Independent Scotland would have oil fund within a decade, says Salmond

It details three overarching principles which underpin the proposed fiscal regime, stating that it must support and incentivise production and promote long-term stability and certainty.

Stability measures would include a commitment to formal consultation before future reforms and specific clarity on the fiscal treatment of decommissioning costs.

The Scottish Government would also ensure there are efficient fiscal incentives to maximise economic recovery rates.

The paper states: "Given the industry's importance to Scotland's economy, Scottish ministers will shortly be announcing the creation of an expert commission to develop the proposals outlined in this paper.

"The Oil and Gas Expert Commission will build upon the approach and overarching principles set out in this paper, and provide advice on the technical application of the policy framework, which would underpin Scottish Government policy in an independent Scotland."

First Minister Alex Salmond said: "Almost all oil production and more than half of total gas production over the next three decades will take place in Scottish waters. And of course, only through independence would Scotland receive the tax revenues from this production.

"This paper restates the Scottish Government commitment to establish an oil fund when the fiscal conditions allow. The decision by successive UK governments to spend all the oil revenues rather than investing them represents a lost opportunity for Scotland.

"Norway established its oil fund in 1990, although it did not start transferring money into the fund until 1996. The fund is now worth £450 billion, equivalent to £90,000 per person in Norway, and is the largest sovereign wealth fund in the world.

"With Westminster having squandered the opportunities of the first half, it's up to us to make a better job of the second half. We will provide optimum conditions for the oil and gas industry to innovate and thrive in a globally competitive environment."

Speaking on BBC Radio Scotland, Mr Salmond said he would pursue the introduction of an oil fund within the next five to 10 years.

"It's a very important policy and we intend to follow the Norwegian example of having a fund that accumulates which gives greater security to the economy," he said.

"Remember, if you extract North Sea oil and gas from the Scottish economy, our economy is still worth 99% of the UK economy per head. In that sense it is not the basis of the Scottish economy, it is a marvellous bonus."

Shale gas, which has cut gas prices in the US with knock-on effects for oil prices but is extracted using a controversial technique known as fracking, is also "potentially a very important industry", he said.

"We've also been having a look at its potential in Scotland and we will publish that in a separate paper."

Commenting on the paper, oil economist Professor Alex Kemp said: "The high-level principles outlined provide a clear framework for the expert commission to consider some of the more detailed policies and mechanisms in an independent Scotland.

"The Scottish Government's commitment to formal consultation with the industry in advance of any reforms will provide the reassurance and predictability that the sector requires."

The SNP MSP for Aberdeen South and North Kincardine, Maureen Watt, said: "We should be working with our industry, not against it, and the Scottish Government's commitment to do so stands in stark contrast to some of the recent disastrous tax changes introduced by the UK Government without any warning whatsoever.

"Oil would be a bonus, not the basis, of an independent Scotland. Even without a drop of oil, Scotland's economic output per head is broadly the same as the UK average. With North Sea output added, it is 118% of the UK figure.

"Let's not forget that Norway is far more 'reliant' on its oil taxation revenues than an independent Scotland would be, and no one is suggesting that they are too wee and too poor to be independent.

"Indeed, Norway only established its oil fund in the 1990s, when the fiscal circumstances allowed, and this has grown to become the largest sovereign wealth fund in the world."

Liberal Democrat leader Willie Rennie challenged Mr Salmond's claim that the remaining value of oil would be worth "£300,000 to every man, woman and child in Scotland".

Mr Salmond is "conveniently ignoring the most basic economic truths that corporate profits and government tax revenue are two very different things", he said.

"Alex Salmond should withdraw this disingenuous claim and explain the facts of why he believes Scotland would be better managing a volatile, declining and finite resource without the strength of the broad UK tax base behind it.

"When predicting oil revenues it's sensible to be cautious because it is such an unpredictable resource.

"But the Nationalists need to be reckless to make their sums add up. There is already a £23.9 billion black hole between the Nationalists' most optimistic figures and the Office for Budget Responsibility's more cautious estimate. That represents over two-thirds of the current Scottish Government budget.

"If the Nationalists don't want to use oil tax, which would represent a sixth of Scotland's tax take, to pay for public services they'd either have to cut services or increase taxes. That is the basic reality of their claims.

Mr Rennie added: "Home rule in a federal UK would give Scotland the best of both worlds with long-term certainty in decommissioning relief which is already helping to increase investment. And with more stable taxes transferred on a permanent basis to Scotland, that would allow us to determine our own future on the domestic agenda."

The Glasgow University-based Centre for Public Policy for the Regions (CPPR) has challenged the suggestion that oil would be a "bonus" for Scotland.

Much of North Sea activity is owned by international companies while onshore tax-revenues "would not be sufficient to match the current Scottish government spending" which is "well above the UK average", according to CPPR.

It said: "As a result, the Scottish Government would need to rely on most, or all, of the tax revenues from the North Sea simply to attain the current, implicit, level of annual fiscal deficit.

"This would mean that no such revenues would be available to build up a Sovereign (Oil) Fund, or at least not without tax increases or budget cuts."

It also challenges suggestions that UK Government agencies habitually underestimate oil projections.

While the CPPR acknowledges that UK forecasters "have repeatedly underestimated the long term life of the North Sea", it says this is not the case for medium term forcasts which have been "overly optimistic".

It states: "Comments by the First Minister that UK government departments, and implicitly the independent OBR (Office for Budget Responsibility) forecasts were a 'fib' seem odd when juxtaposed with this evidence of repeated over-prediction of production by DECC and OBR in recent years."

Moreover, the CCPR said today's paper provides no clarity on the pledge to establish an oil fund "when fiscal conditions allow".

"At present all such oil revenues would be needed to help pay for existing public service levels, while still running a considerable annual fiscal deficit, with none left over for such a fund."

Scottish Conservative finance spokesman Gavin Brown called the paper '"rushed, weak, banal, recycled and repetitive".

"The paper ignores the key question facing Scotland's finances - what is the projected tax take from North Sea oil and gas in the medium to long term?," he said.

"Last week we heard from the independent OBR that there could be black hole of up to £24 billion with the SNP's most optimistic forecasts.

"The Scottish Government has failed to answer this question and has not produced any updated figures in this document.

"The report spends several pages bewailing the UK Government's fiscal regime, then shortly after declares there will be a presumption in favour of continuing existing aspects of North Sea fiscal regimes.

"There is very little new in this, although it has acknowledged for the first time that oil and gas is not renewable and there will come a point where it will run out.

"And it is astonishing, given the importance of oil to Scotland's economy, that only now is the SNP talking about setting up an expert commission."

A UK Government spokesman said: "Everyone agrees oil is a valuable resource. That's why the UK Government has delivered a series of tax reliefs aimed at maximising investment in the North Sea. It's also why Sir Ian Wood is leading a review on how we maximise the economic benefits of oil and gas production.

"However, independent OBR forecasts show North Sea oil is also a volatile and declining resource. Basing Scotland's long-term economic future on over-optimistic projections is irresponsible.

"Even on the Scottish Government's preferred share of oil revenues, public spending in Scotland is £8 billion higher than the taxes raised. With oil representing 20% of those revenues, the Scottish economy would be hugely vulnerable to volatility.

"Together within the UK, we have the broad shoulders to spread the risks and maximise the benefits."