George Osborne, "the submarine"—with one of his absolute worst moves as chancellor
By M.J. and J.B.
THE defeat of nationalism in Scotland can be put down to any number of interventions. Gordon Brown, who delivered some storming speeches late in the campaign, will be celebrated as the union's saviour. Few are likely to credit the politician sometimes known as “the submarine” for his habit of surfacing on important set-piece occasions, then disappearing again: George Osborne, the Conservative chancellor of the exchequer. Yet Mr Osborne greatly helped the unionist cause—without meaning to.
In March 2011 Mr Osborne delivered a budget that contained a surprise: a sudden, sharp increase in taxes on North Sea oil and gas production. Rates for old fields went up from 75% to 81%, and for newer fields from 50% to 62%, in part to fund a 1p per litre cut in fuel duty.
This increase, which was pitched as a “windfall” tax (because oil prices were so high) knocked an industry already smarting from tax increases imposed by the previous, Labour, government, and struggling with the rising expense of sucking hydrocarbons from the North Sea’s ageing fields. The number of exploration wells drilled dropped by half in 2011. Oil and gas production slumped by nearly 18%—far faster than the 5-10% annual declines that have been the average since North Sea production peaked in 1999. Production declined almost as steeply the following year.
Maintenance and unplanned outages contributed to this steep drop in production. But the oil industry also blamed the tax grab. One oil-industry executive compared Britain unfavourably with a Latin American dictatorship as a place to do business. Earlier this year the Energy Information Authority, an American government research body, said the tax increases had made the North Sea “even less” competitive, given that operating costs are already “prohibitively high”.
But Mr Osborne’s move—one of his absolute worst as chancellor—subsequently turned into a headache for his Scottish nationalist adversaries. The steep drop in production allowed unionists to argue that the Scottish government was greatly overestimating the North Sea’s bounty. Oil revenues were very healthy in 2011-12, though not as good as they had been three years earlier. But the following year they crashed, from £11.3 billion to £6.6 billion. Scotland’s share of that revenue, allocating the oil geographically, was just £5.6 billion, according to the Scottish government.
That calculation, which was released in March this year, had a particularly nasty effect on the nationalists’ sums. For the first time in several years, the Scottish government estimated that the country would have run a slightly larger deficit than the UK as a whole in 2012-13—5.9% of GDP against 5.8%. Unionists piled in, insisting that the nationalists’ tales of a superlatively wealthy independent Scotland were a fantasy.
Some of that probably stuck with Scottish voters, though the “Yes” campaign subsequently did its best to convince them that an independent Scotland would overflow with milk and honey. It is striking that the final YouGov poll of Scots, released on September 18th, shows that people who believe they would be wealthier in an independent Scotland were outnumbered two-to-one by people who think they would be worse off.
So Mr Osborne played his part in saving the union (though he nearly undid it later with a “bedroom tax” intended to push tenants out of large council houses, hugely unpopular in Scotland). Yet the furore surrounding the tax grab may yet lead to an uptick in production. In the years since the 2011 tax raid, negotiations between government and industry have resulted in a smattering of tax breaks for companies that take on the costliest fields. They are one reason investment in the North Sea soared to a record £14.4 billion in 2013—a cash injection that ought to halt the industry's decline, for a few years at least. If that happens, and the hypothetical finances of an independent Scotland come to seem more solid, the sound of nationalist teeth-grinding will be audible from Aberdeen to London.
