Answers in the North Sea

By Ewan Gibbs and Nathaniel Blondel

In terms we’ve come to expect from John Swinney, the Scottish Government has responded to the freefall in international oil prices by calling for another tax cut for big business. It has become matter of course to respond to economic crises by handing concessions and public money to big business, epitomised most spectacularly by the ongoing fallout from the 2008 financial crisis. This time it isn’t clear what we even stand to gain. Tax cuts haven't helped the oil industry so far - the loss of 65,000 jobs makes that clear enough.396279-cromarty-firth-oil-rig-graveyard-north-sea-oil-platforms-oilgeneric-invergordon-highland-quality-new.jpg

Swinney is operating on the assumption that fiscal policy, i.e. lowering taxation, is the “main lever for incentivising investment, exploration and production in the North Sea.” In an energy market environment shaped by international overproduction, where prices have gone from $100 to $30 in the space of a few months, it is very difficult to accept tax rates are a primary cause of the crisis in the North Sea. Fundamental long-term shifts associated with fracking and the return of Iran as an oil trading nation cannot be overcome by the UK government giving handouts to Exxon, BP or Chevron.  

Perhaps most worryingly, the case being made for tax cuts doesn’t appear to involve any notion of a deal or guarantees from the beneficiaries. Whilst far from the preferable outcome, if SNP policy was to negotiate tax breaks in return for guaranteeing a high level of employment, production and investment, that might at least have some logic to it.Instead this is essentially a blanket give-away, focused on increasing the rate of profit - not the jobs that are the cornerstone of the North East’s economy.

Our oil resources have been wasted over four decades of mismanagement. The great promise of oil as a way to reindustrialise Scotland, was dashed on the back of policies which supported extracting as quickly as possible, using equipment which was largely made elsewhere, and then the revenues were wasted on paying dole money to workers whose industries were sacrificed on the altar of high finance. The legacy of low paid and insecure work is still with us. Both governments in London and Edinburgh seem entirely uninterested in changing this. Last year Osborne lowered the supplementary tax on oil from 30% to 20%, and the Petroleum Revenue Tax from 50% to 35%. The jobs are still draining away, and the crisis has continued. It is time to face the fact that lowering corporate tax rates do not increase the demand for workers, or the security of jobs that already exist. Companies are not forced to reinvest profits in maintaining the workforce, and with so many jobs at stake, this policy falls down at the first hurdle. The SNP have made the occasional noise about a potential sovereign wealth fund, but their call for further tax cuts only works in the opposite direction.  

There are alternatives. Rather than leaving a key sector in the hands of companies with minimal investment in Scotland’s broader economic wellbeing, oil would be better placed in public hands. That way, long-term investment and planning could be managed with social and economic objectives in mind, rather than kneejerk responses to markets that rise and fall with commodity prices beyond our control. There’s also no escaping what is happening to our planet’s environment. The Scottish energy sector needs to be given a ‘soft landing’, by planned restructuring that connects the skills of oil workers with the need for a massively expanded renewable production, related infrastructure, and manufacturing. This would take a dramatic turn in economic priorities and the turn towards an active industrial policy and making use of public ownership of key sectors, investment and capital controls and procurement policies aimed at attaining successful sectors. 

John McDonnell’s proposals for a National Investment Bank and sectoral and regional development councils show Labour is the only major party in Scotland, and across the UK, open to the challenge of delivering an economic vision based on secure employment, democratic control, and environmental survival. We need to be bold.

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