how to invest it? Having a "State Oil Fund" implies acceptance that the State is best placed to make that decision. An alternative, however, would be to pass it back to individuals and companies and allow THEM to decide how to invest it. Or spend it, if they wish.
I discussed this at some length at
http://nat-mythbusting.blogspot.com/2009/08/myth-and-moonshine-about-oil-funds.html
SM753,
Thanks for the comment, and indeed your link. And I'm glad that you tried, in some way at least, to answer my question as to why a fund has not been set up.
I guess I'm not the right person to ask which spending I'd like to see cut since my list of wasteful government spending could take a while to get through. However, my point was simply that we should look at this historically. CURRENTLY we have no surplus to be able to do this given the economic situation. There have been times in the last 30 years (ie - since the discovery of North Sea Oil) that we could have invested in such a fund, and did not.
Why? It seems a bit short-sighted. If we had, then we could continue to spend the return from it on all the items which you suggest would need cut now to fund it.
The first point of your second point I have no problem with, which is why I asked why the UK Government had not set up such a fund.
Malc..
If you mention oil like i did on my blog then sm753 like a shark sniffing blood will be round to correct you but he kens his figures are loopy.
The last 3 years have seen Scotland net a surplus vs public expenditure in Scotland.
Had an oil fund been set up when the stuff was first discovered then the dividend from a very modest 3% yield would be benefiting Scots today.
Add all the surplus years up since 73 till now then any negative return is negligible
In 2008 London took £12.9 billion from Scotland in oil and gas
revenues, this equates to every single Scot giving away £2300 a year plus add on the rest of the tax raised in Scotland then you will see we actually produce more revenue than we receive back.
The reason the oil fund was not set up was because the UK gov splashed the money mainly down south with little or no benefit to the people of Scotland.
I have not read.seen one person who actually believes the trip SM753 comes out with, his whole blog is one big unionist myth, thankfully i have a brain and im not sucked in by it..
On the National conversation, well wither people agree with it or not at least it is engaging with the Scottish people unlike the little known Calman Review.
Im also delighted to read that the SNP are also willing to lok at additional powers for the parliament and so on.
Should be interesting to read your links..
Ignore AMW as, like Mr Swinney, he is incapable of or unwilling to understand the difference between a "current" surplus and a true, bottom-line, net surplus.
Now as for the question "Why no oil fund set up in the 80s"?
This is actually dealt with, in part, in my second point.
The people making the relevant decisions back then were Geoffrey Howe and Nigel Lawson, and they had the view that the State was NOT good at making investment decisions. Put yourself back in the early 80s and you'd agree. So they preferred to give the money back to individuals and companies as tax cuts. (This is all in Lawson's "The View from No.11".)
But the budgets of the 1980s weren't just about tax cuts. There were net repayments of the National Debt as well. When you think about it, this is of course exactly equivalent to investing in a fund: repayment of debt = investment.
And as any IFA will tell you, if you've got a bit of spare cash one year it is almost always better to pay off your debts first before you start making investments.
(Oh, you MAY be able to find investments which pay a higher rate than you are paying on your debts. Pension contriutions and ISAs, for example, because of the tax breaks. But otherwise, it is often because you are taking on a higher risk, although this may not be apparent. Some nice, safe, property funds or bank shares, anyone?)
The point is that those net National Debt repayments were and are the functional and arithmetical equivalents of setting up an Oil Fund. Because they happened, the National Debt has been lower, the cost of paying interest on it has been lower and, as a side benefit, the interest rates that the rest of us have been paying have also been a bit lower.
So the matter is a bit more subtle than you might first think.
However, it's all irrelevant since neither the UK nor "independent" Scotland has or is going to have an ongoing surplus for a long time. And even if we get to the point of having one, the first order of business will be to pay down the inherited debt.
Just like paying off the mortgage before playing the stock market.
Thanks for the links Malc.
sm753 said...
Ignore AMW as, like Mr Swinney, he is incapable of or unwilling to understand the difference between a "current" surplus and a true, bottom-line, net surplus
.............
Why what a self correcting self indulgent triumphalism little squeak you are.
All you have done is post a non factual fabricated circumstantial load of tripe.
Mind the article is not a one issue subject on oil/economics, something you clearly have little or no understanding with.
Something i have noticed SM753, When Scottish Unionist is inactive you become very active ? Hmm 2 blogs to much to cope with ? :)
AMW / Spookums
Instead of throwing insults around, it would be more constructive if you would attempt to engage with the points:
- that Scotland, like the wider UK, is running a bottom-line deficit, since capex spending counts just as much as current spending;
- that the actions of the Conservative governments of the 1980s in making net debt repayments are the functional, logical and arithmetical equivalents of setting up an "oil fund".
I know why you won't deal with those points, because:
a) I'm right
b) you know it
c) you also know, with your freshly-minted degree in business'n'stuff, that there are no conceivable rational grounds for any disagreement with me.
Sorry about that.
The decision not to setup an oil fund was political and shortsighted.
Paying a debt with the proceeds of oil would only be valid if the UK thereafter was to be in balance or more importantly a constant surplus.
How many times was that the case since the oil came on stream?
The revenue generated from an oil fund could have offset debt repayments as well as being used for large scale capital projects, this would be over a longer timescale but by showing a wee bit of patience at the beginning would give greater revenue over a longer period.
Look at those countries around the world who have setup an oil fund.
These countries have a greater flexibility in dealing with financial crisis.
Tormond,
That was kind of my point. I wasn't too bothered about who or what government did it, but the question was really "if the benefits are so great, why the hell didn't SOMEONE do it?!"
Indeed Malc it was a political decision.
It side stepped the political landmines of how any funds would be used throughtout the UK.
As Scotlands is unfortunately not an independent country, we only have the info on Scotland within the union.
Progressive unionist parties did not address the fundamental problems of the Scottish economy.
So the bottom line on a surplus / deficit since Oil came on line, is a glaring example of the waste of oil and it proceeds.
Tormod
"The revenue generated from an oil fund could have offset debt repayments as well as being used for large scale capital projects,"
Er, arithmetically (so there is no room for argument) making a net debt repayment both reduces ongoing interest bills and frees up money for spending of any sort.
Setting up a fund only makes financial sense if you expect your investment returns to exceed the interest rate on your debt.
That is sometimes possible, but not always. Think "risk".
And then there are the ethical issues.
What is the state going to invest this fund in?
Domestic companies? How do you then justify investing in X but not its competitor Y?
Foreign government bonds? Oooo, currency risk. And again, why country X and not country Y.
Foreign companies? Again, currency risk, and again, why country and company X and not country and company Y.
It comes down to whether you think it's part of government's job to play (and, quite possibly, distort) the markets with taxpayers' money.
On the other hand, if you give the money back to the taxpayers, they can sort it out for themselves.
SM753 -
Aye you could use an oil fund to help pay off your debt, you could also use it as capital investment and infrastructure fund or all three the point is that it gives a country flexability to use those resources as needs and circumstances allow.
Your question about returns on an oil fund versus debt repayment are easily answered by looking at those soverign funds in operation and their returns, the norwegian fund was estimated to be worth €183bn at the end of 2006. Versus the UK which as we know is in the sticky stuff, the debt wasn't cleared in the 80's
You could pay of the debt and what then? Would you then be able to grow an economy at the level of a 8-10% surplus year on year? Surely a country should try and be in fiscal balance anyway. The point is that the UK didn't pay of it's national debt. it was lowered, but this lowering didn't release money to be used in public spending on infrastructure that Scotland badly needs.
There would be a risk on having an oil fund, but again going on the experiences of those funds in operation it would be a low one. The norwegians use an ethical fund criteria model, half the fund is invested in bonds and equities in Europe, the rest is invested in the US, Asia, NZ, Oz and South Africa.
Banks and countries including the UK courted those soverign funds during the recent crisis. Simply put they had the cash we didn't.
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